the meaning and purpose of business plans

1 Enterprise – Business Plans

1.1 Nature of Business Activity

Business activity is the process of creating and delivering goods or services that satisfy human wants. The fundamental concepts are:

• Purpose of business: add value by transforming inputs (land, labour, capital, enterprise) into outputs that customers are willing to pay for.
• Factors of production:
  • Land – natural resources.
  • Labour – human effort, skills and knowledge.
  • Capital – machinery, equipment, finance.
  • Enterprise – the ability to combine the other factors and take risk.
• Opportunity cost: the value of the best alternative foregone when a resource is used for a particular purpose.
• Dynamic environment: businesses operate in a constantly changing economic, technological, legal, social and competitive context.
• Success & failure: measured by profitability, growth, market share, sustainability, etc.
• Scales of operation: local, national, international and multinational enterprises each face different market and regulatory challenges.

1.2 Entrepreneurs & Intrapreneurs

Both drive innovation but work in different settings.

Aspect	Entrepreneur	Intrapreneur
Where they work	Owns or starts a new venture	Works within an existing organisation
Risk exposure	Personal financial & reputational risk	Limited personal financial risk; organisational risk
Typical qualities	Visionary, self‑motivated, tolerant of uncertainty, decisive	Creative, proactive, able to navigate corporate structures, team‑player
Barriers	Access to finance, market knowledge, regulatory hurdles	Organisational inertia, limited resources, internal politics
Contribution to national development	Job creation, export earnings, technological advancement	Improves productivity, fosters a culture of innovation, retains talent

1.3 Business Plans – Meaning, Purpose and Key Elements

Definition

A business plan is a written document that sets out the aims, strategies, market analysis, organisational structure and financial forecasts of a business. It functions as a roadmap for the entrepreneur and a communication tool for stakeholders.

Primary Purposes

• Provide direction and focus (short‑ and long‑term goals).
• Assist decision‑making and resource allocation.
• Secure external finance (banks, investors, grant bodies).
• Identify and manage risks.
• Offer benchmarks for performance monitoring.

Benefits

• Clarifies the business vision and strategy.
• Improves credibility with lenders, partners and customers.
• Facilitates internal coordination and motivation.
• Helps anticipate cash‑flow problems and avoid financial surprises.

Limitations

• Time‑consuming and may require specialist expertise.
• Based on assumptions that can become outdated quickly.
• May give a false sense of security if not regularly reviewed.
• Over‑emphasis on financial detail can distract from strategic thinking.

Typical Structure of a Business Plan

Section	Purpose	Key Content
Executive Summary	Quick overview for busy readers	Business idea, mission, objectives, financing needs, summary of key points
Business Description	Explain what the business does and why	Legal form, location, history, products/services, value proposition
Market Analysis	Show understanding of the external environment	Target market, size, trends, competitor analysis, SWOT, PEST/PESTLE
Organisation & Management	Detail the organisational set‑up	Ownership, board, management team, staffing plan, organigram, delegation of authority
Products / Services	Describe the offering	Features, benefits, lifecycle, intellectual property, pricing rationale
Marketing & Sales Strategy	Explain how customers will be attracted and retained	4 Ps (product, price, place, promotion), sales process, pricing strategy, elasticity considerations
Operations Plan	Outline day‑to‑day activities	Location, facilities, technology, suppliers, production process, quality control, capacity planning
Financial Projections	Show expected financial performance	Revenue forecasts, cost estimates, profit & loss, cash‑flow, break‑even analysis, ratio analysis, investment appraisal
Appendices	Provide supporting evidence	Resumes, market research data, legal documents, diagrams, patents, detailed calculations

Developing a Business Plan – Step‑by‑Step Process

1. Conduct thorough market and industry research (PEST, Porter’s Five Forces, competitor profiling).
2. Define the business idea, mission and SMART objectives.
3. Choose an appropriate legal structure and outline the organisational set‑up.
4. Develop detailed marketing, operations and HR strategies.
5. Prepare realistic financial forecasts (sales, costs, cash flow, break‑even, ratios, NPV/IRR if required).
6. Write the executive summary last – it must reflect the whole plan.
7. Review, edit and seek feedback from mentors, teachers or industry advisors.
8. Update the plan regularly as circumstances change.

1.4 Business Structure

Economic Sectors

The economy is divided into four sectors, each with distinct characteristics and trends.

