business plan meaning and importance

What Is A Business Plan? – Meaning & Components

One question which many entrepreneurs don’t get right is ‘ what is a business plan?’ . While it is fairly easy to answer it theoretically, a business plan is a lot more than just a write-up that tells about the business’s goals when you get into the practical aspect of running a startup . It isn’t just stating your goals and the means to achieve them but stating how your business is going to work as a whole.

A business plan is an important aspect of the startup process and should be crafted carefully before preparing your pitch deck and putting yourself in front of the investors.

What Is A Business Plan?

A business plan is a written document that outlines the goals of the business and a roadmap of how to achieve them. It is the written description of your business’s future.

While many first-time entrepreneurs consider a business plan to be similar to what a preamble is to a constitution, but there’s a big difference. A business plan isn’t just an introduction to what the business is about. It is a written document explaining what the business will be after a certain period of time.

Simply stated, a business plan is a guide that conveys your business goals (both long-term and short-term), the business strategies you’ll use to achieve them, the problems and competition that you’ll face and the ways to solve and overcome them, the people you’ll involve in your business, the organisational structure, the marketing and the positioning strategies, and the amount of funds you’ll require for the same.

Importance of A Business Plan

You need a business plan if you run a business. There are no exceptions to the type or age of the business and unlike what many people say, business plans are not limited to startups. Even if you’re running a 20-year-old business, it’s not late to write a business plan and dedicate your resources to your ultimate business goal.

That being said, a business plan is almost a necessity for startups as it helps entrepreneurs break the uncertainty into meaningful pieces and projections. It helps them to present their vision in a language investors and the world understand – which includes sales forecasts, marketing strategies , competitive strategies , milestones, expense budget, partners and employees, and the short-term and long-term goals.

The business plan is an important guide that forces you into disciplined thinking. It gives you a direction to move to and explains to the world what you are here for. Here are the four reasons why a business plan is important for your startup:

Direction & Future Vision

A business plan defines what the business intends to be over time. It includes a detailed description of the customer, the market, and the competition, and gives direction to all the current and future strategies and steps.

Almost all prospective investors and banks require entrepreneurs to prepare a business plan for their startups . The stats, facts, and figures in the business plan make it easy for them to decide whether the team and their business have the potential to earn a profit in the long run or not.

With a vision set for the future, it becomes easy to manage ideas and people to achieve what’s desired.

Partnerships & Alliances

A business plan helps in the smooth execution of the planned business model as it helps to get in the desired partners by explaining their clear roles and the future vision to them.

Components Of A Business Plan

The business plan should be clear and concise. A person outside of your industry should be able to understand it. It should contain all the key information about your startup from what your product is about to how much money you require to build it. Here are the 11 key elements that should be included in every business plan:

• Executive Summary – This is a brief overview of the entire business plan. This section of the business plan decides whether the stakeholders or investors will continue reading the plan or not. It includes a brief overview of the business idea, the offering, business goals, target market , competition, USP , the team and the financial outlook for the business.
• Company Description & Synopsis – This section of the business plan explains the company’s mission, philosophy, goals, industry, legal structure, and USP briefly but is more elaborate than the executive summary. The details are followed by the problem the company is solving for the customers and the solution which makes it stand out of the competition.
• Market Overview – This section explains the current market scenario of the industry – the size of the market, market trends, success stories, what is working and what isn’t, and what is being favoured and expected by the customers in the market. This section gives the readers a reason to believe why the company chose the market stated. Usually, everything in this section is supplemented with a bundle of facts, stats, and figures to prove that the entrepreneurs have done their research before choosing this as an apt market for their offering.
• Customer Analysis – The customer analysis sections include the persona of the (prospective) customer , which includes his/her demographics, geographics, psychographics, needs, wants, desires, buying habits, etc.
• Product/Service Overview – This is a section dedicated to the offering the company is (or will be) providing to the customers. It answers all the what, why, where, and when questions related to the product and reiterates the previous stance of why it is the perfect solution for the problem stated.
• Business Model – The business model is the conceptual structure that explains how the company works or will work. This section will answer the question of how it will provide the offering in the market and why is the offering viable. If the company were Uber , this section would include how it would partner with cab drivers and how would its business structure be viable for both the taxi drivers and its customers.
• Revenue Model – The revenue model explains how the company is planning to earn money using the business structure explained in the business model section. It explains the intricacies of the expenses and revenue sources of the company.
• Competitive Analysis – This section is dedicated to explaining who are the competitors, what are their USPs, and what are the strategies used by the business to tackle them.
• Marketing Plan – The marketing plan acts as an inference of all the details explained earlier. This section provides the details on how the company plans to use the information mentioned above in formulating and executing their marketing strategies. The marketing plan is an important section of the business plan as it explains how the company is planning to reach out to the customers and stand out of the competitors. That being said, the marketing plan isn’t limited to the promotion of the offering. It includes a holistic strategy to market the offering right from production to post-sales.
• Management Team – This section gives the information of all the members on board, their qualifications, experience, and their posts in the company.
• Funding & Financials – Funding and financials form the conclusion, but it is the most important section of the business plan for startups as it states the cost of the execution of the business plan. It includes all the short-term and long-term financial requirements and funding goals and how the investors can help the company achieve them.

