For most businesses, preparing a business plan has never been an easy task, since future business plans are based, at least in part, on assumptions. There is usually a discrepancy between forecasts and actual results, as events and circumstances often do not develop as expected. For this reason, both positive and negative deviations can occur.
What is a business plan?
Recently, there seems to have been an increase in the number of uncertain events with regard to preparing a business plan. Just think of the Covid pandemic affecting the entire world and its consequences, which were unimaginable just a few years ago, or the microchip shortage and its negative impacts on certain segments of the economy.
It is almost certain that there is a big discrepancy between the plans drawn up for these periods a few years ago and the actual facts. But this does not necessarily mean these business plans were incorrect when they were made. It is more that it is always easier to be smart in hindsight.
Whatever the purpose of the business plan (borrowing, bringing in financial investors, market launch of a new product, developing technology, expanding capacity, etc.), it is important that users of the plan know and understand that what they are reading is not a fixed reality, but a realistic vision of the future based on the best knowledge and information available to management at the time.
Of course, the purpose of the business plan can influence its exact content, and which chapters are more important than others, but for credibility it is highly important that its findings do not change depending on the above.
A good business plan defines where the company starts from, where it wants to go, what it has to offer, what threats it faces, and what tools and resources it needs to achieve its goals. The longer the time horizon, the more uncertain the future, the greater the likelihood of unexpected events, the more market conditions may change, and sometimes even factors that seem to be stable may diverge.
What to look out for when preparing a business plan
When preparing a business plan, the following key principles must be considered:
- Reality – there should essentially be a positive outlook and a promising vision for the future. All this, however, whilst being firmly rooted in reality. It should not include commitments (e.g. increase in sales revenue or staff) that are known at the time of preparation to be unachievable or unrealistic. Some of the data needs to be based on forecasts from professional sources independent of the business, while in other cases it is permissible to work with conclusions drawn from historical data and trends.
- Complex approach – it is important to cover the full spectrum of the business and to take into account the influences, as well as their changes and the uncertainties encoded in them, which the business cannot extricate itself from. This includes the regulatory environment, macroeconomic trends both in the Hungarian and global markets, and other expectations of market players, whether in terms of environmental protection or social responsibility. Given the uncertain outcome of changes in some areas, it is not necessarily a bad thing for a company to consider several scenarios and weight them according to their likely occurrence.
- Consistency – there should be harmony between the numerical data and the textual parts, they should support each other, point in the same direction and be logically consistent with the objective the business is trying to achieve.
- Focus – here too, the principle of less is sometimes more also applies. A good business plan does not necessarily have to be 80 pages long; undue information overload can confuse the clarity and hide the point.
- Accuracy – in addition to the text being easy to understand, the reader should be able to draw the same conclusions from the business plan as the author.
Preparing a credible business plan is a major challenge for businesses because of the uncertainties of predicting future events. This is why thoroughness is important, and the best way to achieve this is for the writer of the plan to take a realistic and complex approach with consistency.
In addition to the above of course, there are many other factors that need to be considered in order to produce a credible and realistic business plan. If you need help with this, please contact our financial & accounting consultants!