Analysis of Two Business Plans to Draw Strengths and Weaknesses in Each - Example

Business Plan Analysis Student Name: Institutional Affiliation: Date: Table of Contents Introduction 3 1 Summary of the business plans 3 1.1 Franchise sandwich shop business plan 3 1.2 Sandwich restaurant business plan 4 2 Analysis of the business plans 5 2.1 Analysis of franchise sandwich shop business plan 5 2.1.1 Strengths 5 2.1.2 Weaknesses in the business plan 6 2.1.3 Recommendations 7 2.2 Analysis of sandwich restaurant business plan 7 2.2.1 Strengths 7 2.2.2 Weaknesses in the business plan 8 2.2.3 Recommendations 9 3 Challenges faced in business plan preparation 9 3.1 Financial projections and sales forecast 9 3.2 Lack of adequate market information 10 4 Lessons learnt in preparing business plans 12 5 Competencies demonstrated 13 6 Conclusion 14 References 14 Introduction A business plan is an important document which acts as a roadmap for a business. It outlines the strategic directions for a business and the steps it intends to follow towards the destination. It also captures the challenges involved and the ability of the business to navigate through the challenges (Ford, Bornstein, & Pruitt, 2010). According to Pinson (2008), a business plan should be meticulously prepared as it is the guiding document of the business towards its goals. Business plans can be used for different purposes including financing and restructuring existing businesses. In light of this understanding, this report intends to analyse two business plans with the aim of comparing and contrasting between the two, to bring out their strengths and weaknesses and how the business plans can be improved. The two business plans are “Franchise sandwich shop business plan” and “sandwich restaurant business plan” (www.bplans.com, 2014). The report will discuss the challenges faced in preparation of a business plan and how to overcome them. The reports will finally highlight the lessons learnt and competencies demonstrated from the analysis of the business plans covered herein. 1 Summary of the business plans 1.1 Franchise sandwich shop business plan This business plan is written primarily for the purpose of funding. The company seeking the funding is willing to contribute $30,000 as capital and expects $200,000 as loan from SBA. The new business is set to benefit from the success of the franchisor “The Sub Shop Corp” in North America. The sandwich shop targets health conscious consumers who have higher incomes. This group is willing to spend a little bit more to get better quality and healthier choices of fast food. Ashland Metro area happens to be a suitable location for the business according to the plan. The key to success for the business will be pegged on encouraging healthy lifestyles through marketing campaigns such sponsoring sporting events, contributing to local charities and participating in local festivals. The restaurant mainly targets downtown workers, students and tourists. The restaurant's strategy is to offer a tasty, healthy alternative to attract the students and the tourists. To further deal with competition, the restaurant plans to make their restaurants as clean and attractive as possible in the eyes of the clients. The plan also lays out a number of strategies to capture sections of the market through alliances with hotels and retailers to take advantage of their existing clients. The business expects a net profit of $250,000 in the first year of operation rising to $430,000 within four years. The business plans to pay $180,000 of the $200,000 loan during the first year of operation. The business expects to double its assets within four years and reduce its liabilities by a third within the same period. The net worth of the business is expected to rise from $27000 to $445000 in the same period (www.bplans.com, 2014) 1.2 Sandwich restaurant business plan Unlike the sub shop franchise, pita pal is a new business which is introducing a new brand in the market. The business plan is focused towards differentiating the new brand from the existing ones. Pita Pal is focused towards offering healthy, high quality and tasty sandwiches. The keys to success are mainly anchored on strict financial control to ensure survival and growth in the competitive fast food industry. The business also intends to do extensive targeted marketing among its main target market in downtown Washington that comprise of the locals and the student population. Pita Pal's business plan does not identify direct competitors to its products but recognizes the existence of fast food joints such as burger king, McDonalds and Subway as main competitors. Pita pal’s business plan does not outline a detailed plan of dealing with competition and achieving a competitive edge in the market. The business expects to make a net loss of $30,000 in the first year of business which should be reversed to a profit of the same amount in the third year of operation. This is different from Sub shop’s expectations of $200,000 in net profitability in the first year. Within three years, the company would have doubled its assets while growing its worth by 50%. However, the liabilities would have increased by at least a third. 