The Importance Of A Business Plan Commerce Essay

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This document takes form of a report to advise current small business owners and or potential small business owners on the importance of a business plan. The report will consist of the different skills and actions required to assist, plan or support a business.

Preparing a business plan comes second on importance only after market researching when one is planning to start a business or already running a new business. It requires thought, realism and time spent on it as to make it compatible to the business. The obvious advantages are it will help pull together ideas, set targets and plan for the future of your business. Apart from this a business plan is an essential tool in attracting investment and funding to get started. The report will elaborate on these points mentioned as well as be a guideline for the client in order to add value to the business.

I have interviewed 2 entrepreneurs relating my research on business planning and how effective it is in carrying out small businesses. For both my interviews, the entrepreneurs claimed they use business planning but one does it on a professional level and one would probably make a business plan a week before implying it on his business. The Mirchandani business does small scale planning since it is a family run business and the employees are the family members itself. Therefore they needn't be told like how Maxwell softwares employees are instructed on a professional and detailed level. Both Maxwell software and Mirchandani garments claim that they know their own market due to immense experience in it. Mirchandani's plan only short term which is they could plan on Wednesday for events to take place on Thursday. They don't plan on a professional level as it is all family run business but yes, they do use accounting skills and set financial targets and try to achieve them at the end of the month. Whereas, Maxwell softwares does long term planning whose goal will be looked over at the end of the year and not in a months time. Since it is a bigger company employing 35 people than the Mirchandani's, Maxwell has to have more legal and professional approach towards its business. If we look at the interviews, both the companies have stated they do use business planning but not short term it is long term (which is applicable to Mirchandani's but a little less). They claim to take their business as it comes along everyday. The maximum counselling the Mirchandanis have received is from family members and Maxwell being set up by one person did receive professional counselling. They set goals at the start of the financial year and look at goals achieved at the end. For everyday decisions they do not resort to business planning. It is a different thing when they have to plan or strategise for preventing loss in short term. For example, It is recession time and Mirchandani's have to get rid of their old retail quick, so they put up a sale. This is planning in a way but it is strategic planning. Business planning will be something what Maxwell does to get a profit of 2% at the end of the year and work accordingly the whole year to achieve it. Both businesses also claim that planning does help them overcome risk factors and helps them looking at what the future could bring. Also when it comes to risk and uncertainty the Maxwell have a human capital management plan in their company which trains them to perform well in the company whereas in the Mirchandani business the family members are enlightened on their tasks through family members, no corporate models are needed to understand business. They both also agreed on the fact that it was only in the beginning they used to stress on every little detail but as the business has expanded and is doing well their approach towards business has changed and they take rational, innovative and quick decisions. They claim that they have gained more experience in business and entrepreneurship than they had ever experienced before when they used to work under someone and this has made them develop their entrepreneurial skills over a time period as they learn new things in day to day life in their own respective firms.

What is a business plan?

A business plan is a document that summarises a company's expected choice of action for a specified time period, which usually includes a list in detail which analyses risks and uncertainties that could be faced by the start up business. A business plan for small business should include market demographics and information on the industry, management policies, financial and production needs for it to remain stable. Often, it is used as a prospectus for potential investors and lenders (Mexico Finance).

Types of business Planning

There are many kinds of business plans, all apply individually to ones specific business situation.. For example, if a business plan is being made for internal use within the firm it does not have to include information necessary to banks and investors. The description of the management team is important for investors , while the financial history is for banks (Berry)

Different types of business plans are :-


This plan explains the steps that a new business should take. It includes information such as name of company, services it will provide, strategies that it will imply in the first year of its business. The financial analysis includes projected sales, profit and loss, balance sheet, cash flow, and probably a few other tables. (Berry)


These types of plans are not written down for the banks or the investors and it is not important of it to have detailed description of company or management team. Budgets and financial forecasts may not be included. These type of plans can be used by mangers to set out a structure for himself on how he is going to manage his team or it could be a plan for the supervisor on how to train new employees.


A strategic plan is an internal plan which concentrates more on setting priorities to some duties then on the definite responsibilities. Strategic plan can be used by anyone in a firm (Berry).


This plan focuses on a specific section of business. These plans could either be related to an expansion in the business or introducing new products in the business. It may or may not include financial details depending what the business aims to do. For example, A loan application to expand business will have to have all financial details. But it should include detailed forecast sales for new venture (Berry).


