Business Plan Development

When writing a business plan, there are some key components that you should include. These relate to resourcing and compliance, financials, marketing, and risks and contingencies. By including these components in your business plan, you will be forced to consider how you intend to implement each component. The result will provide you with a well-considered business plan.

For a well-developed business plan, you need to ensure all the key components mentioned below have been included:

Methods or means of production or operation

Methods or means of production or operation describe the physical necessities of the business' operation, such as:

• the physical location,
• facilities,
• and equipment.

Depending on what kind of business it is, it may also include information about inventory requirements, suppliers, and a description of the manufacturing process.

One of the most important things for any business to consider is its resourcing requirements. Understanding resourcing possibilities will provide the business with an idea of what it is capable of delivering.

Resource Requirements

Resourcing relates to the following:

Labour:

This includes the workforce you will be required to employ to achieve your business goals. When considering your labour requirements, some things you will need to consider include:

• The mode of operation of the business (for example, will the business be run online, or are client-facing positions required?)
• The size of the business (for example, can the business be run from one office or will it be required to span further geographically?)
• Specialist experience (for example, do the founders of the business already have the knowledge and experience required to run the business, or will specialists be required?)
  • Businesses should also consider the most cost-effective way to source specialist services and sources of advice. This is likely to depend on the type of business and the service it offers. For example, if the business requires specialist services and advice frequently, it may be more cost-effective and convenient for the business to employ relevant workers. Whereas, if the business requires a piece of expert knowledge for a particular function sporadically, it may be more cost-effective to hire on a cost-perservice basis.
• Production requirements (for example, how will a business produce its goods? Will they be produced in house or outsourced?). Understanding this will impact the type of jobs required within the business.

Capital:

This is the amount of upfront money that the business will require to start its business. When considering capital requirements, consider:

• Set-up costs, including any structures of machines that may be required (for example, do you require a purpose-built facility? Do you require machinery to manufacture products?).

When determining resources, information should be kept on how the resourcing requirements were agreed to. This will allow management to understand the original intent for how the business was to operate, calculate staffing requirements for undertaking the work of the business and adjust resourcing requirements as the business expands, or as needed. Ideally, this information would form part of a resourcing procedure, which would link the resources of the business to its goals and objectives.

Legal and compliance requirements are another important component for a business to consider when setting up their business and preparing business plans. There are various obligations that business owners carry, and they need to be aware of these obligations to ensure they are compliant.

Once a business understands its compliance requirements, it can write them into its business plan to ensure they are accounted for and managed.

Business owners will need to understand their legal and compliance requirements at a local, state and federal level. They will also be required to understand international laws if they propose to trade internationally. Some basic examples of compliance areas that that apply to businesses include:

Environmental:

Whether or not environmental laws are relevant to a particular business depends on the type of business being run. That said, most businesses can manage their environmental impact in a positive way and should plan accordingly to fulfil their moral obligations.

Business.gov.au explains that:

‘Environmental management involves being aware of how your business operations affect the environment. Regardless of the size and type of business you run, it's possible to manage your

• reducing your energy consumption and emissions
• using water more efficiently
• managing waste better’.

Work Health and Safety (WHS):

WHS laws require businesses to actively manage their setup and operations so as to keep all persons who are involved with the business safe. This includes workers, contractors, clients and others who come into contact with the business.

Business.gov.au provides the following in relation to businesses:

‘You must put health and safety practices in place as soon as you start your business. Under Australian WHS laws your business must ensure the health and safety of your workers and not put the health and safety of other people at risk. To do this you must:

• provide a safe work environment
• provide and maintain safe machinery and structures
• provide safe ways of working
• ensure safe use, handling and storage of machinery, structures and substances
• provide and maintain adequate facilities
• provide any information, training, instruction or supervision needed for safety
• monitor the health of workers and conditions at the workplace.’

Equal employment opportunity (EEO): The concept of EEO is that everyone should have equal access to employment opportunities based on merit, regardless of their superficial differences. Therefore, employers need to be mindful of any potential discriminatory practices in their business planning, policies and procedures.

Industrial relations:

Industrial relations relates to the relationship between the employee and employer. Both parties have obligations that must be met in return for work and entitlements. It is important that businesses are aware of their obligations (such as employment terms and conditions) and seek expert advice where required. Businesses should be aware of relevant industry award information that impacts their business and have access to relevant union details.