2 Analysis of the business plans 2.1 Analysis of franchise sandwich shop business plan 2.1.1 Strengths The business plan has clearly outlined its strategic focus throughout the whole document. Apart from offering a healthier fast food alternative to the market, the business outlines how it intends to implement the marketing strategy in the market to differentiate its offering from the rest in the market. The plan also incorporates how the business will handle its employees and systems to ensure the plan has considered every important aspect about the competitiveness of the business and success of the business plan. The business plan has clearly profiled its direct competition within its chosen area of operation. This is very crucial when it comes to developing a marketing strategy to counter the competition and grow the market share. The business plan provides adequate information in every section of the plan for the reader to have a clear understanding of the factors facing the business as regards competition, management, profitability and growth. This is very critical particularly for investors who prefer to read documents that show evidence of extensive market research and analysis. 2.1.2 Weaknesses in the business plan The business plan appears to be too optimistic at some point. The business plan projects a net profit of $296,203 in the first year despite the fact that there exists quite substantial competition from main fast food chains such as Subway that serves almost the same healthy offering of sandwich. The profitability has an upward trend from the first year onwards which is unrealistic for start-ups. The plan also projects the business will pay $180,000 of the $200,000 loan within the first year. This appears to be a little bit too ambitious as new businesses do not necessarily make profit in the first year of operation. A break even target would have been appropriate for the first year. The plan has also been partly successful in communicating the competitive edge of the business despite the fact that the plan states that the business will offer a tastier alternative that will attract customers to the restaurant. It would have been more effective to give a detailed analysis of what the market offers and how Sub Shop’s offering will be different. 2.1.3 Recommendations The plan should be less optimistic particularly when it comes to financial projections and sales forecasts. In the plan, the business assumes quite impressive profitability in the first year of operation. This is not usually the case for most businesses particularly in a competitive field like the fast food business. This might give the notion of the drafter being inexperienced or the report lacking adequate research data backing it. It is important that accurate information backs the projections especially for plans that are intended to be used as financing tools. 2.2 Analysis of sandwich restaurant business plan 2.2.1 Strengths Pita pal’s executive summary of the business plan communicates to the reader the strategic features of the business including its keys to success, management, product offering and the competitive edge. This is very critical as it helps to capture the attention of the reader from the onset and prepare them for the contents of the business plan. The business plan is written in an easy-to-understand language with explanations only limited to what is important to the reader. There is a clear segmentation of the market as the drafter has narrowed down to two main targets in the market; students and "towners". The plan has gone ahead to explain why the plan focuses on the two as the target market by outlining their demographic details. The plan has avoided the mistake of being too optimistic by projecting a loss in the first year of operation and a modest profit of $30,000 from the third year of operation. This shows the drafter is aware of the stiff competition in the market and considered it in the drafting process. The diagrammatic representation of the sales forecast in the business plan is also realistic as it depicts sales numbers that grow modestly as the business builds customer base. 2.2.2 Weaknesses in the business plan The plan shows little effort by the drafter in researching on the direct competition facing the business. It only identifies the nationwide fast food restaurants that present great competition but does not profile the immediate competition located within the same area. As such the plan fails to clearly articulate the strategy which the business will rely on to beat the competition. For example, the plan states Pita Pal will “attempt” to reach the towners through the newspapers. It shows there is no commitment or a clear plan of action to reach the identified target market. The plan does not bring out the aspect of internal planning that is meant to complement the efforts of the business such as relations with employees and how the human resource available can help the business actualize its objectives. This gives a hint of casualness and narrow focus on expenses, costs and profitability in drafting the plan. The plan therefore, fails to capture the strategic focus of the business. The plan does not identify the key competitive advantage that the business enjoys over the rest of the players in the market. Instead, the plan identifies healthy food and ability to customize meals as the competitive advantages which is simply an industry-wide practice in restaurants offering healthy sandwiches such as Subway. Claiming