It is plan which helps in deciding whether or not to go ahead with a particular plan, it increases knowledge on whether a business is worth pursuing or not. This plan includes basic market analysis, pricing, keys to success and probable expenses (Berry).

Skills required to carry out a Business Plan

It is important to have these following skills or to have knowledge about them since without these skills it would not be clear which direction is business headed and what dangers is one in for. These skills help to be step in step with the advisor or with the plan itself and creates awareness on starting up a business or techniques to run a business.

Strategic Business Planning Skills

Strategic skills are necessary for business owners/business planners. It is important to understand a strategic audit and therefore the mindset for developing and implementing new strategies in a business plan is needed. Strategy skills are needed so that the strategies can be put into the business plan and if the owner is being counselled, he/she can be guided towards the right path by counsellor. For example, if a person starting a business has written down faulty strategies in his business plan which do not match to his market research, his business is likely to fail early. So in this case it is very important to be able to strategise by looking at market/industry section.

Analytical Skills

Entrepreneurs need to have analysing skills so as to analyse other markets and compare it to their business. If they don't analyse their competitors business properly this will result in failure to put in suitable marketing strategies for business to be successful. Hence, it is important to have analysing skills.

Marketing Skills

Absence of Marketing will give absence of profits on a regular. A business planner/owner needs to know his marketing skills and needs to have awareness of what the customers out there really want, how many businesses are already there in the market doing the same thing and how can he be different from them. When preparing a business plan the planner needs to have this skill in order to explain in his plan what will he market, how will he do it, how can he be different and how he can apply his skills to expansion of his business.

Communication Skills

Communicating skills aren't very important for a business planner but it always helps in getting ones message through. During the processing of a business plan, the entrepreneur has to meet many highly ranked people in the business industry and banks. Communication should be an effective skill so that there is usage of right words in right context and it then generates a positive response. One not only needs to be confident but the choice of right words also shows the knowledge of the subject.

Finance and Accounting Skills

It is probably the biggest challenge faced by an entrepreneur who is starting business only because he is new to all the financial handling skills. An entrepreneur and a person introducing a business plan to investors or banks must know basic terms and functions of finance and accounting.

Difference between counselling and consultancy

Counselling and consultancy may seem similar at a certain point but they are not the same in any way. Counselling deals with problems directly with the person who has a problem. For example a company is having problems relating to employees who are not performing well at all, in this case a counsellor might get involved and work directly with employees to try and help them and assist them in doing a better job and perform well. Consultancy involves providing ideas or strategies to someone with problems who may or may not use the advice according to his own will. It is completely upto the person to take the advice and act upon it or if he thinks that this advice won't get him anywhere, he has the choice of not taking it. For example, a consultant might meet with the supervisor and not the employees directly to suggest ideas that could help the employees in the company perform well in their jobs.

Why are business plans important?

Business plans are important for the following reasons :-

The plans inform you whether the business that is about to be set up is feasible financially or not. It shows the financial ratios one would need to start up a business after immense research is done. For example, how much it will cost, who will fund you, where can you get them from. It will give an idea on who the customers will be and who the competition will be as well it will give you an insight on how you can get the customers to be loyal. Areas of strengths and weaknesses will be reflected in the plan. The business plan is an effective tool which always helps when used while starting up a business and till the time enormous amounts of research is done.

Professional advising a business start up

As a counsellor I would offer basic level events to be carried out like having to research the market thoroughly and get information from people running their own business in the industry you want to enter. I would firstly set up a schedule or a timetable making sure everything is going as desired by the entrepreneur.

Planning the plan

Having a planned timetable of the business plan will help on focussing the business plan and giving it specific time deadlines for sufficient completion and help the idea move along swiftly into a business. The purpose of this is to make sure the relevant information has been collected and assembled before decisions can be made for the business plan. In the business plan timetable there should be stated:

Action to be taken: this will clear out the objectives so the correct information is collected as the appropriate time.

Methods and Sources: this is to show how the action will be achieved and the relevant specialist advisers if any have contributed, to validate the action.

Target date: a date to work towards so the plan is completed on time.

Completion date: a date for the completion of the action to keep track of what stage the plan is at.

(See appendix 3)

Topics to consider

The first topic to be put into consideration would inevitably be market research, this is so all information needed to run the business is collected and assembled in the business plan. The research collected is to validate the idea and the business as a whole. Starting the plan is made easier when all its aspects have been researched and confirmed.

