Journal of Small Business and Enterprise - March, 2013 - CII

StrategyBusiness Plan: Must for SMEMaking a business plan plays a pivotal role in the success of the firm and thus needsto be followed with a scientific approachIn today's highly competitive andever-changing market conditions, itis vital for businesses to define theirobjectives, develop strategies, forecastgrowth and plan for contingencies. Inother words, create a solid business plan.So what is a business plan and why is ituseful for SMEs?A business plan outlines the roadmapto achieve both long and short termbusiness objectives. This documentalso states a company's vision, missionand financial goals. A plan helps tonot only sharpen business focus andprioritize actions, but also gauge actualperformance against business goals.ForAn SME, having a structured businessplan serves two significant objectives:The first objective is to presentbusiness details and strategies to externalaudiences prospective investors, financialinstitutions etc. to generate funding,which is essential for growth and smoothfunctioning of the business.The second objective is to keep theorganizational workforce updated aboutthe future plans and goals, and theroadmap to achieve these. This helpsin steering the organization towardsits objectives by keeping the businessentrepreneur and all the employeesaligned in the same direction. In addition,well-devised business plans provide anoperational framework that allows thebusiness to enjoy distinct competitiveadvantages. This, in turn, results inincreased profits.How does one create a business planand what should it contain?Making a business plan also plays apivotal role in the success of the firm andthus needs to be followed with a scientificapproach. Below are the key componentsof a good business plan and how oneshould go about developing it :1. Executive Summary: The summaryshould be the reflection of the businessand should help reader to understand thekey facts about the business at a glance.The summary should be kept short, crispand clear. It should fit in a page, unless anduntil some key information such as capitalstructure, prime events etc. have to bementioned. Ideally, this is the section thatwill be made last, after all the followingsections are done.2. Vision, Mission business structureand promoter background : This section iswhere you outline your business vision andmission clearly, e.g. To become the leadingsupplier of springs to the automotiveindustry for a spring manufacturer, or Toprovide the most authentic Chinese cuisinein New Delhi for a Chinese restaurantbeing set up in New Delhi. You should alsogive a description of how your businessis structured, i.e. the legal structure (asole proprietorship, a partnership or acompany), and a brief description of thebackground of the promoters education,work experience, etc3. Market sizing, growth prospects andcompetition Firstly, you should define themarket in terms of size, structure, growthprospects, and other trends. After that,you should list out the key competitorsin the market, and an assessment of theirrelative strengths and weaknesses as well.Many times, you might be able to obtainindustry and market data from differenttrade bodies (e.g. CII, FICCI, Assocham)or Government agencies and institutionsspecially tasked for this (e.g. SIDBI)4. Products and Services: This sectioncontains the description of the productsand services that the business will supplyto its customers. Your product pricingshould also be included here5. Sales and Marketing: In thissection, you should detail out your salesand distribution plans, e.g. which cities/localities will you set up a branch ifnecessary, will you appoint your ownsales force or agents, or is it just directmarketing to businesses, etc6. Operations: This section detailsout the manufacturing process or servicedelivery process of the business, includingwhat equipment/machinery will be used, etc7. Organization structure : Here,you should detail out the organizationstructure, roles and responsibilities ofsenior management and the overallmanpower requirements.8. Financials: The trickiest part comestowards the end, as it is interlinked toall the past steps and leads to financialstatements such as Income statement,cash flow statement and balance sheet.This section is the backbone of the planas the overall capability of the businessis mirrored here. Sound financials arekey to raising capital in the form ofequity or for obtaining loans. If the planis for an existing business, then you willhave to provide historical data as well asfuture projections.How often does the business plan needto change?A business plan is valid only for a finiteperiod of time, i.e. 1-2 years at best. Forthe plan to be effective, it needs to bereviewed regularly, as certain strategiesmight require changes to adapt tochanging market conditions.Some sections of the plan, such asmarketing plans, pricing, product andservice features, etc., change in sync withchanging external factors.However, other sections like thecore business model are less likely tochange often.Getting help Of course, all this mayseem daunting at first sight! But youwill realize the benefits of building abusiness plan in a structured manneras it forces you to think through allthe aspects of the business somethingwhich you may not have done before.Also, one can take professionalhelp here as well. There are manyChartered Accountants and otheradvisors who can help you with this;another option is to ask your financepartner (bank or NBFC) who may bedoing this as a value added service toSMEs (Read more about choosing yourright finance partner here).Kavi Arora is Managing Director & Chief Executive Officerat Religare Finvest Limited Managing the Small andMedium Enterprises (SME) focused commercial lendingbusiness. For any suggestions and feedbacks related tothe article kindly write to marketing.rfl@religare.comMSME Business March 201311