The Startup Process

We know how important your dream business is to you. Therefore, we’ve come up with an all in one guide:  The Startup Process  to help you turn your vision into reality.

A startup consultant, digital marketer, traveller, and philomath. Aashish has worked with over 20 startups and successfully helped them ideate, raise money, and succeed. When not working, he can be found hiking, camping, and stargazing.

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Business plan: meaning, contents and significance of business plan.

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Business Plan: Meaning, Contents and Significance of Business Plan!

In simple words, business plan is a written statement of what an entrepreneur proposes to take up. It is a kind of guide frost or course of action what the entrepreneur hopes to achieve in his business and how is he going to achieve it. In other words, business plan serves like a kind of big road map to reach the destination determined by the entrepreneur. Webster New 20th Century Dictionary defines a project as a scheme, design, a proposal of something intended or devised. Let some important definitions of business plan be presented.

Mar J. Dollinger has defined the business plan as “the formal written expression of the entrepreneurial vision, describing the strategy and operations of the proposed venture.” According to Jack M. Kaplan, “The term business plan means the development of a written document that spells out like a roadmap where you are, where you want to be, and how you want to get there.”Thus, a business plan or project report can best be defined as a well evolved course of action devised to achieve the specified objective, i.e. setting up a small business enterprise within a specified period of time. So to say, business plan is initially an operating document.

The business plan is termed by different names by its different intended interest audience. For example, when presented to a bank, it may be called ‘loan proposal.’ a venture capital group might call it the ‘venture plan’ or ‘investment prospects’ and a common man may term it ‘project report.’ Let it be called by any name, its basic purpose is the same, i.e. to serve as a road-map in setting up a business enterprise.

Contents of Business Plan :

Having gone through the significance of business plan, it is now clear that there is no substitute for a well-prepared business plan or project report and also there are no shortcuts to preparing it. The more concrete and complete the business plan, the more likely it is to earn the respect of outsiders and their support in making and running an enterprise. Therefore, the business plan needs to be prepared with great care and consideration.

A good project report or business plan should contain the following contents:

1. General Information:

Information on product profile and product details.

2. Promoter:

His/her name, educational qualification, work experience, project related experience.

3. Location:

Exact location of the project, lease or freehold, locational advantages.

4. Land and Building:

Land area, construction area, type of construction, cost of construction, detailed plan and estimate along with plant layout.

5. Plant and Machinery:

Details of machinery required, capacity, suppliers, cost, various alternatives available, cost of miscellaneous assets.

6. Production Process:

Description of production process, process chart, technical knowhow, technology alternatives available, production programme.

7. Utilities:

Water, power, steam, compressed air requirements, cost estimates, sources of utilities.

8. Transport and Communication:

Mode, possibility of getting, costs.

9. Raw Material:

List of raw material required by quality and quantity, sources of procurement, cost of raw material, tie-up arrangements, if any, for procurement of raw material, alternative raw material, if any.

10. Manpower:

Manpower requirement by skilled and semi-skilled, sources of manpower supply, cost of procurement, requirement for training and its cost.

11. Products:

Product mix, estimated sales, distribution channels, competitions and their capacities, product standard, input-output ratio, product substitute.