Sector	Primary Activity	Typical Examples	Recent Trends
Primary	Extraction of raw materials	Agriculture, mining, fishing, forestry	Automation, sustainability certification, impact of climate change
Secondary	Transformation of raw materials	Manufacturing, construction	Off‑shoring, lean production, Industry 4.0
Tertiary	Provision of services	Retail, transport, finance, education, health	Digitalisation, gig‑economy, service‑export growth
Quaternary	Knowledge‑based services	IT, research, consultancy, media	Big data, AI, remote working, intellectual‑property intensity

Ownership Forms – Appropriateness, Liability and Changing Ownership

Form	Liability	When it is most appropriate	Key Advantages	Key Disadvantages
Sole trader	Unlimited – owner personally liable	Very small start‑ups, low risk, owner wants full control	Simple to set up, all profits retained, quick decision‑making	Unlimited risk, limited capital, continuity depends on owner
Partnership (general)	Unlimited – partners jointly liable	Two or more professionals sharing skills & capital	Shared expertise, relatively easy to form	Potential for conflict, joint liability, profit sharing
Limited Partnership (LP)	General partners unlimited; limited partners’ liability limited to investment	Investor wants limited risk while another party runs the business	Access to capital without giving up control	Complex legal arrangements, limited partners cannot be involved in management
Limited Company (Ltd)	Limited to share capital	Businesses needing limited risk and ability to raise external finance	Separate legal entity, limited risk, easier to raise capital, perpetual existence	More regulation, profit sharing, disclosure requirements
Public Limited Company (PLC)	Limited	Large enterprises that wish to raise capital from the public	Can raise large sums via shares, high credibility	Stringent reporting, share‑price volatility, possible loss of control
Franchise	Usually limited (depends on franchise agreement)	Entrepreneur wants to use an established brand with support	Established brand, training, marketing support	Royalty payments, limited autonomy, contractual constraints
Co‑operative	Limited (members’ liability limited to share value)	Groups of individuals with a common economic need (e.g., farmers)	Democratic control, profit sharing among members	Decision‑making can be slow, limited capital
Joint Venture (JV)	Limited as per agreement	Two or more firms needing resources for a specific project	Combines resources/skills, risk sharing	Shared control, profit split, potential conflict
Social enterprise	Limited	Business with primary social or environmental mission	Access to special funding, positive public image	Balancing profit and mission can be challenging

Changing Ownership

• Conversion from sole trader → Ltd: provides limited liability and easier access to finance but increases administrative burden.
• Partnership → Limited Partnership: allows some partners to limit their risk while retaining active management.
• Ltd → PLC: enables public share‑issues, but requires compliance with the Companies Act, stricter reporting and a minimum share capital.

1.5 Size of Business

Measuring Size – Appropriateness of Each Method

Measure	What it reflects	When it is most appropriate
Turnover (annual sales revenue)	Market activity and cash‑generating ability	Assessing market power and eligibility for tax thresholds
Number of employees	Scale of operations and labour intensity	Evaluating impact on employment policy and labour regulations
Market share	Relative position within an industry	Strategic analysis of competitive strength
Value of assets	Capital intensity and balance‑sheet strength	Credit‑worthiness assessments and investment decisions

Role of the Small‑Business Sector

• Creates a large proportion of new jobs – in many economies over 50 % of employment.
• Acts as a source of innovation and flexibility, often pioneering niche products or services.
• Serves local or specialised markets that larger firms may overlook.
• Contributes to regional development and social cohesion.

Growth Strategies

Strategy	Nature	Typical Example
Organic (internal) growth	Expansion using own resources	Opening new stores, launching a new product line
Horizontal merger	Acquisition of a competitor at the same stage	Two smartphone manufacturers combining
Vertical merger	Integration with suppliers or distributors	Bakery buying a flour mill
Conglomerate merger	Acquisition of a firm in an unrelated industry	Retail chain buying a media company
Joint venture	Partnership for a specific project	Car manufacturer and tech firm developing autonomous vehicles
Franchising	Expansion through licensed use of brand and systems	Fast‑food chain opening new outlets under franchise agreements

1.6 Business Objectives

Categories of Objectives

• Private (profit‑maximising) objectives: maximise shareholder wealth, increase market share, achieve economies of scale.
• Public (non‑profit) objectives: deliver public services, achieve social welfare, operate on a break‑even basis.
• Social / CSR objectives: environmental sustainability, ethical sourcing, community involvement – expressed as the “triple‑bottom‑line” (people, planet, profit).

SMART Objectives Checklist

• Specific – clear and unambiguous.
• Measurable – quantifiable indicators.
• Achievable – realistic given resources.
• Relevant – aligned with overall mission.
• Time‑bound – set a deadline.

Example of a SMART CSR Objective

“Reduce carbon emissions from the manufacturing process by 20 % (from 5,000 tCO₂ to 4,000 tCO₂) by the end of FY 2026, using energy‑efficient machinery and renewable electricity.”

