Business planning is a definition of purposes and ways of their achievement, by means of any planned and developed programs of actions which in the course of realization can be corrected according to the changed circumstances. During planning the program document (business plan) is made, also the program of business operations realization, the firm actions, containing data on firm, the goods, its manufacture, product markets, marketing, the organization of operations and their efficiency is made. (The Economic Impact of Venture Capital in Europe)
Why people write business plans?
Business planning appeared when people understood that they can do not work for state’s enterprises and every mouth get stable salary. There found those, who wanted even more, who wasn’t afraid to have a risk and believed in his abilities. They were called entrepreneurs. Starting up their own business, they analyzed strong and wicked features for the future not make mistakes. So business planning appeared. Now it is compulsory to every company.
Forms of investing into business.
Venture business- investment business form where investor provides money for firms that don’t have other financial sources in exchange for a part of shares. In this case investor doesn’t bear any responsibilities for the company except financial. This investment form is attractive for entrepreneurs who get addition money for development and expansion a firm. Also, this form is attractive for investor who wants to enlarge his own capital.
Unfortunately, venture industry in our country is still on stage of formation, but even now it becomes clear that Russian entrepreneurs show great interest in this new for Russia economic spectrum.
In other foreign countries the situation is quite different, for example, USA is the leader in venture business. Nowadays, to USA belongs the half of the whole venture investments. This happens because risky capital is practically the only source of small enterprises financing at early stages. One more benefit of USA venture policy is that interest to this sphere is shown not only by corporate and individual investors, but also by state establishments: pension fund, commercial and investment banks, insurance companies, state and welfare funds, corporations.
Business angels – these are middle-aged or elderly professionals, highly qualified in commercial business. Greater part of them has experience in business: some of them are successful businessmen, others- are specialists in business. However, this form of investment as well as venture business is not developed in Russia. The reason of that in our country is that there are a few people who have big sums of money and who are ready to invest them into small business. Even if such people can be found in most cases they are entrepreneurs who have operating business. They have enough money, but also, they have main business that requires attention.
In USA the situation is different, there is an Internet site devoted to venture investments where you can to take advantage of selecting business-angels from the list on three basic categories of search (geographical region, volume of investments, specialization of company).More than 30 000 names are specified that list. In this database collected data about people who proved their involvement to accredited investors rank and who desires to support innovative companies. At all evidence of the process, presence of subjects and resources business – angels in our country do not play a visible role. What’s matter? On the west a business-angel as a rule a businessman who drew off business. Business exists, capital is operating, but there is a necessity to manage changes and risks, to create from nothing. Improving established business processes is boring, there is an experience, money and a desire to work with young business.
Value of business planning.
The business plan helps to give answers to a businessman on following questions:
- What kind of production or what new business to choose to come into domestic and foreign market;
- What market demand for the offered goods and services will be and how it will vary;
- What resources and in what quantities will be required for the business project organization;
- How much will necessary resources cost and where to find reliable suppliers;
- What will be costs on the manufacturing organization and realization of products and services on corresponding markets;
- What can be market price for given products and how it will be affected by competitors;
- What can be aggregate profits and how they should be distributed between all business project participants;
- What will be indexes of effectiveness and how they can be raised.
Basic sections of business plan.
Basic sections of business plan describe function company process and show how leaders want to obtain the goals and tasks by means of increasing operating profitability. Well elaborated business plan helps a firm to grow, to capture new positions on market, where this company functions, to make perspective tasks for the development, new goods and service conception productions and to choose rational methods of their realization. Also, basic sections of business plan are systematically updated, brought some changes connected with changes within a company, within the market where it operates and economic in general.
Now we will consider each section of business - plan more detailed:
1. Financial section.
2. Investment section.
3. Productive section.
4. Marketing section.
5. Organizational section.
6. Legal section.
Financial section of business plan.
It is basic section of business plan, which consists of few points:
- Balance of an organization.
- Plan of profits and charges.
- Forecast of cash money motion.
In these points the future financial company activity is described within certain period of time.
Investment section.
This section is created for credit needs and is delivered to the bank credit committee. It provides detailed analysis of the market, consumers and competitors, contains the following subsections:
- Financial plan.
- Qualitative Risk Analysis.
- Project profitability calculation.
- Integral project indicators.
At the present time no bank would consider the project if a business plan corresponding the requirements adopted in the Russian credit organizations is not attached.
Production section of the business plan.
This section gives details about the process of product development, production technology and resources of the enterprise description. Subsections of the business plan are:
- Product development (goods, services or technologies)
- Departments.
- Specificity of manufacturing processes.
- The sequence of operations.
- Production characteristics (environmental, safety, extreme conditions)
- The structure of production costs.
The marketing section of a business plan.
Market Analysis is an important element of the marketing section of a business plan. It should begin with an analysis of the industry in which this enterprise plans to operate. A good analysis of the industry identifies key competitors and shows competition density, their strengths and weaknesses. It contains the following sublevels:
- The main characteristics of buyers on the market on which enterprise is oriented.
- Customers analysis according to their income level, demographic characteristics, behavioral characteristics.
- A place in this market segment a business can pretend to.
- Competition.
Organizational section of the business plan.
This section provides information about the company's organizational structure, which reflects: who and what will do, the interaction between all services, coordination and monitoring of their activities. It includes the following topics:
- Type of the enterprise ownership.
- Key participants and major shareholders.
- Key provisions of the shareholders rights and procedures for dividend payments.
- Board of Directors membership.
- Personnel and responsibilities.
Legal section of the business plan.
In the legal section of the business plan should be specified the documents on the basis of which project development is realized and what regulatory framework is used in a company.
- Legal aspects of business.
- Registration.
- Justification of the choice of one or another form of ownership.
Now have a look at the Western model of business plan:
1. Description of activity objectives
2. Brief description of business
3. Market analysis
4. Products (services)
5. Production set up
6. Investment climate and risks
7. Competition
8. Sales of products
9. Management and Personnel
10. Financing
11. Applications
Differences:
Unlike our market, the western market has established itself in the international arena as one of the best. Therefore in their business plans they do not need to pay much attention to the quality of the goods as everyone is accustomed to think that if west produced then quality is guaranteed! As a result, to a huge number of products that do not meet international quality standards was assigned a "Quality Mark". The second difference - the ability of the Russians, offering participation in the project, implement it in practice. Here is important: firstly - the personal qualities and experience of production managers who undertake the project implementation, and secondly - the depth and clarity of vision the future activity in details. In the western business environment all the above aspects are observed irrevocably, as a matter of course. Therefore, they are usually not covered in special sections. In Russia, the relevant sections to be made in business plans, as investors need clarity in all three aspects.
Some disadvantages of a business plan.
Having conducted a thorough analysis, I realized that a business plan has not only advantages but it also has disadvantages. Firstly, one of the main shortcomings of business planning is amount of time spent for its creation (from 3 weeks up to 3 months). Secondly, is the size of the business plan. Its average volume is about 30 pages that creates difficulties for thoroughly investigation, because it contains too much information. The third disadvantage is that for creating a business plan an entrepreneur has to call for a help to external specialists (consultants) and he shares his idea with a stranger, and thus exposes his business to risk. Unfortunately, I can say that at this stage of development, the business plan is irreplaceable. But who knows what will happen in a few years when new technologies come into force... AUTO RECYCLING LOGISTICS |
