Drawing up a business plan
Drawing up business plans is one of the first and key actions carried out during the project implementation. Many large and smart books are devoted to this activity, including those published by the Dialectics publishing house.. Here we will focus on some of the most important points that are of great importance in relation to commercial activities on the Internet.
To put it briefly, during business planning, the market, consumer properties and advantages of the business being formed and the product being planned for sale are examined; a plan of actions taken within the framework of promoting goods and services is formed; the necessary resources are determined.
The success of any commercial project on the Internet is directly related to the depth and accuracy of business planning, taking into account all the factors that have a direct impact on the market situation that develops during its immediate implementation.
In addition, if the project requires attracting investment, the business plan is the main document submitted to the investor for consideration.
When drawing up a business plan, you should follow a number of General rules. In particular, a well-thought-out business plan is usually:
includes a clearly formulated and carefully thought-out business idea;
it is clear not only to its authors, but also to readers;
reflects the possibility of entering a new or more profitable market;
contains only realistic and scientifically based forecasts;
takes into account all possible difficulties, including the actions of competitors and various changes in the market situation;
contains clear financial statements that determine the specific needs for funds at each stage of the project, as well as the timing of return on investment and the project’s return to profitability.
When preparing a business plan, it is advisable to consider it from the investor’s point of view — to assess the credibility and attractiveness of this, without a doubt, very important document.
A typical business plan designed for a commercial project on the Internet usually includes the following sections:
description of the project itself;
description of a possible market;
characteristics of competitors;
the advantages compared to competitors;
indication of intellectual property;
implementation plan of the project;
short-term financial plan (from three months to a year);
medium-term financial plan (two to five years);
information about the team, which is involved in the implementation of the project.
Let’s look at the sections mentioned in more detail.
This section includes the following items:
brief description of the project (one or two pages);
detailed description of the project (project goals, product or service, prospects, current status of the project);
description of the company implementing the project.
Description of a possible market
This section contains the following items:
number of potential customers;
level of competition, projected market share;
opportunities for further growth.
Characteristics of competitors
For Internet projects, this section of the document includes the following two important subsections: analysis of competitors ‘business (or competing technologies), as well as analysis of the Internet component of competing firms’ activities (whether there are advantages or disadvantages). The last component includes the following:
external analysis (attractiveness of a web site, number of visitors, recognition, and some other factors);
internal analysis (site functionality — convenience and expediency of each function, availability of integrated components, etc.).
When analyzing competitors ‘ activities, you should not limit yourself to Internet components. For example, a competitor of a commercial Internet project can serve as a regular store that has its own courier service, and also performs mailing of goods by mail.
When drawing up this section of the business plan, special attention is required, since it determines the prospects of the project being executed. Possible benefits are listed below:
degree of novelty;
ease of purchase;
Indication of intellectual property
This section is specific to Internet projects, since intellectual property issues are important. In particular, this section should:
mark your own developments used;
specify what kind of intellectual property you own, whether patents, licenses, and agreements have been issued;
list what kind of licenses are required to implement the project in practice.
Implementation plan of the project
This section describes a detailed operating plan.
The Foundation of business planning is a financial plan for the short-term (3 to 6 months) and medium-term (2 to 5 years) perspective. The following points are noted in detail here:
the project’s implementation phase;
the main categories of clients, as well as their number;
the rationale of the calculations;
sources of monthly income;
substantiation of income;
profit and loss;
necessary investments (schedule of investments);
repayment schedule of the borrowed funds.
Usually, the main indicators used are estimates of net present value, the profitability index, profitability (internal rate of return) and the payback period of investments.
Not all indicators of profitability of an Internet project can be easily formalized. For example, it is not always possible to estimate the increase in the level of sales in a traditional store that has created an online showcase. However, this problem can also be solved.
An important element that determines the realism of plans is the risk forecast. It is necessary to evaluate all factors (both internal and external) that affect the implementation of the project. Ideally, it is advisable to make several forecasts for the development of the project, for example, “optimistic”, for a normal situation, and “pessimistic” — for an unfavorable scenario.
Information about the team that participates in the project
In this part of the business plan, you can see how well the people who plan to implement it are able to do it. This includes the following information:
description of the functions of all specialists (preferably with job descriptions);
confirmation of the project staff qualification (resume of specialists).
Once the draft version of the business plan is completed, it should be submitted for review to specialists who are able to note its weaknesses, identify unclear places and possible shortcomings.
The next section briefly describes the stages of developing a business plan that are relevant for any commercial activity (not just e-Commerce).
Stages of developing a business plan
Now we will describe the main stages of development of the business plan of the enterprise.
First of all, you need to get the necessary information by first identifying its sources, which currently exist quite a lot, in particular: textbooks on management and business planning; materials from government agencies; data from firms engaged in management consulting, and other similar organizations; various industry publications; methodological and other materials obtained during training courses on business plans; materials from audit firms; etc.
The next stage of working on a business plan is to determine the goals of its creation.
Further action is to determine the specific recipients to whom the draft business plan will be sent (future shareholders, commercial banks, venture capital firms).
Then the structure of the generated document is determined.
At the next stage, information is collected to prepare all the individual sections of the business plan. It is important to enlist the support of people who have the experience and knowledge to draw up a business plan (employees who know the internal environment well, external consultants, especially in the areas of financial forecasting and market research, as well as management consultants).
After a brief description of the overall structure of the business plan and the firm’s summary as its mandatory element, you should pay attention to the sections that occupy the most important place in the document we are interested in. One of them is the section “Description of goods (services) offered to consumers”, since often the prospective investor may be interested not only in General data about the product, but also in its packaging, design, properties, degree of protection, and justification of the price; it is necessary to describe the existing shortcomings and measures to overcome them. It is particularly necessary to emphasize the difference between what is currently available on the market and what the company is going to offer in the future, since market entry and sales growth directly depend on the unique properties of the product presented in the business plan.
