Key Components of a Business Plan

It is difficult to prescribe an exact template or framework for a business plan. Much depends on the purpose and audience for which you are preparing it.

For example:

• a business plan prepared for a start-up seeking funding from a venture capitalist
  would be quite different from
• a business plan used for management and control within an established organisation.

However, it is possible to describe the basic components of a business plan.

The main categories would include:

1. The organisation's vision, mission and values
2. Analysis
3. Plan
4. Key Risks
5. Organisation and Resources

Each of these is considered below.

The organisation's vision, mission and values

These define the basic purpose and parameters of existence for the organisation.

Often a vision statement OR a mission statement is enough. You probably don't need both.

Over the last decade, the emphasis has shifted from vision statements towards mission statements. This has happened as organisations recognise the increasing importance of purpose.

Where the organisation is not a completely stand-alone entity, the vision, mission and values should reflect the context of the parent structure. The more stand-alone the organisation is, the more important it is that the vision and mission reflect a uniquely differentiated competitive position.

See also: Strategic Vision: Three tests.

Analysis

The analysis sets out the evidence which supports the business plan.

It should cover:

• the external competitive environment, as well as
• internal factors.

The external competitive environment

You should include an analysis of

1. the current situation,
2. recent changes and
3. anticipated changes

in:

1. The relative negotiating power and interests of external entities such as customers, suppliers, regulators, government and lobbying groups.
2. The level and nature of competitiveness within the industry, for example:
1. the number of competitors and/or level industry fragmentation,
2. their recent performance and strategies, and
3. the bases of competition, for example, price, innovation, customer segmentation, distribution relationships, etc.
   See also: 7 steps to master competitor analysis for business strategy
3. The threat of product or service substitution or becoming obsolete.
4. The threat of new entrants into the market. This should include an analysis of the barriers to entry.

See Porter's 5 Forces Analysis for more insight into these considerations. A PESTEL analysis is another great way to identify a wide range of opportunities and threats your business faces.

Scenario planning is a useful technique for external analysis where there is a lot of structural uncertainty in the competitive environment.

The internal factors

Internal factors would include, strengths, weaknesses and flexibility with regard to:

1. Systems, including computer and manual systems, process, procedures and policies,
2. Staff, skills, knowledge / intellectual property and organisational capabilities, and
3. Culture, organisational style and structure.

The external and internal analyses are often combined and summarised in a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.

You might also include an Options Analysis. This is where you consider a number of options before deciding on a way forward, and justify which option(s) carried forward into the plan. Typically you would evaluate each option in terms of:

1. Robustness in the face of the external analysis. This includes multiple scenarios if you have done scenario planning.
2. The organisation's ability to deliver it, given its strengths and weaknesses.
3. Fit to the vision, mission and values of the organisation or its parent context.
4. The financial value of the option. This is calculated using a Discounted Cash Flow or similar analysis.

Fortunately, you don't have to start with a blank sheet of paper when doing your analysis. There are numerous frameworks and tools that have emerged to help with this. You can see the key ones at 9 essential tools for strategy analysis.

Plan

Based on the analysis, the plan itself is then articulated in terms of:

1. Goals, Objectives and Key Performance Indicators (KPIs) with targets, and Critical Success Factors (CSFs). In simple terms, KPIs are the measurable outcomes that are to be achieved as part of the strategy. These could include key financial indicators, as well as measures of customer outcomes, product, service or process performance, or internal capabilities. CSFs include less quantitative outcomes that must be achieved.
   
   I find it useful to specify KPIs as S.M.A.R.T. objectives. It can be useful to further divide these into 4 perspectives:
   
   1. Financial objectives such as shareholder returns, (working) capital efficiencies, margins, funding, etc.
   2. Market share and/or customer experience objectives,
   3. Process performance and efficiency objectives, and
   4. Organisational capability, staff, skills, systems and cultural objectives.
   
   These objectives should reflect the specifics of the strategy. Avoid generic industry benchmarks.
   
   See also: Getting the most out of KPIs.
   
2. Initiatives or tasks: What will be done, by whom, and by when to achieve the KPI targets and CSFs. Including what the output or deliverable of the task will be. A simplified Gantt chart is often a useful way of communicating this.
   
3. Financial: A budget or forecast showing how the plan plays out. This should include a forecast of:
1. the cash flow, income statement and balance sheet for the organisation,
2. key non-financial indicators such as head-count,
3. key financial and non-financial ratios, and
4. sensitivity analysis

The financial plan should include the costs and benefits of the initiatives and tasks listed in the section before. 

Typically, you would do this:

• on a monthly basis for the first 12 months, and then

• on an annual basis for the subsequent 4 years. 

The structure of the financial plan should reflect the underlying economics of the business model. This is so that you can run meaningful sensitivity tests. The inputs to the sensitivity tests should be consistent with the uncertainties identified in the Analysis or in the Key Risks. The outputs should be consistent with the stated Objectives.

Key Risks

The Key Risks should follow naturally from the Analysis. You should also highlight the plans and governance you will put in place to manage and mitigate these risks.

Organisation and Resources

An organigram or biographies of key players and their roles is useful. This might include significant external players or other divisions within a group.

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