Understanding cash flow, sources of liquidity and your cash flow projection, is a critical part of operating a successful business and reaching profitability.

Obviously, a business requires good cash flow management for profitable financial performance. Within its cash flow management system, it is a good idea for a business to have a list of inventory that details its sources of liquidity. These will include details of financial institutes such as banks and credit unions, as well as the assets that may be sold if required. This information will help businesses to understand their complete financial profile and assist in making financial decisions.

Different financial institutions such as banks and credit unions offer business loans to help businesses with their liquidity. However, these loans include interest and other fees that the business must pay to the financial institution. Therefore, a business needs to take into account the costs of borrowing money when considering its cash flow.

Sources of Finance

There are 2 types of sources of finance: 

Costs of Finance

There are 2 types of costs of finance:

To assist with monitoring a business’ ongoing financial performance, a business should consider setting budget targets. Budget targets are the amount of income and expenditure you aim to make within a specified period. Budget targets allow the business to monitor its performance against its targets to identify where higher or lower earnings or expenditure is taking place, and the reasons why.

For more complex financial matters, a business will usually consult an accountant or someone with financial expertise or authority.

Analysing the type of marketing strategy or method you are going to use is an important part of business planning. The strategy you opt for will need to be relevant to the type, volume and range of products and services you offer, the image of the brand you want to create, your target market and your budget.

When deciding on your marketing strategy, it is important to consider pricing opportunities, as this may influence your target market and the type of marketing strategy you opt for. Two factors that can impact your pricing opportunities are as follows:

1. Product mix: Usually, a business will opt for the same marketing strategy method for its entire product mix (that is, the full range of products it has on offer). However, some brands choose to have sub-brands or diffusion lines (they may have different levels of quality and price points, or appeal to a different demographic) and market those levels
2. Volumes: It is not uncommon for supply businesses to offer a discount on the price their products if a high volume is purchased. This is known as providing a volume discount and works on the premise of economies of scale, where a business has a cost advantage with increased production. Businesses will also offer bulk discounts to wholesalers, who then on-sell the product at a higher price.

To choose the right strategy, it is important to understand the different types of marketing concepts. There are five main marketing concepts. These concepts relate to:

• Production
• Product
• Selling
• Societal marketing
• Marketing.

Key elements of each marketing concept are as follows:

Marketing Strategies Vs Marketing Methods

Marketing strategies are long-term planning of the business objectives that the company wants to achieve.

Marketing methods are ways designed to help the business achieve its objectives.

Common marketing methods include:

• Digital marketing
• Social media marketing
• Content marketing
• Product marketing

A well-rounded business plan will address the risks to the business and how it proposes to manage or take advantage of them.

While the term risk has a negative connotation, business risks are not always bad, as many risks can lead to opportunities. Businesses will manage this mix of threat compared to opportunity, commonly via a risk matrix. An example of a typical risk vs. opportunity matrix is provided below. A business will apply a particular rating to the risk, based on the probability and consequence of the risk occurring, and also of the opportunity it presents. This matrix can help a business to visualise and demonstrate whether or not the opportunity is worth pursuing compared to the risk it presents.

Almost all decisions a business faces will carry some level of risk. Some may be insignificant while others may be game-changing for the business. When weighing up a business risk and whether to proceed with it or not, the following factors should be considered:

• What is the appetite of the business for risk?
• What is the desired outcome of the risk?
• What is the best case scenario?
• What is the worst case scenario?
• What is the likelihood of the risk providing a positive or negative outcome?
• How severe is the impact of the risk likely to be (either positive or negative)?
• What reputational damage may occur?
• How can the risk be mitigated?
• What controls may be put in place to manage the risk?
• Do the benefits outweigh the negative consequences?

Three (3) common types of business risks:

1. Opportunity-based risks
   Taking opportunity over others. For example, selling a new product or service.
2. Uncertainty-based risks
   Being uncertain about unexpected events. For example, damage by fire or flood.
3. Hazard-based risks
   Dangerous situations in the workplace. For example, faulty equipment. 

When managing risks, it is important not to fall into the trap of thinking that once risks are identified, rules and procedures can be developed to mitigate them. While of course, this is a good strategy for preventing many risks, it is not entirely failsafe. Often businesses will manage their risks via a rules-based approach only and expect that this is enough to mitigate risks.

