UNCTAD, How to Prepare Your Business Plan

CHAPTER I
THE ABCs OF A BUSINESS PLAN
A. What is a business plan?
A business plan is a comprehensive, written description of the business of an
enterprise. It is a detailed report on a company's products or services, production
techniques, markets and clients, marketing strategy, human resources,
organization, requirements in respect of infrastructure and supplies, financing
requirements, and sources and uses of funds.
The business plan describes the past and present status of a business, but its main
purpose is to present the future of an enterprise. It is normally updated annually
and looks ahead for a period of usually three to five years, depending on the type
of business and the kind of entity.
It is a crucial element in any application for funding, whether to a venture capital
organization or any other investment or lending source. Therefore, it should be
complete, sincere, factual, well structured and reader-friendly.

B.Why a business plan?

There are many important reasons for drawing up a business plan. Some of the
most significant are the following:
x
Getting an integrated view of your business. By preparing your business
plan, you get an integrated view of all issues regarding your business. For
example, it helps you to identify better your target clients, outline your market
segment, shape your pricing strategy and define the competitive conditions under
which you must operate in order to succeed. Business planning ensures that all
these considerations are consistent and properly harmonized. Also, the business
plan process often leads to the discovery of a competitive advantage or new
opportunities as well as deficiencies in the plan. Committing your plans to paper,
ensures that your overall ability to manage the business will improve. You will be
able to concentrate your efforts on any deviations from the plan before conditions

UNCTAD, How to Prepare Your Business Plan

become critical. You will also have time to look ahead and avoid problems before
they arise.
x
Mutual understanding within the management team. Reaching mutual
understanding among the members of the management of the firm is particularly
important in cases in which the recommended policy of engaging as many
managers as practically possible is applied in the preparation of the business plan.
x
Determining financial needs and applying for funds. Determining the
amount, type and sources of financing and when it is required. Using the business
plan in the process of application for funds.
x
Approval from board of directors/shareholders. Using it as a basis for
getting approvals from the company board and shareholders.
x
Recruiting. Using it in recruiting and introducing new members of the
management and staff.
x
Deriving objectives for employees. Deriving from the business plan
measures and objectives for units and individuals in the organization
(management by objective).
x
Informing employees. Using it as a means of informing/motivating
employees about the objectives of the company.
x
Informing lenders. Giving it to banks/investment funds that have financed
your business in the past and require periodical information for monitoring
purposes.
x
Informing partners. Using the business plan in informing business partners
and other relevant organizations.
In preparing this manual, it has been assumed that the primary objective of
preparing a business plan is to determine the financing requirements of your
business and to apply for external funding.

C. Who reads the business plan?

Among the readers of your business plan will most probably be key employees,
the board of directors and shareholders, selected business partners, and current or

UNCTAD, How to Prepare Your Business Plan

prospective lenders and investors. Which parts of your business plan should be
distributed to which persons depends on its confidentiality and on the particular
responsibility of the persons concerned. If you include in your business plan
confidential strategic decisions or secrets, you should be restrictive in distributing
copies of it. Give it only to persons who you are confident will not pass on
information without your consent. In some cases, you may request the recipient to
sign a confidentiality declaration.
Some of the most important target readers may well be potential lenders or
investors. If you are looking for outside financing to develop your business, there
are many possible sources you can approach with your business plan. The most
important of these are the following:
x
Commercial banks. Commercial banks provide loans to viable businesses
on standard market terms and conditions. They are normally very risk-conscious
and require adequate coverage by means of collateral. This may consist of, in the
order of preference of the banks, cash accounts, precious metals, tradable
securities, infrastructure (land, buildings, machinery), accounts receivable and
inventory. If some of these assets are accepted as collateral, the bank may require
the loan to be covered with 200 per cent or more of their value. The interest rate
depends on the prevailing macroeconomic conditions in a country, but also on the
risk the bank attributes to a project. Experience has shown that interest rates
demanded by commercial banks in some countries can often be too high to be
really supportive of the development of a business.
x
Private investment funds. Recent years have seen a rapid increase in the
number of private venture capital funds that operate on a commercial basis. The
objective of these funds is to make a profit, and they will scrutinize your business
until they are convinced that they can get substantial return on their equity at a
calculable risk. A particular advantage of such funds, as compared with bank
loans, is that they can finance your business by placing equity without requiring
collateral. On the other hand, they will expect a good share of the profit and will
demand a control function in your business, for example through appointing one
of their staff members to the board of directors of your company.
x
Development funds. Such venture capital funds are established and
supported primarily by Governments or governmental institutions and have a
social and macroeconomic development objective. Particular characteristics of
these funds are:

UNCTAD, How to Prepare Your Business Plan


They are willing to take more risks than commercial/private venture capital
funds.

