Part I of V What is a business plan? In simple terms, a business plan is an intelligent and reasoned forecast of expected results, usually covering the following twelve month period.
Business planning is not an exact science.
In fact, the only thing that is certain about a business plan, is that actual events will be different.
If this is the case, why bother to have a business plan at all? Why have a business plan?

• To plan a suitable level of profit
• To ensure that there are adequate resources to keep the business going
• To avoid back-to-the-wall decisions
• To ensure that employees know what is expected of them
• To monitor performance for remedial action
• Planning assists achievement

Apart from these internal reasons, Banks are unlikely to lend money if they are unable to see a logical and well thought out plan for the business.
What is a suitable level of profit? The calculation of an acceptable return on investment must include the following criteria:

• It must be more than the rate of return on gilt-edged, or interest bearing, securities
• It must include a premium for the normal business risk inherent in any type of business
• If the business will be giving credit to its customers, it needs to include something for the risk of debts going bad
• If in a high technology industry, it must cover the risk of premature obsolescence or technical failure of a high technology product

It would be pointless for an entrepreneur to invest money in a new business, if he has no idea of what return he should get from the specific type of business that he is starting.
If the Plan shows that the rate of return on the investment is less than he could get on, say, fixed deposit, then he should think very carefully about taking the risk.
What resources will need to be considered?

• Manpower in respect of the numbers required for Production, Marketing, Selling, Warehousing, Delivery and Administration
• Technical skill requirements in all facets of the business and any necessary training where the product uses highly specialised equipment
• Machinery as in Factory plant, Warehouse storage capacity, racking and handling equipment, Motor vehicles and Office equipment
• Materials - both raw materials and finished goods
• Money - how much, from whom and when required

Back to the wall decisions This usually happens when the business is suddenly faced with inadequate resources, particularly money.
Banks clamp down when they lose confidence in Management's ability to plan ahead.
When this happens, the entrepreneur is likely to panic and often:

• upsets customers by demands for early repayment of debts
• causes customers to become nervous about the firm's ability to maintain continuity of supply
• discounts selling prices to reduce stockholding, thus setting in motion a downward profit spiral
• holds up Supplier payments which puts future supplies at risk
• sells other investments, often at knock-down prices, to become more liquid

With adequate planning this should not happen, as all apparent shortfalls in funding will be secured.
Where to from here? In my next article I will talk about attitude problems that affect the creation of the Business Plan.