12. Market:

End-users of product, distribution of market as local, national, international, trade practices, sales promotion devices, and proposed market research.

13. Requirement of Working Capital:

Working capital required, sources of working capital need for collateral security, nature and extent of credit facilities offered and available.

14. Requirement of Funds:

Break-up of project cost in terms of costs of land, building, machinery, miscellaneous assets, preliminary expenses, contingencies and margin money for working capital, arrangements for meeting the cost of setting up of the project.

15. Cost of Production and Profitability of first ten years.

16. Break-Even Analysis

17. Schedule of Implementation

Significance of Business Plan :

Arguments are made for and against writing a business plan. The argument advanced against writing business plan is that it involves costs especially when some outside consultant or accountant or lawyer is hired to write the business plan. One of the reasons for not writing business plan is the fear of prematurely closing off the new venture.

The major argument made in favour of writing business plan is reducing anxieties and tensions in running business enterprise. Writing business plan is especially useful for the entrepreneurs who require financial help from the outside sources like banks and financial institutions.

The reason is that the outside sources advance funds to entrepreneurs based on the soundness of their enterprises as reflected in business plans. In nutshell, writing a business plan is not without its costs and sacrifices, nonetheless the benefits of it outweigh its costs.

An objective without a plan is just a dream. Until committed to papers intentions are seeds without soil, sails without winds or mere wishes which do not lead to execution and without execution there is no payoff. The preparation of a business plan or project report is of great significance for an entrepreneur.

The business plan serves the two essential functions: First and most important the business plan is like a road map. It describes the direction the enterprise is going in, what its goals are, where it wants to be, and how it is going to get there. It also enables an entrepreneur to know that he is proceeding in the right direction. Some hold the view that without well spelled out goals and operational methods/tactics, most businesses flounder on the rocks of hard times.

The second function of the business plan is to attract lenders and investors. Although, it is not mandatory for the small enterprises to prepare business plans, yet it is useful and beneficial for them to prepare the project reports for various reasons. The preparation of business plan is beneficial for those small enterprises which apply for financial assistance from the financial institutions and the commercial banks. It is on the basis of business plan or project report that the financial institutions make appraisal if the enterprise requires financial assistance or not.

If yes, how much. Similarly, other organisations which provide various assistances such as work shed, raw material, seed/margin money, etc. are also equally interested in knowing the economic soundness of the proposal. In most cases, the quality of the firm’s business plan weighs heavily in the decision to lend or invest funds.

Research evidence reveals that many firms, of course, start without business plans. Speaking alternatively, their implementation stage starts with no plan, i.e. guide-map. But, most of these firms realize eventually in the hard rocks, of business environment that they need to recreate their beginnings and write their business plans at some point down the road.

The fact of the matter is that in todays highly uncertain and competitive business environment, only the most reluctant entrepreneur with the simplest business concept avoids writing a business plan (Carter, Gartner and Reynolds 1995). The very significance of business plan can be expressed as “if an entrepreneur fails to write business plan, he plans to fail in his/her business.”

Related Articles:

• 8 Stages involved in the Formulation of a Good Business Plan
• Writing a Business Plans: 7 Steps Involved in Writing a Business Plan

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Corporate sustainability – meaning, examples, and importance.

This article was originally published by the Network for Business Sustainability . It was written by Tima Bansal and Devika Agarwal.

Most people still find the concept of corporate sustainability unclear. We explain what it means and why it’s important.

In the last two years, there has been a tidal wave of companies committing to “sustainability.” They might set net zero carbon goals , diversify their workforce, or move into new, cleaner lines of business. And, this is just the front edge of the wave. The interest in sustainability is likely to grow even more over the next decade, as businesses feel pressure from social movements and environmental challenges.

But corporate sustainability is still confusing to many people. People often ask me: “So, what do you mean by sustainability?” I’m a researcher who has studied this topic for over 20 years and I work closely with companies. Here, I describe what corporate (or business) sustainability means, why it matters, and how to make it part of your business.

What are the principles of sustainability?

Corporate sustainability comes from the concept of “sustainable development.” The World Commission on Environment and Development, a United Nations initiative, defined that concept in 1987. Sustainable development means actions that “meet the needs of present generations without compromising the needs of future generations.”