The purpose and aims of the business, is the starter of the planning process as well as an indication of the direction that the business wants to take. Once the purpose and aims are identified they can be briefly conveyed to the public or potential investors as a mission statement. This now moves the plan to the objective setting stage.

Setting objectives gives a target to aim to, the client a direction to work towards as a motivator and when achieved it becomes a point of evaluation for the success of an action. The SMART(business model) rule must be applied to setting objectives. SMART exemplify the characteristics of a proficient objective.

SMART stands for: Specific-Measurable-Attainable-Relevant-Timely (see Appendix 4)

Having a good think and ponder about the objectives is advisable as the objectives must answer the questions set to the purpose and aims of the business, as this will enhance the ability to handle conflict in a growing firm. Having excellent decision making skills will show importance at this stage of the business plan. The decisions made at this early point are likely to shape the business plan itself as well as the business and the direction it takes.

The next stage is consider what the business is and what it stands for through the aims, purposes and set objectives this can be noted in a short description of the business opportunity. This should be a summary of the purpose of the business and include the product or service the business is offering, why and to whom. This statement should be able to convey itself without confusion to all people whom will read it, including customers and potential investors.

Looking at the market situation from earlier findings through the market research should be the next step to be taken. The vital question is what is the market situation the business wants to trade in? Where is the market in terms of is it a declining market or an expanding. This is vital and must be analysed carefully if the business is to earn enough revenue. An understanding of the target market and its audience needs to be detailed and thoroughly analysed to find the size of the market and the share the business can achieve. The size of the share will depend on the overall size of the market so this has to be realistically forecasted. It is important to analyse the market well as to figure out the market trends and what influences the target market as to take advantage of the trends. Analytical skills are very important for this stage of the business plan. Being able to read into charts, graphs and decipher data in order to have an advantage over the competitors.

Consultation before the plan

The clients business ideas and their potential will be first to review. Numerous approaches to this may be taken depending on whether the business is an already established organisation or if it's still in paper form as an idea, the client's requirements will be most important and put into consideration before the adequate expertise and skills are suggested.

At this stage it is important to consider the need of motivation and the relevant skills as well as resources to develop the idea into a business plan. After analysing close factors, the business plan can be put together according to discussed ideas of the business and its practicality.

Appendix 1

NAME OF COMPANY: Mirchandani Garments

OWNER: Sunil Mirchandani


Tell us something about your company.

We are a retail shop that sell a variety of different items ranging from women's garments and accessories to men's sportswear. We target mainly tourists visiting the island but also welcome any locals. Our shop provides the trendiest and most fashionable branded clothes in the market at reasonable rates. Our outlet is is located in the busiest and touristic part of the city.

1) What events made you set up your own business? Did you get influences from anyone etc?

I've always worked as a salesman at retail outlets and have been growing up seeing these outlets expand and become profitable so in a way I have been influenced. So I decided I'd pursue a career in which I have immense experience in.

2) Why did you choose the sector that you operate in?

I was well acknowledged and experienced in this area.

3) Do you have a business partner involved?


4) What is a business plan?

We usually plan as the business comes along and yes they aren't done professionally.We work within the family member to avoid paying out large salary. The business has been affected highly due to the current economical crisis. We've planned to cut down costs and raise the profit margin on each item.

5) Did you plan your business when setting up your business or already managing an existing business? If not why?

Yes, we do plan out our monthly strategy using budgeting, cost analysis and effective employee management.

6) Is it important to use and have business plan in a business?

Yes' it is very important to have business plan to keep up with business targets and at the same time maintaining a budget.

7) How has it been of any benefit to you and your business? If not please still state why?

Budgeting helps us to control costs and according to our cost analysis we decide the profit margin therefore generating revenue.

8) How do u still keep your business running, do you rely on u business plan?

We do not need to rely on a business plan as the business is mainly running on the employees and the management we have.

9) In general how do you run your existing business, what steps and stages do you take when you run your business as a day to day basis?

We try to convince the clients with our communication skills and our knowledge of our inventory and make a sale.

10) What type of strategies do u use to run your business? What marketing ideas?

We may make sales at a discounted rate and provide promotional business cards with 20% discount therefore making costumers return and gaining their loyalty.

11) Is your business increasing or decreasing? Why

Our business has been declining due to the poor economic growth and political factors.

12) In your business how do you cope with risk and uncertainty?

We take measurements such as reduce expenses, cut down unnecessary out goings. And extra hours.