They participate in the business only for a limited period of time. They exit
when the business is financially self-sufficient.

They particularly favour businesses with special social and environmental
benefits (creating many jobs, including a strong value-added component,
transferring a substantial amount of know-how, being friendly to the
environment, etc.). Therefore, if you address yourself to such a fund you have
to cover these issues well in your business plan.
Nevertheless, most development funds, like all other funding institutions, are only
ready to finance a project if the business plan shows the viability and profitability
of the business.
x Multilateral development institutions. Among the most prominent multilateral
development institutions are:

The International Finance Corporation (IFC), which is part of the World Bank
Group located in Washington, DC, United States;

The European Bank for Reconstruction and Development (EBRD), located in
London, United Kingdom;

The Asian Development Bank (ADB), located in Manila, Philippines;

The African Development Bank (ADB), located in Abidjan, Cte dIvoire;
The Inter-American Investment Corporation/Inter-American Development

Bank, located in Washington DC, United States.
The share capital of these institutions is held by many Governments. Their
common goal is to assist the social and economic development of the regions they
cover. Their philosophy and their objective are similar to those of the
development funds mentioned above. They tend to finance directly large projects
(with equity and/or loans) costing $5-10 million or more. They also cover smaller
investment projects through intermediaries such as local commercial banks and
leasing companies.

UNCTAD, How to Prepare Your Business Plan

x
Private investors. Private investors are usually independent and wealthy
individuals who are seeking opportunities to put money in promising businesses.
Their incentive is to get a higher return on investment than on marketable
securities or investing in a fund. Quite often they allocate a percentage of their
fortunes for start-up or expansion projects. Placing money in diverse businesses
reduces the overall risk in their investment portfolio.
x
Technical assistance credits/grants. Depending upon the type and location
of your business, there may be some possibilities to access government funds that
provide soft loans or grants. Typical examples of applications for such soft loans
or grants are for training your personnel, preparing a feasibility study,
implementing a pilot project prior to an investment, and making environmentalprotection-related improvements.
Nevertheless, even for a grant, the donor will most probably assess your business
plan before taking a decision. Donors wish their grants to be given only to wellplanned and viable ventures. They rightly believe that these are the ones that can
have a substantial social, microeconomic and macroeconomic impact.

D. How to prepare a business plan?

1.

Who prepares a business plan?

The answer to the question about who contributes to the preparation of a business
plan depends very much on the type of business and the structure and size of the
entity. In a very small company, the planning work and the drafting of the
document have to be done by the managers and owners themselves. In larger
organizations, contributions have to come from different people.
The larger the number of management and staff members involved in the
preparation of a business plan, the less the chance that non-viable solutions will
be arrived at. Ultimately, those employed by the business will assume some of the
responsibility in implementing the plan. Therefore, it makes sense from a
technical, psychological and team-building point of view to involve them at an
early stage of the process. Firstly, employees have the best knowledge of the
different aspects of the company's operations, and secondly no plan will be
implemented successfully unless key employees identify themselves with the
targets set and the means committed. Company employees contributing to the
preparation of a business plan are typically:

UNCTAD, How to Prepare Your Business Plan

x The Chief Executive Officer (CEO), who should have the main responsibility
for supervising the business planning process;
x The marketing and sales manager, who understands best the demand of the
market, its growth potential, the specific requirements of clients, the prices
that they are ready to pay, the moves of competitors, etc.
x The development and production managers, who provide input of central
importance for the business plan, such as lead times for developing new
products, requirements for new production machinery and equipment,
personnel needs and raw material requirements.
x The financial manager, who usually puts the financial data of the business
plan together, works out the financing requirements of the firm, and is one of
the key figures in talking to investors and lending institutions.
In some ventures, these persons inform their personnel about the business
planning process and ask them to assist by contributing data, information,
opinions and ideas. This system approach of mobilizing a large part of the
organization has the great advantage of stimulating the awareness and motivation
of the firm as a whole.
The best skills available within the company should then be used for synthesizing
and harmonizing the input provided by the above team members and for
producing the actual report. This work should not be allocated simply to the least
useful member of staff who happens to have time available. Many large entities
have highly competent business development managers whose main tasks are to
coordinate the business planning process and edit the relevant documents. Other
enterprises do not have adequate internal resources and hire external consultants
to guide and facilitate the business planning process.

2. What are the steps in the planning process?

A business plan should not be something you prepare once, then put on a shelf
and forget. Dynamic planning should be an integral part of managing your
business. Most successful ventures prepare a three-to-five year business plan
every year. This involves updating last years business plan by comparing the
planned figures and goals with results achieved and taking into account changes,

UNCTAD, How to Prepare Your Business Plan

new information, experiences and new ideas. The steps involved in the business
planning process are the following:

1. Assessing the situation

2. Developing a mission

3. Getting ready

4. Setting goals

5. Working out the business plan

6. Setting employee objectives

7. Monitoring the process

10 UNCTAD, How to Prepare Your Business Plan

a. Assessing the situation

This should be an assessment of how your customers, partners, competitors and
suppliers view your business. It should answer the question where are we now?
It should also be a honest and self-critical exercise trying to answer the important
questions any businesspersons should be asking themselves regularly: What are
our important strengths and main weaknesses? What can we do well and what
should we not be doing at all? What are the major mistakes we have made in
the past and what can we learn from them? Do we make a reasonable number
of mistakes?

b. Developing a mission
Before proceeding further you should formulate a clear mission statement for
your enterprise. Developing your mission is often the most valuable part of the
dynamic planning process since it can change or reconfirm the direction of your
business. Missions are intended to provide a sense of purpose and act as a tool for
communicating where the business is heading. Shareholders, employees and
business partners can be better motivated and support the mission if they know
what it is.
x Your vision says how you see yourself in the far future. It expresses what you
want your company to become. A vision shared by all the people concerned
with the business is an important factor for its successful development.
x Your mission defines what you want to achieve. It states the benefits your
business will bring to clients, employees, shareholders and the community as a
whole.
x Your philosophy expresses the values and beliefs of your organization's
culture.
x Your strategy indicates how to get there.
A business is often founded on the vision of an individual. As the entity grows,
the organization may lose its original raison dtre and its mission may change.
The mission should be reviewed regularly and if necessary adapted. This should
be providing an updated picture of what you are trying to achieve and answering
questions such as:

UNCTAD, How to Prepare Your Business Plan

11

x What business are you in?

x What do you do best?
x Whose needs do you meet?
x What needs do you meet?
x What benefits do you generate?
Philosophies or values should be included in the written business plan. They are
an important foundation that should be communicated to all levels within your
organization and to your outside business partners. A consistent corporate culture
and a good understanding of the entity's direction and values can improve
decision-making and staff productivity. Staff may feel better about what they do.
People are motivated by more than just getting a salary.
The vision, mission, philosophy and strategy of a firm are usually developed by
the top management, sometimes at an off-site location has many benefits (getting
away from the day-to-day distractions for the purpose of this process).

c. Getting ready
After the mission and the philosophical basis have been defined, you need to start
the actual work of preparing the business plan. Some important matters you need
to address when getting ready are:
x
Appointing a coordinator. Appoint the staff member who will be
responsible for coordinating the business planning process and for delivering the
final document (business planning project manager) in time.
x
Hiring a facilitator. Consider the value of an experienced facilitator. Hire
one if you do not have a staff member who is available and has the relevant
experience and talent in guiding complex business planning processes. Very often
an external person - neutral and independent - can be of value in moderating
complex consensus-seeking sessions. This person should be knowledgeable about
the requirements of the readers of the business plan.