to offer healthy foods cannot be relied upon as a competitive edge particularly in the fast food industry where impulse buying is partly a part of consumer's decision-making process. Unfortunately then, the business comes out just like any other sandwich restaurant with a textbook business plan. 2.2.3 Recommendations Pita pal’s business plan can be improved by adding more factual and detailed information in the marketing analysis segment. This will give the reader a reassurance that the drafter has adequate understanding of the market and the competition facing the business. The research will also ensure the plan captures the strategic focus of the business particularly in identifying the key differentiating factors of the product as compared to the rest in the market. The business plan should also avoid too much outlining of key information such as target market demographics but explain the dynamics involved to avoid the assumption that the plan was prepared casually.    3 Challenges faced in business plan preparation 3.1 Financial projections and sales forecast Financial projections and sales forecast are particularly very important elements of any business plan. One can afford a degree of inaccuracy in other areas but not in these two. It is very common to find well-prepared business plans which lack accurate financial projections and sales forecasts. A balance sheet presents the assets and liabilities of a business for a particular period thus stating the true financial position of a business (Pinson, 2008). It is easier to prepare one for a business that is already in existence. For the case of a business plan though it is challenging because the business only exists in the plan and not as an entity. Another challenge related to preparing the balance sheet is the urge to be optimistic when preparing the business plan. In most cases a person drafts a business plan with the belief that the business is going to be profitable and not a loss making entity. This will thus be reflected in the balance sheet in the form of good profits and high-value assets (Pinson, 2008). This is not usually the case particularly for new businesses which have to navigate through tough markets and low profitability in the first years of existence (Balanko-Dickson, 2007). Balanko-Dickson (2007) also contends that it is very challenging to forecast the sales of a business that you have not yet started since you don't have an idea of how the market is going to receive your product or the consumers’ perception of the business. Most business plans are not in touch with the reality when it comes to forecasting sales. The drafter of the business plan may be too optimistic to the extent that he/she forecasts high sales for the business within a very short time of the business existence. This is mostly the case when business plans are prepared for the purposes of funding where the drafter wants to convince the financier that the business will be profitable and thus a good investment. To overcome these challenges, Balanko-Dickson (2007) recommends extensive market research to determine the profitability of the business and the market dynamics. Face to face interviews with industry players will offer a better perspective of the business for the drafter to prepare accurate financial statements for the business and realistic sales projections. It is always wise to lower the level of optimism and confidence when preparing the business plan to avoid the trap of preparing inaccurate financial projections and sales forecasts. 3.2 Lack of adequate market information Marketing plan in a business plan seeks to analyse the situation in the market in relation to the business. The marketing plan is intended to give a true picture of the market and how the business is well-placed to take advantage of the opportunities present in the market and also how the business has positioned itself to respond to competition and other market challenges (Ford, Bornstein, & Pruitt, 2010). The marketing plan also analyses the features of the product being offered by the business and how they suit the requirements of the target market of the business (Hindle & Mainprize, 2006).  Essentially then, it is important for a business plan to capture the exact situation of the market in order to give an accurate analysis of the business in regards to marketing. Getting accurate market data for the purposes of a business plan might be challenging especially when one considers the amount of resources and time required to actualize this. To fully understand the market, a general analysis might not be as helpful for the business as one has to understand how the four elements of marketing complement each other in a particular market to determine the profitability of the businesses. It takes time, probably months to conduct a credible market research and a lot of resources to prepare questionnaires and travel around in the quest for information. Some industry players particularly the would be competitors might not be so generous with information thereby presenting a challenge of obtaining accurate market data (Pinson, 2008). Sometimes it is a challenge in itself to identify who are main competitors for the business and which segment of the market comprise the main target market for the product (Hindle, & Mainprize, 2006). To overcome these challenges, one can opt for market reports prepared by professional research firms which have the resources and time to conduct accurate market research. These reports can be bought from the firms at a relatively affordable fee compared to the amount of resources one would dedicate to get the same data by their own. The firms also have a way of getting accurate information from industry players and data obtained from governments and agencies. Understanding the competition and the target market will be very important when it comes to formulating a marketing strategy for the business as well as the strategic orientation of the business. This will in turn dictate the vision, mission and core values of the business that will be communicated through the business plan.  