13)Is it always a good idea to have your own business? What advice would you give?

It would only be advisable to start your own business if you have the appropriate knowledge in your business field, have an innovative business plan, and a great deal of experience. To be a successful owner of a company, its important to have an entrepreneurial approach and take some risks.

14)What is the reason of motivation in running your own business?

Being the leader of the company is a motivation in itself and the rewards are an extra boost.

15) Do you think your approach has changed after a while managing your business?

Yes ( More told face to face)

Appendix 2

NAME OF COMPANY: Silver Bullet Software Services

OWNER: Maxwell Power


Tell us something about your company.

My firm is a small to medium technology consultancy offering both business and technology services. The business services include strategic technology advisory, business process analysis and re-engineering, and enterprise architecture development. Technical services include system implementation, security consulting, vendor selection advisory, and off shored development. As time permits, the firm creates its own software, driven by philanthropical reasons.

1) What events made you set up your own business? Did you get influences from anyone etc?

I worked in the IT industry for 10 years as a private contractor and was simply frustrated with the inadequate levels of service provided by the large vendors I sub contracted to. These firms were to big to service their client with genuine care, which to dissatisfaction, poor quality systems, and unnecessarily expensive services.

2) Why did you choose the sector that you operate in?

I chose this sector due to my experience in it. In addition, I wanted to create allow skilled people the time to develop software that economic necessity may not have created.

3)Do you have a business partner involved?

Yes. I have one commercial partner, and several not for profit partners. The partner is an Indian based software house which performs much of our routine software development and enhancement.

4)What is a business plan?

My business comprises of a 12 -18 month plan, as well as 3-5 year plan. This includes a vision of where the company wants to be in ten years, and the immediate steps needed to get there in the short and mid term. This includes a business strategy and continuity plan, corporate knowledge model, marketing plan, financial plan, staff development and resourcing plan, employee happiness plan, and a parallel contingency plan.

5) Did you plan your business when setting up your business or already managing an existing business? If not why?

Setting up the business was a rather organic process. I had a plan however it existed in pieces and was never written down. Once I began hiring people the plan became formalised and written down. I place greater importance on operational plans that follow a strategic vision.

6) Is it important to use and have business plan in a business?

It's important; however I am a believer in Mintzberg's "fallacy of strategic planning". We can't get too bogged down in plans.

7) How has it been of any benefit to you and your business? If not please still state why?

Two major benefits have come from creating and communicating a plan. My executives and I put the plan together to achieve my vision. As such we all agree on where we should aim for, and how we should get there. The plan has built consensus. The other benefit is that we can measure our progress against it.

8) How do u still keep your business running, do you rely on u business plan?

We do not rely daily on a business plan, it's a long term item that sets the path, the direction. Day to day we never see it, it's an invisible foundation that we take for granted. Long term we certainly rely on it.

9) In general how do run your existing business, what steps and stages do you take when you run your business as a day to day basis?

Day to day I make sure every has to tools and means to complete their part of the big picture. This might include making sub plans to deal with specific problems, eg skills development, dissatisfied staff, selling strategies etc. I have hired people to perform all the important roles of the company, except my role. I know if they are happy, and adequately skilled and resourced, they will get the job done without too much intervention.

10) What type of strategies do u use to run your business? What marketing ideas?

Having worked in a global tier 1 management and IT consultancy for several years I use most of the standard consulting and academic frameworks. This include using strategic planning models based on Porterian methods, the resource based viewed of the firm and capability development, competitive analysis; marketing techniques such as market and industry analysis, penetration strategies, creating demands for new technologies, etc. Sales is important aspect so my sales consultants receive best training - ideally I hire sales consultants from tier 1 consultancies. I also focus a lot on human development and non traditional remuneration approaches. If some does a good job they get paid a lot more for it.

11) Is your business growing or declining? Why

Business is booming. We are one of the few companies in Australia offering high quality low cost off-shored technology services to the small and medium sized market. Our business chargeout model ensures we always make a profit. When we can sell our won products and services we make much more money.

12) In your business how do you cope with risk and uncertainty?

We do over plan for risk. We have a business continuity plan in place to manage risk. Uncertainly is something we embrace. To ensure we don't lose knowledge or skills when staff leave, we have a plan for human capital management to identify and adequately train replacement staff. We also a strong corporate knowledge model to identify the key knowledge areas that make our business unique and profitable.