12 UNCTAD, How to Prepare Your Business Plan

x
Defining tasks. Define the different tasks and steps involved in the process,
the timing of these and the overall schedule for the work.
x
Identifying team members. Identify the people who will be involved in the
process and define their roles, competencies, responsibilities and expected
contributions/deliverables.
x
Gathering information. Gather and organize all the basic information that
will be required from internal and external sources (market surveys, reports on
competition, new technological developments, etc.). In addition to information
available in-house, there are valuable sources and tools such as industry
associations, databases and specialized consultants to be considered.

d. Setting goals.
Setting goals for the future development of the business is a prerequisite for the
preparation of the business plan. Although these goals will have to be adjusted in
the iterative planning process, they can still be of great value in setting the tune
and spirit for further work. The goals should be time-bound, realistic and
measurable. Examples of such goals can be:
x
Over the next three years increase sales volume by an average of 20 per
cent per year by intensifying marketing and sales effort in the neighbouring
countries (export);
x
In the coming year reduce production costs by 10 per cent through greater
automation of production lines;
x
By the end of the second planning year launch three new products on the
local market.

e. Working out the business plan

Working out the business plan basically involves synthesizing and harmonizing
your marketing, sales, development, manufacturing, operations and financing
targets in such a way as to enable the enterprise to meet its overall objectives.
This matching work is usually conducted in an iterative process until full
consistency of all elements of the business is achieved.

UNCTAD, How to Prepare Your Business Plan

13

f. Setting employee objectives.

One of the most important actions after your business plan has been completed is
to use it as a basis for setting the objectives of units and individuals in your firm.
The objective of your sales manager is to achieve the sales volumes set in the
plan. The production manager has to meet the quality standards and production
rates anticipated. The development staff have, among other things, to meet the
schedules planned for bringing into production the new product. These individual
objectives should be fixed in writing and the results of the work should be
monitored and assessed periodically. These should form the basis for the financial
compensation of the employee.

Figure I.1. Role of the employees in the business

planning process
Mission
Goals
Information,
ideas

Business planning

Communication

Objectives

Employees

Source: UNCTAD.

g. Monitoring the process.

Systematic monitoring of the implementation of your plan is a very important
factor for the success of your business. Action plans, monitoring systems and
constant feedback should be integrated to ensure successful implementation of the
plan and achievement of its objectives. Participation in this process can have a
profound effect on the way your team members view their role in the enterprise,
and can have an immediate impact on their performance. If the business plan is

14 UNCTAD, How to Prepare Your Business Plan

completed and then locked up in a cupboard and forgotten for a year, your
employees will never take business planning seriously again.
If key assumptions change, the plan must be adjusted. Accordingly, mid-term
corrections are recommended. The key to maximizing the benefits of dynamic
planning lies in implementation, action and keeping the plan up to date.

E. What is expected from the investor/lender?

In addition to contributing funds required to run and further develop the business
as envisaged in the business plan, investors and bankers can provide support such
as that described below.
x
An experienced person from the investor organization should be assigned
to the supervisory board of your entity. He/she could bring to the business new
contacts with the market, new ideas and useful advice.
x
If the investor is an operating company in a related business sector, there
could be good potential for synergies and partner cooperation in one or more of
the following fields:
x Entering new markets through the network of the partner;
x Adding the products of the partner to your list to enlarge your
assortment;
x Joint development and production efforts to take advantage of
economy of scale effects;
x Transfer of technical and management know-how, etc.
x
If the investor is a government-sponsored fund with development aims,
your company may get additional political and lobbying support.

F. Different types of business plans

The structure, content and depth of a business plans depends on many factors,
such as:
x The main objective of the business plan;

UNCTAD, How to Prepare Your Business Plan

15

x The stage of the business (start-up or existing company or spin-off);

x Type of business/industry;
x Financing situation;
x Size of the company, etc.
The brief discussion below gives some examples of relevant factors.
x
Type of business/industry. If you are in trade, your business plan will not be
dealing with issues such as manufacturing process or investments in machinery.
You will put more emphasis on obtaining funds to finance the building up of your
procurement and sales network and pre-financing the goods you will be trading
with. The mix of products and services to be offered can also affect the content of
a plan. Issues relating to inventory, storage and so forth become less significant as
the product/service mix moves towards a pure service business. In any case, your
business plan should cover standard issues such as development of human
resources and marketing.
x
Sole ownership. If you are a sole proprietor of a small business, perhaps
you will be drafting the entire business plan yourself. For a small business, the
size, complexity and effort spent in producing the business plan have to be kept
within limits. In such a case the business plan has to put emphasis on your own
person. Personal financial information may be required in order to support your
statement that you will be allocating a certain part of your own funds as an
investment in the business. You should also provide specific details regarding any
personal non-financial assets that you plan to use in your business.
x
Transnational corporation. The corporate business plan of a transnational
corporation with an annual sales volume of several billion dollars does not put
emphasis on the same issues as an average medium-size company with an annual
turnover of a few million dollars. Issues covered in the business plans of
transnational corporations are:

Global image promotion strategies;

Expansion through acquisition of other companies/mergers, etc.;

16 UNCTAD, How to Prepare Your Business Plan


Analysis of global macroeconomic developments and international politics
that are likely to influence the business;

Prediction of long-term trends and developments in demographic, social and
consumer behaviour;

Long-term product development (5 to10 years or beyond);

Government relations and lobbying policies.
Issues of less significance for corporate business plans are perhaps the following:

Production techniques (such corporations have many different types of
products);

Sales tactics (these could vary in different continents/countries);

Staff policy (with perhaps the exception of top management in the different
countries, etc.).
x
Divisional business plan. The plan of a business division (unit) of a large
corporation does not differ much from the business plan of an independent
company. However, in addition to the standard issues covered in the business
plan (production, sales, resources, etc.), it has to cover all issues of interfaces and
synergies with the other units of the corporation.
x
Start-up business. If you are just starting, you face a special challenge
because you do not have an established track record. Instead, you must
concentrate heavily on your ability to sell yourself and the partners that you may
have as potentially successful businesspersons. It does not matter whether you are
using your business plan in an effort to obtain financing or to convince
prospective employees to come to work for you. You need to convince whoever
reads your plan that your business idea is going to be a success. In essence, your
ability to sell yourself is a substitute for the historical information that does not
exist. Therefore, your plan should include personal information about all persons
involved in the start-up venture (previous occupation, experience, business
achievements, etc.), instead of the historical information that an ongoing business
would be able to provide.

UNCTAD, How to Prepare Your Business Plan

17

As is the case of an established business, you also need to provide projected profit
and loss statements and a cash flow plan. These documents quantify the results
you expect to achieve through your operations. Be sure to include any start-up
costs that will be incurred prior to the opening of your business. While your
business will probably involve certain expenses that are unique to your industry,
do not forget some of the more common start-up expenses such as:

Professional fees (legal or accounting);

Regulatory charges (licensing, company registration costs, etc.);

Deposits for rented space;

Market study.
x
Major expansion of existing business. If your business plan is produced
with the main aim of raising finance to expand your business, the two following
issues have to be properly covered:

That the market of the business sector you are targeting has potential for
further growth; and

That your entity, on the basis of its history and competitive strengths, is
well positioned to win a substantial share of this market.
x
Regularly continuing business. There are also business plans that do not
anticipate significant growth or major investments and therefore are not
concerned with the issue of raising additional funds. In such cases, business plans
are produced to inform or get approval from the decision-making bodies and
existing investors and/or the team of managers write themselves in order to reach
a common understanding of their goals and to determine their future priorities and
activities. Obviously, in such business plans, less emphasis is put on justifying the
market potential to accommodate growth. Many firms produce such business
plans every year.
x
Financing stage. As has often been mentioned, one of the primary purposes
of producing a business plan is to inform your lenders and investors. If you are
not seeking new money but only intend to keep your present financiers informed,
you need to put less emphasis on the background of the business (which is

18 UNCTAD, How to Prepare Your Business Plan

already known), but to emphasize more new developments in the business.

However, if you are approaching new lenders/investors (so-called second and
third round and/or the stock market), your plan has to contain a more detailed
description of the background of your business (including markets and products).
x
Specific project. Perhaps you are drawing up a business plan not for the
entire business of your entity, but only for an isolated one-time investment project
such as:

Opening a subsidiary/profit centre in a specific country abroad;

Starting a new business unit for a set of new products or services.
For such business plans you need only to provide general information about the
entire group. Your business plan should be concentrating on the new specific
business you are planning. However, lenders or investors will be interested in
having a wider picture of your companys finances in order to assess the overall
financial risks. If your company has financial difficulties, obviously this will
reflect on the project as well.

