Viewing as

Teaching this? The teacher view adds 2 files, the mark schemes and the model answers.

Business · Making the business effective

Business plans

A business plan brings together everything an entrepreneur has worked out - the idea, the aims, the market, the finances, the location and the marketing mix. Writing one reduces risk, and it is what banks and investors ask to see before lending.

5 key terms
All boards

Download the full pack · 3 files

Last Lesson

Answer from memory before the answers appear.

Name the four Ps.
Product, price, promotion and place.
What is an integrated marketing mix?
One where the four Ps fit together for the target market.
Give one way technology has changed promotion.
Social media, email or websites - cheap and targeted.
How might a business change its mix if a competitor opens nearby?
Make the product different, keep prices competitive, promote what is different, or be easier to buy from.

Learning Objectives

1Explain what a business plan is.
2Explain the main sections of a business plan.
3Explain how a business plan helps to minimise risk.
4Explain how a business plan helps an entrepreneur to obtain finance.

What Is a Business Plan?

A business plan is a written document that sets out what a new business will do and how it will do it.

When it is written
Before the business starts, or before a big change such as opening a second site.
Who it is for
The entrepreneur, and anyone they want money from - a bank, an investor or a crowdfunding audience.
What it contains
Everything covered in this topic: the idea, the aims, the market research, the finances, the location and the marketing mix.
Why it matters
It turns an idea into a plan that can be checked, questioned and followed.

Thinking It Through

Writing a business plan takes time, but it forces the entrepreneur to answer hard questions before spending any money. Who will buy this? How much will it cost? When will it make a profit? Where will the money come from?

An entrepreneur at a kitchen table working on a laptop surrounded by notes and printed spreadsheets.

The Main Sections of a Business Plan

The business idea
What the business will sell, and what makes it different from competitors.
Aims and objectives
What the business wants to achieve, and the targets it will measure itself against.
Target market
Who the customers are, backed up by market research.
Forecast revenue, costs and profit
How much the business expects to sell, spend and earn, and its break-even point.
Cash-flow forecast
The cash expected to come in and go out, month by month.
Sources of finance
How much money is needed, and where it will come from.
Location
Where the business will be based, and why.
Marketing mix
The product, price, promotion and place.

Building a Business Plan

Each section builds on the one before it.

1 The idea
Describe the product and what makes it different.
2 The market
Use market research to show who will buy it and how many.
3 The finances
Forecast revenue, costs, profit, break-even and cash flow.
4 The money
Show how much is needed and where it will come from.
5 The operation
Set out the location and the marketing mix.

Minimising Risk

Planning cannot remove risk, but it can reduce it.

Thinking it through
Writing each section forces the entrepreneur to check every part of the idea before spending money.
Spotting problems early
A cash-flow forecast might show a shortage in month three, so an overdraft can be arranged in advance.
Testing the idea
If the forecasts show the business will never break even, the entrepreneur can change the idea - or drop it - before losing money.
Setting targets
The plan gives targets to measure progress against, so problems are noticed quickly once the business is running.

Obtaining Finance

Banks and investors rarely hand over money without a business plan.

Evidence
The plan shows lenders that the entrepreneur has researched the market and understands the finances.
Repayment
The cash-flow forecast shows a bank how and when a loan could be repaid.
Confidence
A clear, realistic plan convinces investors the business is worth backing.
Required
Many lenders, including government-backed start-up loan schemes, ask for a business plan and cash-flow forecast before they lend.

Showing the Plan

What a lender looks for

Research Real evidence that customers want the product.
Realistic numbers Forecasts that are believable, not wishful.
Repayment A cash-flow forecast that shows the loan can be repaid.

An adviser reading a printed business plan with a young entrepreneur at a meeting table.

Business Plans: For and Against

Benefits

Makes the entrepreneur think through every part of the idea.
Reduces the risk of failure by spotting problems early.
Needed to obtain finance from banks and investors.
Sets targets to measure progress against.

Limitations

Forecasts are only estimates and may be wrong.
Entrepreneurs can be too optimistic about sales.
Takes time to research and write.
Can quickly go out of date as the market changes.
A good plan does not guarantee success.

Case study

Start Up Loans: No Plan, No Loan

The UK government's Start Up Loans scheme, set up in 2012, lends people between £500 and £25,000 to start a business, at a fixed interest rate. Before anyone receives a loan, they must write a business plan and a cash-flow forecast, and the scheme gives them free guidance and a business mentor to help. The plan is how the lender judges whether the business can succeed and repay the money - and writing it helps the new owner spot problems before they spend a penny.

2012 Start Up Loans scheme launched

£500-£25,000 The amount a new business can borrow

Plan It

Write a one-page business plan for a small business idea of your own - for example a car-washing service, a cake business or a phone repair stall. Include a short sentence or two for each of the eight sections, and one number for each forecast.

1. The idea and what makes it different.

2. Aims and objectives.

3. Target market and research.

4. Revenue, costs, profit and break-even.

5. Cash flow and sources of finance.

6. Location and marketing mix.

A good answer shows: A plan covering all eight sections, with realistic figures for price, costs, break-even and start-up finance, and a target market backed by at least one piece of research.

Can I...?

1Explain what a business plan is.
2List the main sections of a business plan.
3Explain how a business plan minimises risk.
4Explain how a business plan helps obtain finance.
5Explain the limitations of a business plan.

Summary & Exam Focus

A business plan sets out the idea, aims, target market, finances, location and marketing mix.
It reduces risk by making the entrepreneur think everything through and spot problems early.
It is usually needed to obtain finance from banks and investors.
But forecasts may be wrong, and a plan does not guarantee success.

Exam focus

Explain one reason why a bank might ask to see a business plan before lending to a new business. (3 marks) (3 marks)

Link the plan to the lender's worry: will the loan be repaid? The cash-flow forecast and financial forecasts show whether it can be.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Business plan: A written document setting out what a new business will do and how it will do it.
Forecast: A prediction of future figures, such as sales, costs or cash flow.
Risk: The chance that something will go wrong, such as the business failing.
Finance: The money needed to start, run or grow a business.
Investor: A person or business that puts money into a business in return for a share of it.

Downloads

Free to keep, print and annotate.

Download all 3 as a zip

Something here looks wrong?

Tell us what and we will go and look. It goes to whoever writes these pages, nobody else, and we do not ask who you are — so there is nothing to sign and nothing comes back to you.