13) Is it always a good idea to have your own business? What advice would you give?

Absolutely. An MBA is a good tool to give the knowledge to start and run a business. Working in a large firm prior to starting a small business gives good experience working with large groups of people and diverse problems.

14)What keeps you motivated when running your business?

Focussing on the future and making the people around achieve their fullest potential.

15) Do you think your approach has changed after a while managing your business?

Yes ( More told face to face)

Appendix 3

Plan Timetable example


Method & Sources

Completion Target date

Completion Actual date

Purpose and Aims

Collect relevant personal and come to a decision.




SMART tool




Investors, bank loan, personal funding



Forecast sales

Marketing Strategy

Review funds

Complete plan

Appendix 4



When it comes of business planning, "specific" illustrates a situation that is easily identified and understood. It is usually linked to some mathematical determinant that imprints a specific character to a given action: most common determinants are numbers, ratios and fractions, percentages, frequencies. In this case, being "specific" means being "precise".

Example: when you tell your team "I need this report in several copies", you did not provide the team with a specific instruction. It is unclear what the determinant "several" means: for some it can be three, for some can be a hundred. A much better instruction would sound like "I need this report in 5 copies" - your team will know exactly what you expect and will have less chances to fail in delivering the desired result.


When we say that an objective, a goal, must be measurable, we mean there is a stringent need to have the possibility to measure, to track the action(s) associated with the given objective.

We must set up a distinct system or establish clear procedures of how the actions will be monitored, measured and recorded. If an objective and the actions pertaining to it cannot be quantified, it is most likely that the objective is wrongly formulated and we should reconsider it.

Example: "our business must grow" is an obscure, non-measurable objective. What exactly should we measure in order to find out if the objective was met? But if we change it to "our business must grow in sales volume with 20%", we've got one measurable objective: the measure being the percentage sales rise from present moment to the given moment in the future. We can calculate this very easy, based on the recorded sales figures.


Some use the term "achievable" instead of "attainable", which you will see it is merely a synonym and we should not get stuck in analyzing which one is correct. Both are.

It is understood that each leader will want his company / unit to give outstanding performances; this is the spirit of competition and such thinking is much needed. However, when setting objectives, one should deeply analyze first the factors determining the success or failure of these objectives. Think of your team, of your capacities, of motivation: are they sufficient in order for the objectives to be met? Do you have the means and capabilities to achieve them?

Think it through and be honest and realistic to yourself: are you really capable of attaining the goals you've set or are you most likely headed to disappointment? Always set objectives that have a fair chance to be met: of course, they don't need to be "easily" attained, you're entitled to set difficult ones as long as they're realistic and not futile.

Example: you own a newborn movers company and you set the objective of "becoming no. 1 movers within the state". The problem is you only have 3 trucks available, while all your competitors have 10 and up. Your goal is not attainable; try instead a more realistic one, such as "reaching the Top 5 fastest growing movers company in the state".


This notion is a little more difficult to be perceived in its full meaning; therefore we will start explaining it by using an example in the first place.

Imagine yourself going to the IT department and telling them they need to increase the profit to revenue ratio by 5%. They will probably look at you in astonishment and mumble something undistinguished about managers and the way they mess up with people's minds.

Can you tell what is wrong with the objective above? Of course! The IT department has no idea what you were talking about and there's nothing they can do about it - their job is to develop and maintain your computerized infrastructure, not to understand your economic speech. What you can do it setting an objective that the IT department can have an impact upon, and which will eventually lead to the increase you wanted in the first place. What about asking them to reduce expenditures for hardware and software by 10% monthly and be more cautious with the consumables within their department by not exceeding the allocated budget? They will surely understand what they need to do because the objective is relevant for their group.

Therefore, the quality of an objective to be "relevant" refers to setting appropriate objectives for a given individual or team: you need to think if they can truly do something about it or is it irrelevant for the job they perform.


No much to discuss about this aspect, since it is probably the easiest to be understood and applied.

Any usable and performable objective must have a clear timeframe of when it should start and/or when it should end. Without having a timeframe specified, it is practically impossible to say if the objective is met or not.

For example, if you just say "we need to raise profit by 500000 units", you will never be able to tell if the objective was achieved or not, one can always say "well, we'll do it next year". Instead, if you say "we need to raise profit by 500000 units within 6 months from now", anyone can see in 6 months if the goal was attained or not. Without a clear, distinct timeframe, no objective is any good." (Tutor 2 u)