G. Format and organization of a business plan

Before discussing the content (substance) of a business plan, it is important to
consider some basic issues regarding its format and presentation. If the plan has
to look professional and to be a useful tool, then there are a number of points that
require special attention, as discussed below.
x
The cover. The purpose of a cover page is to tell readers what they are
about to read and how to reach the author. The cover of the document is often the
first impression of a business that any interested parties or investors get. Your
cover page is also a way to make your business plan noticed. Financiers receive
numerous business plans every week, but something as simple as a cover page on
good-quality paper may attract their attention (and thus ensure that they give
higher priority to the business plan). Your cover should bear the words "Business
Plan" and should include:

The legal name of the business;

UNCTAD, How to Prepare Your Business Plan

19


The entity's logo. (If you have spent time and effort on a company logo,
slogan or other identifying graphic or text, the cover page is the place to
put it. If you have not considered these basic marketing tools, you are
advised to do so. Building an identity is vital if you want people to
recognize and remember your business.);
The date of preparation or modification of the document, and the period it
covers.

The address;

The telephone number;

The fax number;

The e-mail address and website (Internet address) if applicable;

Other contact information, if any.

Optional: a notice advising the reader that the plan is confidential. If you
have prepared multiple copies of your business plan, you might also put a
copy number on the cover page to ensure control of distribution.
The cover should be attractive and look professional. The fonts used should be
easily readable, and colour contrasts should be pleasant to the eye. Any nice
graphic or photograph could make it look even more appealing.
x
Table of contents. Your table of contents provides readers with a quick and
easy way to find individual sections in the plan. Be sure to list headings for major
sections as well as for important subsections. If your table of contents is more
than one page long, reconsider the length of the entries, the length of your plan
and the number of documents you have attached.
x
Paper. Print the plan on good-quality paper. Print on one side of the paper
only.
x
Contact person. Be sure to include identifying information for the business
and to name the person who should be contacted regarding the plan.
x
Fonts. Use a typeface that is easy to read and a font size that is large
enough to prevent eye strain. This may require tables with financial projections to
be spread over several pages in order to maintain legibility.
x
Margins. Maintain reasonably wide margins. These are useful to readers
for noting their questions and comments.

20 UNCTAD, How to Prepare Your Business Plan

x
Terms and acronyms. If your business uses specialized terminology or
acronyms, use them sparingly and be sure that you define any terms that someone
outside your area of expertise would not know.
x
Page numbers. Number the pages, and be sure that these numbers are
correct in the table of contents.
x
Size of document. Keep the plan short and concise. Limit the inclusion of
extraneous material. You can always provide additional detail in an appendix, if
required.
x
Samples. Include in the appendix samples of advertisements, marketing
material and any other information that aids the presentation of your plan.
x
Editing. Be certain to edit the document carefully. Spelling mistakes and
grammatical errors do not make a good impression. Modern word-processing
software provides effective spelling and grammar checking tools - use them. It is
worth while having one or two persons to read and check the text and figures
again.
x

Binding. Bind the document so that it lies flat when opened.

x
Overall quality of presentation. Do not go overboard on expensive binders,
binding, embossing etc. According the form of the plan more importance than its
substance can raise doubts among those reading it. But not let it look cheap or
sloppy.

H. Planning period
One of your first questions would probably be when starting the planning work:
For what period of time should the business plan be prepared? There is no
straight answer to this question. There are entities planning for only one year, but
there are also entities planning for 10 years or more. However, statistics show that
most entities tend to produce business plans projecting from three to five years.
The optimum planning period depends on the type of business and kind of
company. Some important criteria and considerations in deciding about the timespan to be planned for are set out below.

