- The main aim of producing a business plan is to reduce the risk associated with starting a new business
- A business plan is a document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow
Diagram to show the Elements of a Business Plan
The main elements included in a business plan, although some differ slightly depending on the nature of the business
- Producing a business plan forces the owner to think about every aspect of the business before they start which should reduce the risk of failure
Explaining the Main Elements of a Business Plan
Section
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Explanation
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The business idea
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- A clear explanation of the goods or services provided by the business which will help to attract investors
- This may also include the history of the business idea
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Business aims & objectives
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- What the business wants to achieve in the medium and long term
- These aims may be both financial and non-financial depending on the business
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Target market
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- This section will discuss who the business is aimed at e.g. age, gender, income and will form part of the firms marketing strategy
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Forecast revenue
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- This will project how much income the business plans to make through sales
- Sales Revenue = Price x Quantity Sold
- This can help plan for break even levels of output
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Forecast costs
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- Firms need to forecast their fixed, variable and total costs in order to manage their spending
- Some new businesses may have high start up costs e.g. new stock
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Profit forecasts
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- Investors will be interested to see the firms profit forecasts to see whether the business will have the ability to pay back loaned funds e.g. bank
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Marketing mix
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- Provides an explanation of the firms marketing strategy for the product/service which will outline how the firm plans to attract customers
- This includes Product, Place, Price and Promotion
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Cash-flow forecast
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- This explains how the firm plans to manage its inflows and outflows of cash on a monthly basis in order to avoid liquidity problems
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Sources of finance
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- This section will show the sources of finance used to fund the new business e.g. loans, owners funds or venture capital
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Business location
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- The location of the business will be proposed including a map along with an explanation of potential advantages such as transport links or proximity to customers
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