Components of a business plan

The essentials

The heart of a business plan is a set of functional plans, each dealing with one area of the business. Together they show how the venture will actually run.

• Organisational plan: form of ownership, names and roles of promoters, management structure, and the lines of authority and responsibility.
• Operational plan: day-to-day running of the business, such as location, layout, suppliers, inventory and the flow of work. For a service business, it explains how the service will be delivered.
• Production plan: for manufacturing firms; the production process, machinery and equipment, raw materials, capacity, quality control and costs of production.
• Marketing plan: target market, market research findings, product, pricing, distribution and promotion (the marketing mix), and sales forecasts.
• Financial plan: total capital needed, sources of funds, projected income statement, projected cash flow, projected balance sheet and break-even analysis.
• Human resource plan: number and type of staff needed, qualifications, recruitment, training, wages and incentives.

Key points

• The marketing plan is often the base for other plans, because sales forecasts decide how much to produce and how much money is needed.
• Projected (pro forma) statements estimate future results; they are not actual results.
• Break-even analysis in the financial plan shows the sales level at which there is no profit and no loss.

Exam tips

• Classify each detail: machinery and capacity go to the production plan; recruitment and training go to the HR plan; sources of funds go to the financial plan; pricing and advertising go to the marketing plan; management structure goes to the organisational plan.

Common mistakes

• Putting the organisation chart under the HR plan; it belongs to the organisational plan.
• Thinking a service business needs a production plan; it usually needs an operational plan instead.