To contribute to sustainable development, businesses should create wealth to reduce poverty, but do so without harming the natural environment. In this way, businesses help our world today and ensure that future generations can also thrive.

In practice, this means that business must consider three key things in their operations:

Human rights and social justice . Sustainability requires businesses to recognize their impact on the people they employ and the communities around them. This recognition means committing to fair wages, just and ethical treatment, and a clean and safe environment.

For example: The clothing retail industry racked up billions in unpaid bills during COVID-19 because of plummeting prices and unsold garments, leaving millions of garment workers in desperate conditions. Yet, some brands continued to pay suppliers, even though their own incomes had declined steeply.

Natural resource extraction and waste. Businesses often rely on natural resources such as land, water and energy. While many natural resources can renew or “regenerate,” this takes time. Businesses need to respect these cycles, by using natural resources at the speed at which they regenerate.

For example: Companies can reduce their resource extraction by using recycled or repurposed products and make their operations more efficient by reducing waste. In doing so, they contribute to the ‘circular economy.’ Gains can be quick: A vegetable processing plant saved $300,000 by simply capturing beans falling off a processing line.

Short- and long-term thinking . Businesses face intense pressure for immediate profits, but sustainability requires investing in technologies and people for the future, even though financial benefits show up much later. Companies are used to longer-term thinking for capital investments, but a sustainability orientation applies this logic to investments in people and society.

For example: Some fossil fuel companies have reimagined themselves as energy companies, even though major investments in renewable energies are less profitable in the short run than their oil, gas or coal operations. They recognize that climate change requires them to build new capabilities and sources of energy.

How does corporate sustainability differ from corporate social responsibility?

Many terms exist to describe companies’ social and environmental initiatives. Corporate social responsibility (CSR) is the most common; others include environmental, social, and governance (ESG), shared value , the triple bottom line , and managing environmental impacts.

I see ‘sustainability’ as the most complete and powerful of these related concepts. That’s because sustainability asks managers to take a “ systems view .” A systems outlook recognizes that companies are part of a larger social and environmental system, that systems change, and that today’s actions must consider the future.

CSR emphasizes a company’s ethical responsibilities. However, what is ethical for one person or company may not be seen ethical by another. For example, some people see a minimum wage as being responsible, whereas others see a higher “living wage” as the ethical choice. Corporate sustainability emphasizes science-based principles for corporate action. A corporate sustainability lens would set a wage in which people could meet their basic needs, which will vary from place to place.  

Additionally, CSR generally does not speak to fairness across generations; it focuses more on the present.

But don’t get too lost in the definitions. Ultimately, all of these terms ask businesses to think about the broader world in which they operate, and not just on short-term self-interest.

Why is corporate sustainability important?

Business is a powerful actor in society, with some businesses being larger than some governments. For example, Amazon’s revenues in 2019 were $US281bn: larger than Pakistan’s GDP.[1] Businesses now have so much power that executives can choose to create a better life for all or just a few.

Society is also pushing companies to invest in sustainability. Many governments, citizens, and other stakeholders want to see companies showing concern for their communities. Failing to do so can mean losing the social license to operate , which is society’s trust in a company.

Additionally, companies can benefit in the long term from being green and good. Evidence shows that financial benefits come in many forms. For example:

Reducing waste, e.g. through energy efficiency investments , often produces savings.

Investors increasingly look for companies that have higher “ESG” (environmental, social and governance) ratings, as a way of managing risks.

Creative and committed individuals seek out employers committed to sustainability and are even willing to take a lower salary if such a commitment is sincere.

But, let’s be honest. Sustainability is not just about making money. It is also a vision of what executives running powerful businesses want to see in the world they create. They imagine a world in which everyone can flourish, living on a planet that is resilient and rich with biodiversity. They don’t want to inhabit a world in which only a few live well, whereas others live with disease and waste.

How do you build a corporate sustainability strategy?

Ultimately, no single company can create sustainable development: it must be a collective effort. That’s because many sustainability issues, such as climate change and poverty, are so huge that they require action by many citizens and organizations. And for any single company to create zero emissions, it needs suppliers to innovate cleaner products and regulators and customers willing to support their efforts. Sustainability requires new forms of collaboration and new thinking about the economy.