The most important component of the plan is the assessment of sales markets for products (services), together with a description of the state of the industry. Here it is necessary to draw conclusions about the needs of the market that the company’s products meet. You should also provide statistics on the sale of goods on the market, the classification of users and distributors, and specify the volume of products that are consumed or may be consumed annually. In the second part of this section, the world market can be considered if the company’s products claim a certain niche in it. Here it is necessary to reflect the sales of products manufactured by the firm, the global market for 5 years, the factors influencing this (legislation, policy, demographic situation), and activities that need to take place to enhance competitiveness of the organization in the global market.
Many entrepreneurs underestimate the danger of competition, so in business terms, it is desirable to conduct an analysis on this problem, because even if the company is the only manufacturer and seller of any product in the industry, it still faces competitive forces. This may be new (potential) competitors entering the industry, or competition from substitute products, suppliers, and customers. We must not forget that one of the most serious competitive forces in the domestic market is foreign companies that attract customers, if not by quality, then by affordable prices and more eye-catching packaging and product design. These firms act rigidly, guided by their own strategic goals. In the competition with such organizations, any Manager must resort to proven international practices and strategies, the basis of which is reflected in the planning in the form of not only strategies, but also specific management decisions. However, first you need to think about the following: how best to implement it; whether you need to reorganize the structure of the enterprise (business restructuring, production, attracting new specialists, etc.); what should be the financial structure necessary for the implementation of the strategy; whether to leave the traditional market; if the existing market is supplemented by a new one, then which of them is appropriate to focus on; whether it is possible to increase profits without changing the current competitive position of the company.
The analysis of competition in sales markets cannot but be logically dependent on the production plan, which should cover issues related to the production process, purchases of necessary equipment, raw materials, analysis of the enterprise’s production capacity, transport, commercial and energy costs, and cost-effective production volume. Production requirements should also be set out (tightness of the room, proximity to raw materials sources, sound insulation, etc., i.e. anything that can increase the cost of the project). In this regard, the main purpose of the production plan is to provide information on ensuring the production of products from the production side and develop measures to maintain and develop production. This section should include the following: information about the location of the company and the types of production capacity required; a description of the entire production process; information about the purchase of machines and equipment; information about their technical capabilities and relationships with the main suppliers. When considering the production process, it is useful to present a diagram of the sequence of production operations. Before you directly start developing the production section of the business plan, you must meet the following requirements.
Since the text will be evaluated by financiers, not production managers, make sure that it is clear and convincing for non-professionals.
The volume of the enterprise description should not exceed 10-15% of the total business plan. If something seems very interesting to you, it is better to make a special application of any size.
In some cases, it is very important to choose the location of the company. Justify your choice, if necessary; consider the possibility of access and Parking, the organization of oncoming traffic, the availability of platforms for loading and unloading, distance from the routes, etc.
You should always consider the difference between renting a room and buying it. You can’t make any recommendations here. But a more attractive option for investors is a buyout or lease with the right to buy.
New construction must be thoroughly justified. Money for construction is given very reluctantly and only if then there is a right of ownership of the erected object. It is necessary to plan a sufficient amount for the evaluation, registration, etc., as well as time (from three months to six months) to register a new property as part of the project.
It is very difficult to convince investors of the need to Finance repairs. If the repair is really necessary, be sure to make up its estimated cost. If any work is expected to involve a third party (construction, installation, project and other), give criteria for their selection in the auction than to pre-announce that a contractor has.
It is necessary to describe either the installed equipment or the equipment for which there is a real offer for delivery (meaning a written offer from the supplier company indicating the cost of the entire range of services: delivery, commissioning, warranty and post-warranty service, training of personnel, etc.).
Carefully analyze the possibilities of supplying heat, electricity, and compressed air, as well as the availability and reliability of existing communications.
Specify whether permission is required from environmental and sanitary-epidemiological services? Are all their requests taken into account when designing? These problems too often, push start, ready-made production for an indefinite period.
The content of the production plan may vary depending on the industry in which the company operates. For example, for a manufacturing business, the plan must include a stock and supply management policy and identify suppliers of component materials. Business in the service sector requires special attention to the location of the enterprise, as a good location can provide competitive advantages in the form of reduced transport costs, availability of labor and expanding the flow of customers. In addition, it is necessary to provide a description of the main production assets of the enterprise. For an existing business, it should include a description of production and storage facilities, special equipment, and mechanisms that the company has. For a newly created company, you need to analyze the state of existing fixed assets and assess the need to purchase new ones. It is advisable to calculate the equipment requirements for two or three years in advance.
The production program based on the available capacity of the company is compared with the volume of market demand for the corresponding product type. The necessary and sufficient increase in production volumes is determined, which, together with previously manufactured products, will find its consumers on the market. Based on the needs of the market in the volume of production, the necessary production potential of the company is determined, in particular — the need for basic production funds, material resources and production stocks. The need for fixed assets is calculated for each type of fixed assets. Select one or more options that are most effective for the specific conditions of the company in terms of meeting the needs of the market.
The cost calculation can be carried out in an enlarged way, based on the company’s cost standards per unit of output, or by directly calculating the calculations based on the resource standards. Completing the section on the characteristics of the production part of the business plan, it is necessary for clarity to give a fragment of its approximate content, which can be taken as a basis for the preparation of the presented section at the enterprise.
If you are still hesitating, pay attention to the figure. 1.5, which shows the growth dynamics of Runet users. I think that’s a very convincing statistic, isn’t it?!
Sergeyev A. P.
A fragment of the Chapter from the book ” how to create your own Internet business. Quick guide»
ID ” Williams»