The role and structure of business planning in enterprise development

The role of planning in a market economy

In market conditions and fierce competition, an enterprise must be able to respond quickly and adequately to changes occurring in the external environment and within the enterprise itself. This is possible if several conditions are met:

• the administration and the investor correctly assess the actual financial position of the enterprise and its place in the market, and understand the essence of the processes occurring in the market, in the external environment, and within the enterprise itself;
• there are concrete goals that the enterprise strives to achieve; when setting enterprise goals, the manager actively uses planning;
• each step of the plan is strictly controlled and executed.

A business plan is a format for presenting a business plan, containing a comprehensive description of the existing and planned business, the environment in which its development is expected, and the management it needs. It is drawn up for internal and external purposes. In this regard, a distinction is made between an investment project business plan and an enterprise business plan. In the vast majority of cases, an enterprise business plan begins to be drawn up when it is necessary to attract investments.

Goals and significance of business planning

The external goals for which an enterprise business plan is drawn up are:

• justification of the need to attract additional investments or borrowed funds;
• demonstration of the enterprise's existing capabilities;
• attracting the attention of investors and the bank, convincing them of the significant efficiency of the investment project and the high level of enterprise management.

Every investor wants to assess the profitability of investing in the proposed project and evaluate the ratio of the potential return on the project to the risk of the investment, and the best way to do this is to analyze the investment project business plan.

This document is a complete presentation of the profitability of investing. It provides the investor with answers to the questions: is it worth investing funds in this investment project; under what conditions will it be most effective given the degree of risk acceptable to the investor and the validity of the assumptions made by the developer of the investment project.

The existence of an investment project business plan is a mandatory condition for obtaining a bank loan. Its absence from the borrower indicates a low professional level of enterprise management, and obtaining a loan from a bank will be practically impossible. In addition, in the future, the bank will evaluate granting a loan to such an enterprise as a high-risk operation and, taking into account the higher risk of loan default, will certainly increase the interest rate on the loan, and the loan will accordingly become expensive and

The structure of an investment project business plan consists of several main sections. 1. Executive summary (introductory part) contains the main provisions of the project, goals and objectives, the degree of novelty of the proposed products (services), information on expected sales volumes, costs, profits, and loan repayment periods. 2. Description of the enterprise and industry — information about the enterprise that proposes the investment project, its full contact details, information about the founders and their contact details, enterprise goals, management information, enterprise history, its achievements, organizational structure, main products produced, and the enterprise's place in the market. 3. Description of the product (services) — consumer properties of the product (services), difference from competitors' products (services), technical parameters, etc. 4. Marketing strategy — price forecast, sales channels, advertising, analysis of external and internal implementation factors, analysis of the enterprise's strengths and weaknesses, sales volume forecasting. 5. Production plan — calculated demand for production capacities, their area, demand for additional equipment and material resources, labor intensity of product manufacturing, costs and production cost of manufactured products, etc., proposals for the supply of raw materials, materials, and components with a full list of conditions (price, quality, quantity), a list of basic production operations, as well as waste disposal and environmental protection operations, etc. 6. Organizational plan — organizational-functional structure of the enterprise, staffing table, procedure for interaction between enterprise departments, labor force requirements, working conditions, organization of remuneration, etc. 7. Financial plan — income and expenditure forecast, balance of cash receipts and payments, summary balance sheet of assets and liabilities of the enterprise, total investment requirement and assumed sources of financing, calculation of the project payback period and the break-even point chart, demand for working capital and optimal resource stocks, etc. 8. Project risk analysis — a description of potential project risks and their characteristics is provided, as well as a strategy for minimizing them.

Internal goals — business planning, training and checking the knowledge of the enterprise management, their understanding of the market environment and the real position of the enterprise in the market, increasing the efficiency of the organization's production and sales activities, improving social working conditions, and rest for employees.

For a clear vision and understanding of internal goals, it is necessary to prepare a business plan for the enterprise. Unfortunately, despite the rapid growth of interest in business planning, few agricultural enterprises in Russia are engaged in developing business plans, and a significant portion of these plans do not fully comply with international requirements and contain unreliable or insufficiently substantiated data. At the same time, it is common practice to compile documents under the same name intended to justify obtaining short-term (for a period of 2—6 months) subsidized loans guaranteed by repayment from the current year's harvest.