Getting data from credible is vital as it will save you time and money in preparing a business plan. 4 Lessons learnt in preparing business plans There are several lessons to draw from the process of preparing a business plan. The main ones would be: Realistic financial projection and sales forecast is not an option. To avoid a situation where one is not able to fully support the projections and forecasts in their business plan, one has to do extensive research to have an idea of how the balance sheet, cash flow and profit and loss statements would look like in first years of the business. The sales forecast too should be supported by solid market research and understanding of the market dynamics by the drafter of the business plan. Business plans are prepared for different purposes including financing, planning for growth, detailing a business roadmap and more (Pinson, 2008). It is important that one understands that there are no one-size-fits-all for business plans and understanding the purpose is the first step to determining how to go about the business plan. It is better to have a short but adequately informative business plan than to have long business plan with vague statements.. Short clear business plans help the reader to focus on the important aspects of the business plan such as the product differentiation, competition, financial projections, strategic orientation and other important aspects. It also reduces the chances of leaving out ambiguous statements in the plan. Understanding the business plan in and out is vital in helping one to prepare a plan whose sections complement each other. The marketing plan for example, should reflect the strategy of the business plan as laid out in the objectives and the mission statements. The financial projections should also be supported by the sales projections and market analysis presented in the business plan. Keeping a plan simple and easy to navigate is very critical for your readers, efforts should thus be focused towards writing in simple yet ideal business language, and financial statements should not contain too much jargon. General formatting of the plan should help one navigate from one section to the other without any confusion. It shows professionalism and good planning skills (Ford, Bornstein, & Pruitt, 2010). 5 Competencies demonstrated Understanding of the business plan and its purposes- I demonstrated this mainly in analysing the strategic focus of the business plans and how they can communicate with their audience by conveying only what is important to the client in the plans. I demonstrated critical thinking and business knowledge in analysing the financial projections and sales forecasts of the two business plans as presented in the documents. 6 Conclusion A business plan is an important document in planning the strategic direction of the business as seen through the eyes of an entrepreneur or a business manager. This document should therefore show great deal research and accurate projections much to the satisfaction of the target audience of the business plan. The two business plans have been able to bring out the main elements of a business plan despite the fact that few details have been missed in some sections such as accurate financial projections and competition analysis. This highlights some of the challenges that one should expect in preparing a business plan which can be overcome through incorporation of accurate market information and realistic expectations in preparing business plans. This paper has successfully detailed the challenges and methods of overcoming them such as collection of processed data from professional research firms and reliance on market realities in preparation of business plans. References Ford, B., Bornstein, J., & Pruitt, P. (2010). The Ernst & Young Business Plan Guide. John Wiley and sons. Pinson, L. (2008). Anatomy of a Business Plan: A Step-by-step Guide to Building the Business and Securing Your Company's Future. Aka associates. Balanko-Dickson, G. (2007). Tips and traps for writing an effective business plan. McGraw Hill Professional. Hindle, K., & Mainprize, B. (2006). A systematic approach to writing and rating entrepreneurial business plans. The Journal of Private Equity, 9(3), 7-22. Sub Shop. (2014). Franchise Sandwich Shop Business Plan. Retrieved August 27, 2014 from: http://www.bplans.com/franchise_sandwich_shop_business_plan/executive_summary_fc.php Pita Pal. (2014). Sandwich Restaurant Business Plan. Retrieved August 27, 2014 from: http://www.bplans.com/sandwich_restaurant_business_plan/executive_summary_fc.php Read More