Corporate sustainability may not be simple, but it is necessary. Those companies that embrace the full complexity of sustainability ideas sooner than later will contribute to a better world and experience higher long-term profits. Why wouldn’t we all want to work towards that vision?

About the Series

The Network for Business Sustainability  “Basics” series provides essential knowledge about core business sustainability topics for business leaders thinking ahead. “The Basics” provides essential knowledge about core business sustainability topics. The Network for Business Sustainability builds these articles for business leaders thinking ahead.

About the Authors

Dr. Tima Bansal is the Founder of the Network for Business Sustainability ( www.nbs.net ), a growing network of over 35,000 followers from management research and practice committed to advancing sustainable business. She is also a Professor of Strategy and Sustainability at the Ivey Business School (Canada).

Devika Agarwal is an MBA/MS student at the University of Michigan Erb Institute for Global Sustainable Enterprise. Devika hails from strategic sourcing in the retail industry and now works to influence sustainability and innovation in the Global Supply Chain.

[1] Based on corporate revenues ranked against national GDP. Amazon’s total would rank it 41st in the list of world economies based on GDP, just above Pakistan.

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The Importance of TAM, SAM, and SOM in Your Business Plan

Posted february 27, 2020 by caroline cummings.

This article was originally published on Bplans.

Having viewed several business plans over the years, a common (and very important) item missing from most plans is a breakdown of the company’s TAM, SAM, and SOM in the marketing section of their plan.

Wondering what these acronyms mean? Well, you’re not alone—many entrepreneurs are not familiar with these terms.

What is TAM?

TAM = Total Addressable/Available Market is the total market for your product. This is everyone in the world who could buy your product, regardless of the competition in the market.

What is SAM?

SAM = Serviceable Available Market is the portion of the market that you can acquire. For example, your product may only be available in one language, so your SAM would be the subset of the TAM that speaks the language that your product is developed for.

What is SOM?

SOM = Service Obtainable Market is the subset of your SAM that you will realistically get to use your product. This is effectively your target market that you will initially try to sell to.

How do you identify TAM, SAM, and SOM?

Identifying your TAM, SAM, and SOM requires some market research (levels of research vary depending on your product and market potential), but once you gather the research through your market analysis , you’ll have a better idea of the percentages that coincide with each area.

Why is identifying your SOM important?

Identifying your SOM, or your target marke t, is an important step because building a marketing plan around your TAM—in other words, everyone—is a huge waste of resources. Figuring out who exactly you think will actually buy your product will help focus your reach.

Hear more about market research and your target market with Peter and Jonathan on the twelfth episode of The Bcast, Bplans official podcast:

Click here to subscribe to The Bcast on iTunes »

What’s an example of TAM, SAM, SOM?

You’re starting a concierge service in your city that focuses on doing tasks/running errands for busy people.

Your TAM (total available market) would be all people who may have a need for help doing tasks and running errands in your town. If your town has 150,000 people, you may find (through market research) that the total possible demand for your business in your city is 33 percent (or 50,000 people). You might arrive at this number by excluding people who are under 18 years old and other groups of people who can’t purchase your services.

Your SAM (serviceable available market) would be the portion of that 50,000 whom your current business model is targeting (this will be outlined in your business plan). For example, your business model focused on serving people who are ages 35 to 55, with small children and disposable income. You may then discover that there are 20,000 of these people, which means your SAM is 40 percent of your TAM.

Your SOM (serviceable obtainable market) would be the portion of your SAM that your business model can currently realistically serve. For example, you may only have three employees (yourself and two others) and can only serve people who live within a 2-mile radius of downtown, so realistically what percentage of your SAM (20,000 people) can you reach in the first 2 to 3 years?

Let’s assume your company can effectively provide concierge services to 100 people a month or 1,200 people a year. This means your SOM is about 6 percent of your SAM.

If you’re seeking funding, savvy investors will ask you for these items in your business plan, and they’ll want you to be able to back up your numbers. This is why conducting some market research upfront is important—and even advisable before you begin writing your business plan . It gives you the validation of your market potential.

Hopefully, this clears up a bit of the market reach acronym soup!

Editor’s note: This article was originally published in 2012. It was updated in 2020.

Caroline Cummings

Posted in business plan writing.