Problems of Formation and Planning Horizon of Business Plans

To assess the recoverability of budgetary resources provided to the agro-industrial complex for subsidized lending, most enterprises develop a business plan for the development of the agricultural enterprise for the upcoming calendar year. This is explained by the desire to establish a planning horizon comparable to the annual planning cycle of the state budget. However, such plans do not inspire confidence in real investors who wish to invest capital effectively and securely.

The reason is that one of the main general methodological principles of business development forecasting is the completeness of planned processes, which, with an annual planning horizon, does not reflect the real business development strategy in the credit-receiving farm and the conclusion of the consequences of investment action due to the inertia of technical, technological, and organizational components of agricultural production.

The minimum duration of any investment-related economic decision is determined by the following factors:

• in crop production — the aftereffect of various factors on the subsequent development of the farm, which, as a rule, cannot be less than the cycle of the crop rotation used;
• in livestock production — the time of the full herd turnover.

Consequently, annual business plans do not reflect the completeness of a business process (a type of enterprise activity carried out according to a separate strategy regarding products and markets, the result of which is part of the general business strategy) in such a short time and do not allow for the assessment of the real efficiency of the invested funds. Moreover, these plans cannot determine what will happen to the enterprise on the day after the credit period ends. It is clear that in the second case, there is no real hope for the timely and full repayment of the loan. Therefore, investors considering the possibility of providing a loan even for one or two years require the submission of a business plan for a term exceeding the loan repayment period by at least one year.

Requirements of Lessors regarding Business Planning Terms

Short-term business plans are also not suitable for lessors, as the payment period for lessees for supplied machinery and breeding livestock is stretched over the period shown in the table below:

As a rule, the period of activity presented in the business plan.

The form of a business plan has not yet finally taken shape, and there are several variants that differ slightly in the number and content of sections.

The names of the main sections of the business plan and their content are given below. 1. Enterprise opportunities, its brief description — name of the enterprise, its address, form of ownership, strategy and main measures for project implementation, brief description of the enterprise's work for the last year, assessment of its solvency, economic justification of loan repayment terms, and a conclusion on the feasibility of the project. 2. Types of manufactured marketable products and services, their quality and brief description — a description of all goods and services produced on the farm, characteristics of its sales stability, main sales channels, product quality, its environmental properties, use of patents and licenses in production and sales. 3. Brief description of sales markets (competitor characteristics) — analysis of the enterprise's ability to occupy a certain niche in the market, segments of the market under study, assessment of market capacity and its prospects, price, and quality of competitors' products. 4. Marketing plan and its strategy — marketing strategy, pricing, possible marketing costs (advertising, service, etc.), advertising policy, formation of public opinion about the enterprise. 5. Production plan — similar to the corresponding sections of prospective and annual plans. 6. Enterprise organization and management — organizational (based on the production and financial plan). 7. Risk assessment and insurance — the most likely risks in the process of product manufacturing and its sale, the probability of their occurrence, development of methods for prevention or response to various situations, risk insurance programs. 8. Human resources and social relations plan — possibilities of attracting workers, their wages, social infrastructure (based on the farm's capabilities). 9. Investment plan — calculation of investment needs based on prospective, medium-term, and annual activity plans. 10. Financial plan and financing strategy — consideration of several scenarios of the financial plan, taking into account probable situations in production and on the market, development of financing strategies. 11. National, regional, economic, and social processing of all factors of production in crop branches, of activity, and contain data on the composition, timing of operations, labor intensity, costs of basic and auxiliary materials, equipment used, as well as the expected result of the work — norms and planned output volumes of finished products (main and by-products, waste used, etc.). In this case, the technological map must correspond to a specific field, herd, or other object, the equipment used, the intensity of the technological process, and the necessary resource provision. Therefore, when developing an enterprise business plan, a set of technological maps is compiled that reflects the planned development and improvement of production.