Case Study

Below, Robert S. Kaplan and Anette Mikes provide a summary of Tony Hayward’s time as CEO for BP for the Harvard Business Review. They explain why a rules-based approach cannot be the only lens through which we manage risk.

‘When Tony Hayward became CEO of BP, in 2007, he vowed to make safety his top priority. Among the new rules he instituted were the requirements that all employees use lids on coffee cups while walking and refrain from texting while driving. Three years later, on Hayward’s watch, the Deepwater Horizon oil rig exploded in the Gulf of Mexico, causing one of the worst man-made disasters in history. A U.S. investigation commission attributed the disaster to management failures that crippled “the ability of individuals involved to identify the risks they faced and to properly evaluate, communicate, and address them.” Hayward’s story reflects a common problem. Despite all the rhetoric and money invested in it, risk management is too often treated as a compliance issue that can be solved by drawing up lots of rules and making sure that all employees follow them. Many such rules, of course, are sensible and do reduce some risks that could severely damage a company. But rules-based risk management will not diminish either the likelihood or the impact of a disaster such as Deepwater Horizon, just as it did not prevent the failure of many financial institutions during the 2007–2008 credit crisis’.

As can be seen from the example above, a rules-based risk management system is not the only risk management strategy a business should employ. The first step to a complete risk management system is having your workers—and stakeholders—recognise that there are a multitude of outcomes that can occur from any given business-related interaction or transaction. This includes that non-conformance can occur at any time, even when something has been planned for meticulously. Once your workers and stakeholders recognise this, their mindsets will change from following a set of procedures, to looking widely for risks, beyond what may already be planned for.

The Harvard Business Review article categorises risk into three groups as follows:

The article goes on to explain that each of the risk categories above requires its own distinct management approach. For example:

• Preventable risks may be mitigated via a rules-based approach.
• Strategy risks are seen as worth taking on, for the possibility of a high reward. Strategy risks require a mitigation plan that considers the possible risks that may eventuate if the pursuit for high reward or opportunity does not work as planned. Therefore, risks should be managed in a way that they are minimised but not unexpected.
• External risks require identification of potential risks (the PESTLE model mentioned below is a good tool to use for this). A mitigation plan can serve to minimise the impact of any risks as far as possible, while realising that these risks cannot be controlled completely.

Next, for your business idea, consider the likelihood and consequences of non-conformance with any planned outcomes (for example, identifying the correct target market, legal compliance requirements, choosing the right marketing strategy, assigning the right labour, calculating costs, etc).

To accompany your business plan, it may pay to develop a workplace policy and procedure relating to risk identification and management. This could include information on assessing and prioritising the different types of risks, and how to best manage risks that have been identified and those that are unexpected.

Risk management strategies

There are four (4) main risk management strategies that businesses use to deal with identified risks:

• Avoid risk
  Risk avoidance is an action that avoids any exposure to the risk whatsoever.
• Transfer risk
  Risk transference is the involvement of handing risk off to a willing third party.
• Reduce or mitigate risk
  Risk reduction or mitigation is the most common risk management strategy used by businesses. This strategy limits a company's exposure by taking some action.  
• Accept risk
  Risk acceptance does not reduce any effects; however, it is still considered a strategy. This strategy is a common option when the cost of other risk management options such as avoidance or limitations may outweigh the cost of the risk itself.

When developing your business plan, it is essential to ensure you have accurate information regarding every aspect of your plan. In many instances, you will need to seek specialist services and other sources of advice, especially if there are aspects that you have not been exposed to before. 

The most common specialist services that business owners are seeking are: 

• accountants: to help them with the financial planning of their business
• lawyers: to assist them with the legal and compliance requirements relating to their industry
• marketing specialists: to assist with the marketing activities and the use of social media platforms
• business consultants: to review the business operations and assist with the business development.

There are other ways that can provide you with the help you need for your business. 

Use the following questions to check your knowledge:

1. Environmental compliance requirements and legislation is the same across each state and territory.
   True? False?
2. List the five different types of marketing concepts.
3. List the three categories that the Harvard Business Review article uses to categorise risk:
4. In your own words, explain the basic concept of EEO.
5. Outline three factors that may be considered when weighing up a business risk and whether to proceed with it or not.