Many small business owners operate their businesses without a business plan. They operate on a day-to-day basis without any planning for the long term. They only see the need to prepare one when they have to approach the bank for a loan or to tender for a big business contract.

Is a business plan really necessary? Or is it just a show-piece to impress the bankers and business associates? Well, a well-prepared business plan, usually drawn up by a management consultant, does help to impress the bankers. But it is useless if the management do not understand the concepts behind the preparation of a business plan.

A business plan is just a static snapshot of what the business is like if all the assumptions about the environments and competitions remain static. But this is not the case in the real world. Consumers' expectations, market's supply and demand, competitions and other environmental factors change all the times. We have to modify and adapt our business strategies and operations continuously to meet the changing market conditions.

The true value of business planning lies not in the plan, but in the concept and planning process. The same thinking process can be used again and again to develop appropriate strategies to take advantage of the changes in the market place. Preparing a typical business plan would involve the following thinking process.

Step 1: Mission and Objectives - What do you hope to achieve in the long run? - Is this something you enjoy doing for the rest of your life? - Identify your mission with a purpose and not a product. For eg. to promote good reading habits among the people is better than being just a top bookseller. It gives you the flexibility to expand your business beyond bookselling to include publishing, educational seminars and others. - What are the steps or intermediate objectives needed to reach your ultimate goal.

Step 2: Competitive Analysis - Define your market in terms of size, market potential, growth rate, competitions, market segments and others. - What are the emerging opportunities and threats in your market? - Who are the consumers? Any peculiar buying behaviours? How can you reached them effectively? - What are your strengths and weaknesses? How best can you use your strengths to overcome the threats and take advantage of the opportunities? How can you counter the threats and your weaknesses with the help of strategic partners? - Who are your major competitors? What are their strengths? How can you capitalize on their weaknesses?

Step 3: Business Plan - Product or business concept: Answers to your competitive analysis will help you identify the market niche for your business. - Aim for a niche market unless you have the financial resources to take on the market leader head-on for a share of the mass market. - Profile of consumers in your niche market. - Market positioning - what do you want your customers to remember you for? - Product or service mix - what are you offering to customers (both tangible & intangible benefits)? - Pricing strategy - price is directly proportional to the product's exclusiveness. - Order fulfillment and distribution system - a sale is not complete unless the good is delivered properly to the consumer within a reasonable span of time. - Marketing and sales promotion. What is your budget? What are the effective channels to reach your target consumers? Include advertising, sales promotion, publicity and sponsorships, and personal selling.

Step 4: Development Plans - Organization structure. - Admin, compensational and operational policies. - Immediate plan - identified in step 3. What are the goals and objectives? - Mid-term plan - preparing for the next phase of growth. - Market penetration - increase our sales in existing market by encouraging existing customers to make more purchases and converting non-buyers. - Market development - offer our products to other geographical markets or market segments. - Product development - develop new products that meet the needs of existing customers. - Long term plan - Diversification. Make use of our existing resources to develop a new business.

Step 5: Financial Projections and Capital Budgeting - Prepare a pro-forma balance sheet and profit & loss statement for your proposed business. - The figures must be drawn from educated guesses based on an in-depth study of the competitors or industry's financial performances. - This exercise will help us manage our cash flow better as well as determine the amount of capital required to implement the plan.

The above guidelines are meant to illustrate the thinking process behind the preparation of a business plan. You will have the business plan drawn up simply by providing the answers to all the above questions.

While it may not guarantee success, business planning helps to enforce discipline by making you think twice before taking the plunge. It encourages you to look inwards and outwards for answers and to evaluate your business ideas against various environmental and competitive constraints. In the process, it helps to eliminate unnecessary mistakes and shortcomings.

In addition, the planning process will help to develop your conceptual and analytical skills as well as sharpen your mind. Try it. You may find yourself a few steps closer to your dream of becoming your own boss.

The Complete Book of Business Plans by Joseph A. Covello, etc http://www.aloha-city.com/bookshelf/writing.html

One of the best manual on writing business plans. Although it is meant for small business owners who have not undergone formal business training, the concept and planning process is applicable to any business, large or small. Written in a clear and concise format supported by useful financial projections, the book guides readers step-by-step through the process of conceptual planning and writing a business plan.