CHAPTER 1 Introduction to accounting and business decision making 33APPENDIX 1A
Appendix 1A: The business planning process
What is a business plan?
As discussed in chapter 1, a business plan explains the goals of the firm, how it will operate and the
likely outcomes of the planned business. A business plan can be referred to as a ‘blueprint’, similar to
the plans an architect would prepare for a new building, or a draft or specification that an engineer would
prepare for a new machine. Starting and organising a business is a demanding task. Whether one is
buying an existing business or beginning a brand new business entity, there are always many tasks to do
and issues to deal with. One way is simply to deal with each question or problem as it arises. The other
strategy, long favoured by business advisers and commentators, is to carefully draw up a business plan.
A business plan is a written document that explains and analyses an existing or proposed business. As
such, it is a forecast or forward projection of a potential business idea. It explains the goals of the busi-
ness entity, how it will operate and the likely outcomes of the business entity. At the conclusion of this
appendix, you will find a business plan for the fictitious business, Murphy Recruiting Pty Ltd.
Advantages of a business plan
There are several advantages stemming from the development of a business plan (Schaper 1996).
A well-prepared business plan provides a clear statement of purpose and direction for a firm. It allows
management and employees of the firm to work towards a set of clearly defined goals, thus enhancing
the likelihood of the goals being reached. This allows the business to take the initiative in determining its
fate, rather than just reacting to events that occur in the outside environment.
Planning also provides a suitable means of periodically evaluating the performance of the firm. Dif-
ferent quantifiable targets, such as sales revenue, the number of items sold, market share and profit-
ability, can be compared with the actual results at the end of the plan period (Zimmerer, Scarborough
& Wilson 2008). Business owners need to assess the reasons for substantial discrepancies between the
forecast and the actual results, and initiate action to overcome the gaps.
Because it is a comprehensive document, a business plan encourages managers and owners to effec-
tively review all aspects of their operations (Hormozi et al. 2002). The review and decision-making
processes involved in business plan construction foster a more effective use of scarce resources, such as
staff, time and money, and improve coordination and internal communication. An effective plan demar-
cates responsibilities — spelling out the roles of key personnel; it also helps clarify job expectations and
improves the accountability of staff to the owner–manager.
In addition, the very process of collecting information, analysing it and integrating it into a written
document can help ensure that the small business owner has adequately researched the business idea.
If properly done, preparation of a business plan will foster skill development during the process of
balanced and objective data collection, systematic analysis of the positive and negative results revealed
by the research, and the development of a comprehensive business response strategy that integrates all
activities of the proposed venture with its internal and external environment. This developmental effect
has been shown to be particularly important for improving the growth prospects of less experienced
entrepreneurs and for starting a new venture from scratch (Burke, Fraser & Greene 2010).
Disadvantages of a business plan
However, it is also important to bear in mind that business plans, in themselves, are not a guarantee of
success. Although some research does indicate that failed firms are less likely to have had a business