1.7 Stakeholders

Stakeholder Map

Internal Stakeholders	External Stakeholders
Owners / shareholders Managers Employees	Customers Suppliers Creditors (banks, lenders) Government / regulators Local community Trade unions Interest groups (environmental NGOs)

Analyzing Stakeholder Influence – Power, Legitimacy, Urgency

• Power: ability to impose its will on the organisation (e.g., major shareholders, regulators).
• Legitimacy: perceived as a rightful stakeholder (e.g., employees, local community).
• Urgency: the degree to which stakeholder claims require immediate attention (e.g., a supplier threatening to withdraw credit).

Stakeholders can be classified using the “salience model”:

Salience	Characteristics	Typical Management Approach
Latent	Only one attribute (power, legitimacy or urgency)	Monitor and keep informed
Expectant	Two attributes	Engage selectively; negotiate
Definitive	All three attributes	Prioritise; integrate into decision‑making

Balancing Conflicting Interests

• Use stakeholder analysis to rank influence.
• Develop communication strategies (consultation, negotiation, partnership).
• Incorporate CSR objectives to address social and environmental concerns while maintaining profitability.

1.8 Financial Forecasting Example – Break‑Even Analysis

To calculate the break‑even point (BEP) in units:

\[ \text{BEP}_{\text{units}} = \frac{\text{Fixed Costs}}{\text{Selling Price per unit} - \text{Variable Cost per unit}} \]

Example: Fixed Costs = $120,000, Selling Price = $50, Variable Cost = $30

\[ \text{BEP}_{\text{units}} = \frac{120,000}{50 - 30} = 6,000 \text{ units} \]

At 6,000 units the business covers all costs; any sales above this generate profit.

1.9 External Influences on Business (AS‑Level Extension)

Influence	Key Factors	Impact on Business Planning
Political‑Legal	Tax policy, employment law, health & safety regulations, trade restrictions	Shape legal structure, compliance costs, market entry decisions
Economic	Inflation, interest rates, exchange rates, economic growth, consumer confidence	Influence pricing, demand forecasts, financing options
Social‑Demographic	Population age, lifestyle trends, education levels, cultural attitudes	Determine target markets, product design, CSR focus
Technological	Automation, digital platforms, R&D intensity, ICT developments	Drive innovation, affect production methods, create new distribution channels
Competitive‑Supplier	Number of rivals, market concentration, supplier power, barriers to entry	Inform pricing strategy, differentiation, vertical integration decisions
International	Global trade agreements, foreign exchange risk, cultural differences	Guide export strategy, joint ventures, localisation of products
Environmental	Climate change, resource scarcity, waste legislation	Shape sustainability objectives, affect cost structures, open green‑market opportunities

1.10 Strategic Tools for Business Planning (AS‑Level Extension)

• PEST/PESTLE analysis – assesses Political, Economic, Social, Technological (plus Legal and Environmental) factors.
• SWOT analysis – identifies internal Strengths & Weaknesses and external Opportunities & Threats.
• Porter’s Five Forces – analyses competitive intensity: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, rivalry among existing competitors.
• Ansoff Matrix – guides growth options: Market Penetration, Market Development, Product Development, Diversification.
• Blue‑Ocean Strategy – focuses on creating uncontested market space rather than competing in existing markets.

1.11 Coverage Checklist (For Learners)

Syllabus Sub‑topic	Covered?
1.1 Nature of business activity	✔
1.2 Entrepreneurs & intrapreneurs	✔
1.3 Business plans – meaning, purpose, structure	✔
1.4 Economic sectors	✔
1.5 Ownership forms – appropriateness & liability	✔
1.6 Size of business – measurement & appropriateness	✔
1.7 Business objectives – private, public, CSR	✔
1.8 SMART objectives	✔
1.9 Stakeholder analysis – power, legitimacy, urgency	✔
1.10 External influences (PESTLE)	✔
1.11 Strategic tools (SWOT, Porter, Ansoff, Blue‑Ocean)	✔
1.12 Financial forecasting – break‑even, ratios, cash‑flow	✔

Summary

A business plan is a comprehensive, written roadmap that clarifies a venture’s purpose, outlines how it will compete, and demonstrates financial viability. It is essential for securing finance, guiding decision‑making, managing risk and measuring performance. By linking the plan to the broader concepts of enterprise – the nature of business activity, entrepreneurship, organisational structure, size, objectives, stakeholder analysis and external influences – learners develop a holistic understanding of why and how business plans are used in the real world and are well‑prepared for both the AS and A‑Level examinations of Cambridge International Business (9609).