Business Plans

A business plan is a written document that sets out a business's goals and explains how the business intends to achieve them. It is produced before or at the start of a business, though established businesses also update their plans when making significant changes.

The Edexcel specification identifies exactly what a business plan must include:

• The business idea
• Business aims and objectives
• Target market (supported by market research)
• Forecast revenue, cost, and profit
• Cash-flow forecast
• Sources of finance
• Location
• Marketing mix

A plan is not simply a formality. Its value lies in what the process of writing it forces the owner to do: think through every aspect of the business before money is spent. Entrepreneurs who plan carefully are less likely to be surprised by problems they could have anticipated.

Key term — business plan: a written document that outlines a business's goals, the market it operates in, how it will make money, and how it will be financed.

The Edexcel spec specifies the sections of a business plan and examiners test whether you know what goes in each one.

Section of the plan	What it should include	Why it matters
Business idea	Description of the product or service; how it differs from competitors; the USP	Establishes what the business actually does and why it has a chance of success
Aims and objectives	Long-term aims (e.g. survive, grow) and short-term SMART objectives (e.g. reach £5,000 revenue by month 6)	Gives the business a measurable direction; enables progress to be tracked
Target market and market research	Who the customers are (demographics, needs); evidence from primary/secondary research	Confirms there is demand; reduces risk of entering a market without customers
Forecast revenue, cost, and profit	Projected sales figures; estimated costs; forecast profit or loss for year 1 (and beyond)	Shows whether the business model is financially viable; required by banks
Cash-flow forecast	Month-by-month projection of cash inflows and outflows; net cash position	Identifies periods when the business may run out of cash — enabling action before it happens
Sources of finance	How the business will be funded: personal savings, bank loan, investors, grants	Shows the business can cover its costs; required by lenders and investors
Location	Where the business will operate and why that location was chosen	Demonstrates the owner has considered proximity to market, labour, and costs
Marketing mix	How the business will set price, develop its product, promote itself, and reach customers	Shows the business has a strategy to attract and retain customers

Scenario: Jaylen, a 17-year-old, wants to start a mobile phone repair business. He will repair cracked screens, replace batteries, and fix software issues, operating from his bedroom initially and visiting customers at home.

Working through each section:

Business idea: Mobile phone repair service operating in the local area. USP: repairs completed at the customer's location within two hours, with a 90-day guarantee on all parts.

Aims and objectives: Aim — become self-sustaining within 12 months. Objectives — complete 10 repairs per week by month 3; achieve £1,200 monthly revenue by month 6.

Target market and research: Primary research — survey of 50 local residents showed 38 had experienced a cracked screen; 29 said they would pay for an at-home repair service. Target: smartphone owners aged 16–45 within a 5-mile radius.

Forecast revenue, cost, and profit:

• Average revenue per repair: £45
• Fixed costs per month: £80 (insurance, software tools)
• Variable cost per repair (parts): £12
• At 40 repairs/month: Revenue £1,800 − Costs (£80 + 40 × £12 = £560) = £1,240 forecast profit

Cash-flow forecast: Month 1 cash inflows are low (building customer base); costs still occur. Forecast shows a cash deficit of £150 in month 1, covered by Jaylen's initial £300 personal savings.

Sources of finance: £300 personal savings to cover initial tools and parts stock. No external borrowing required.

Location: Home-based initially; travels to customers. Chosen to minimise overhead costs. If demand grows, may rent a small workshop.

Marketing mix: Price — £45 per screen repair (competitive with local shops at £50–£60). Product — repairs with 90-day guarantee. Promotion — Facebook Marketplace listings, local community Facebook groups, Google My Business profile. Place — mobile service; customers book online or by text.

The Edexcel spec highlights two specific purposes: minimising risk and obtaining finance.

Minimising risk through planning works in several ways:

• Writing a cash-flow forecast reveals months when the business might run short of money — before it happens. The owner can arrange an overdraft or delay purchases rather than being caught unprepared.
• Researching the target market confirms there are actually customers for the product. Many failed businesses discovered too late that demand was lower than assumed.
• Forecasting revenue and costs forces the owner to ask: does this make financial sense? If forecast profit is negative, the plan can be changed before money is spent.
• Thinking through the marketing mix ensures the business has a strategy to reach customers — not just a product and a hope.

Obtaining finance is the other major purpose:

• Banks will not lend to a new business without a business plan. The plan is evidence that the owner has thought seriously about the venture and that the loan is likely to be repaid.
• Investors (including angel investors) use the plan to assess whether the business idea is credible and the forecast returns realistic.
• A plan with a detailed cash-flow forecast and credible financial projections signals competence and reduces the lender's perceived risk.

Exam tip: when asked about the importance of a business plan, always link to both purposes where the question allows — minimising risk (internal benefit) and obtaining finance (external benefit). The two are distinct.

A business plan is valuable, but it is not a guarantee of success. Examiners regularly ask students to evaluate business plans, which requires knowing their limitations as well as their benefits.

Based on forecasts, not facts: revenue and cash-flow projections are estimates. Actual sales may be higher or lower. An entrepreneur who overestimates demand will face cash problems even with a detailed plan.

Can become outdated quickly: markets change. A plan written before a new competitor enters, or before a change in consumer preferences, may be out of date within months. A static plan that the owner does not revisit can give false confidence.

Time-consuming and costly to produce: a detailed plan, especially for a complex business, takes significant time to write. For a tiny start-up, the time spent planning might be better spent on actual trading and testing the idea in the real market.

No substitute for quality of execution: a brilliant plan does not guarantee a successful business. Execution, adaptability, and quality of product or service delivery matter just as much. The plan is a starting point, not a script.

Worked example — evaluating usefulness: A bank manager is considering whether to lend £20,000 to two applicants. Applicant A presents a detailed business plan with market research, three-year cash-flow forecasts, and a realistic profit projection. Applicant B describes their idea verbally and says "the numbers look good." The bank manager will almost certainly require Applicant A's plan and will likely refuse Applicant B. The plan does not guarantee success but it is essential for accessing finance.

1. Know every section by name

A question may ask "state two things included in a business plan" — this is a pure recall question worth 2 marks. Memorise the eight sections from the spec: business idea, aims and objectives, target market, forecast revenue/cost/profit, cash-flow forecast, sources of finance, location, marketing mix.

2. Distinguish minimising risk from obtaining finance

These are two separate purposes. Minimising risk is an internal benefit to the owner (helps them think through problems). Obtaining finance is an external benefit (convinces banks and investors to lend). Do not conflate them.

3. Evaluate questions require both benefits and limitations

"Evaluate the usefulness of a business plan for a new small business" (6 marks) requires: identifying benefits (lowers risk, required by banks) AND limitations (based on estimates, can become outdated) AND a justified conclusion. A response that only lists benefits will not reach the top mark band.

4. Cash-flow forecast ≠ profit forecast

The cash-flow forecast shows the timing of cash in and out each month. A business can be profitable on paper but still run out of cash (e.g. if customers pay late). These are different documents with different purposes — do not confuse them.