UNCTAD, How to Prepare Your Business Plan

21

x
Break-even point. If you are starting a new business or planning a major
expansion of your existing business, you expect probably to have a net loss for
the first one or two years. In such a case, your business plan should go beyond the
break-even point and also cover at least two profit-making years. This means that
your business plan should cover a total of four years. It is psychologically
important that your lender or investor sees at least two consecutive years of profit
at the end of which dividends can possibly be paid.
x
Management fluctuation. Management fluctuation in an average company
varies between 10 and 15 per cent per year. If in your company the turnover is
about that rate, it means that, within four years, more than half of the managers
will have changed. In such a case it does not make sense to plan for any period
beyond that. It is important that future managers contribute with their own ideas
to the planning of the business for their period of time. On the other hand, if you
are in a family business or if the management is a small team of partners
committed to the firm, you may be able to plan for a longer period of time.
x
Infrastructure development (project) period. The appropriate business plan
period would also depend on the time scale required in order to develop the
infrastructure needed for the business.
If the business you are planning is the acquisition of land, planting of rubber trees
and production of latex, you should be thinking of a time frame of at least 10 to
15 years. Rubber trees are usually ready for latex production when they are about
six or seven years old. Maximum output is reached when they are about 10 years
old. On the other hand, if you are planning to lease a farm and equipment to grow
tomatoes, you are in business earlier. A few months after you have leased the
farm and planted the tomatoes, you can bring the produce to the market and
generate cash. Therefore, in this case a planning period of between one and three
years may be sufficient.
Projects with typically long planning periods are infrastructure projects. Power
stations, motorways and the like take a long time to construct and require
substantial investment, and the depreciation of capital expenditure must be spread
over a long period. Therefore, planning periods of 20 to 30 years are often
necessary for such businesses.
At the other extreme are businesses that are quickly set in motion and do not
require major investments in infrastructure. A typical example is the trade
business. If you are an intermediate in exporting textile garments, your only

22 UNCTAD, How to Prepare Your Business Plan

infrastructure may be a small office. You can engage a transportation company to

deliver the products directly from your supplier to your buyer and thus you do not
even need storage space. In such a case, you do not necessarily need a business
plan for more than a couple of years.

Box I.1. Where did the habit of five-year planning originate?

The former Soviet Union offers an interesting example of how planning periods
are determined by the time scale required to complete infrastructure projects. The
entire economic development programme of that country was based on
consecutive and centrally planned five-year cycles. These came to be known as
"five-year plans". This five-year rhythm was adopted later by other socialist
Governments. Furthermore, many Western enterprises adopted the habit of
planning their businesses on a five-year basis.
Why did the Soviet leadership choose a five-year cycle? The explanation goes
back to the first five-year plan for the years 1928-1932. At the end of the
revolution, the industrial capacity of the country was in a dire state and far behind
that of Western Europe and the United States. It was during the mid-1920s that
the Soviet leaders drafted an ambitious industrialization plan at the core of which
was steel, energy and heavy machinery production. The "flag ship" of
industrialization was the colossal Magnitogorsk iron and steel plant, which was to
deliver the much-needed raw material. Other elements of the plan were the huge
Tchelyabinsk agricultural machinery plant and the Dnepropetrovsk hydropower
station, which was one of the largest in the world at the time. This national
industrialization programme formed the central part of the overall economic plan.
The completion period for Magnitogorsk and all peripheral and associated
industries was forecast to be about five years. The time frame of the first plan
(1928-1932) was chosen so as to include start-up, output and other industrial
achievements at the end of the planning period. In this period, a total of 64.9
billion roubles was invested in the economy, 23.3 billion of which was allocated
to heavy industry. As a consequence, it became customary to plan the
development of the Soviet economy on the basis of five-year plans.
Source: UNCTAD.

x
Market/client development period. Most business plans show growth of the
business over time. An important assumption is that the number of buyers will be
increasing as the firm becomes better known in the market. Thus, the rate of
growth of a company depends on the time factor required for making itself or its

