Business Planning
What you must understand
The business plan is a planning and communication document; the business model explains how value is created, delivered and captured. Know the sections: vision and mission, objectives, market analysis, marketing plan, operations plan, human resource plan, financial plan (cash flow, profit forecast, break-even, funding), risk management and milestones. Understand SMART objectives, the distinction between strategic, tactical and operational planning, and the role of contingency planning. Planning reduces uncertainty but cannot eliminate it; plans must be monitored and revised. Feasibility differs from planning: it tests viability before commitment.
Traps in questions
- Writing objectives like "increase sales" - not specific or measurable, so not SMART.
- Confusing a cash flow forecast (timing of receipts and payments) with a profit forecast (revenue minus expenses over a period). A profitable firm can still fail from poor cash flow.
- Treating the plan as a one-off document rather than a living control tool.
- Ignoring assumptions - markers reward stating and testing them.
- Describing benefits of planning without acknowledging limitations (rapid change, over-commitment, cost).
Rule of thumb
Every forecast rests on assumptions. State them, then stress-test: what happens if sales are 20% below plan? A plan that survives that question is credible.
Worked example
A start-up forecasts 1,000 units at $40, variable cost $22, fixed costs $12,000. Contribution per unit is $18; break-even is 12,000 ÷ 18 ≈ 667 units. At 1,000 units, profit is $6,000. If sales fall 20% to 800 units, profit falls to $2,400 - still viable, which strengthens the plan's credibility.