UNCTAD, How to Prepare Your Business Plan

23

products known. If you plan an art gallery for selling paintings and sculptures,
you may find that it would take five to eight years for you to acquire a reputation
and for the sales curve to begin to flatten. But, if you establish a fast food shop in
the main passage of the central train station, you may find that you achieve the
maximum amount of sales within a few months. In the first case, it takes a great
deal of time for art lovers from the region to discover your gallery, familiarize
themselves with the art you are selling and decide to buy. Here, word of mouth
plays an important role. In the second case, people passing in front of your shop
(most of them while commuting every day) will very soon discover the appetizing
sandwiches in the window. Therefore, in the case of the gallery, you may need to
plan the business for a longer period of time than in the case of the fast food shop.
x
Macroeconomic stability. If you are operating in an environment of stable
and easily predictable macroeconomic conditions, you can afford to make
financial projections for a longer period of time. If, for example, inflation and
interest rates over the past five years have been stable (varying only within a band
of a few per cent), you can reasonably plan for a period of another five years.
If, on the other hand, these parameters vary significantly and there is no reason to
believe that a more stable and predictable situation can be reached, there is no
sense in making financial projections over a period longer than two to three years.
x
Product technology. Technologies have life cycles. The business plan
period would also depend upon the type of product, its technology and the
technology used in producing it. If you consider setting up a facility for producing
cotton T-shirts or blue jeans, you can be almost sure that for many years there
will be no radical change in the product or the way it is produced. There can be a
danger of more competitors coming into the market but no threat of product
substitution. Consequently, from the product and technology point of view, you
can reasonably plan the business for five years or more.
But if you are setting up a small firm to provide services in relation to Internet
access, you cannot be sure how your business will look after two or three years.
Not only is this market completely open for any competitor to enter without a
major investment, but also technological developments occur so rapidly that
projections beyond two to three years would not be sensible.
Average period
As a general practice, for an "average" business a four-year plan is reasonable.
This does not mean that somebody has to plan in detail month by month, or week

24 UNCTAD, How to Prepare Your Business Plan

by week, what is going to happen over the next 48 months. The level of detail
will decrease as your plan extends further into the future. The cash flow that is
tracked monthly during the first year of operation may be projected by quarter in
the second year, and annually in the third and fourth years. For the first year you
may have to plan (budget) on the basis of actual costs (actual salaries, rent, etc.)
and most probable sales (confirmed orders, identified opportunities, etc.). For
subsequent years, you have to make some assumptions about how sales and costs
are expected to develop. The most usual practice is to update the business plan on
a yearly basis.

I. Content and structure of a business plan

After you have considered the purpose of your business plan and have done the
necessary background preparation, it is time to consider the actual elements that
you will include in the written document. This should contain five types of
information as follows:
x The mission of your business and the objectives you want to achieve;
x Your targeted markets and clients, the products and/or services you will
provide and the position of your competitors;
x The qualitative and quantitative results you expect to achieve;
x The human resources, infrastructure, equipment, raw material and financial
resources you need in order achieve your goal in business;
x The technical, organizational and administrative processes you will apply.
The above information can be conveniently structured in your business plan in to
eight chapters, as follows:

1. Executive summary
This is arguably the most important single part of your document. It provides a
high-level overview of the purpose of the business plan, the main highlights and
the financial resources required.

UNCTAD, How to Prepare Your Business Plan

25

2. Background
This is the section that provides summarized entity-specific information,
describing the business organization, location and premises, principal products
and customers, key data, constitution/ownership and management, history, and
business strategy and vision. It gives the reader an initial overview of the business
before specific details are provided later on.

3. Products and services

Product description and history, product attributes, research and development,
costing and pricing, production process, quality assurance and control, sourcing
and intellectual property.

4. Markets and clients

Market characteristics, clients, competition, positioning, marketing strategy and
projected sales.

5. Business operations and organization

Location and premises, marketing and selling methodology, manufacturing,
distribution, order processing/inventory control, company structure/organization,
project management and management information systems/reporting.

6. Human resources
Management (shareholders, board of directors, executive/operations management,
middle management, external support services) and personnel.

7. Legal framework, and environmental and social factors

Approvals and licensing requirements, environmental risks, social compliance,
development and social benefits.

8. Financial planning
Financial history (financial statements), projected income statements, cash flow,
balance sheet and important ratios, funding requirements and other supporting
information.

26 UNCTAD, How to Prepare Your Business Plan

Appendices

Product literature;

Asset valuations;

Historical financial statements and auditors reports;

Legal documents (for example, company registration);

Curriculum vitae of key management persons;

Market research;
Other relevant and important information.

The above chapters are presented in the order in which they usually appear in a
typical business plan. But do not feel constrained to follow this format exactly if
another way makes more sense because of the specifics of your business.
The following chapters in this manual discuss criteria and considerations that may
be of use to you when preparing the above-mentioned chapters of your business
plan.