A level-readyAll subjects · Business · WBS12 Managing business activities
The business plan
Edexcel IAL Business · WBS12 Managing business activities
A business plan is a written document setting out what a new or growing business intends to do, how it will do it and how it will be financed. Unit 2 asks what goes in one and why it matters.
What a business plan contains
A typical plan includes:
- Executive summary: the idea and the key figures on one page.
- The business and its owners: aims and objectives, legal form, the skills and experience of the owners and managers.
- Market research and marketing plan: target market, competitors, the marketing mix (product, price, promotion, place).
- Operations: location, premises, equipment, suppliers, staffing.
- Financial plan: start-up costs, sources of finance needed, sales forecast, cash-flow forecast, break-even analysis, projected income statement.
Why plans are written
- To raise finance: banks, business angels and venture capitalists usually ask for a plan before lending or investing. It shows how and when they will be repaid.
- To think the idea through: writing the plan forces the owner to research the market and test whether the idea is viable, reducing risk.
- To set targets and monitor progress: actual results can be compared with the plan, so problems are spotted early.
- To communicate: it tells partners, employees and suppliers where the business is going.
Limits of a business plan
A plan is only as good as its assumptions. Sales forecasts for a new business are guesses, markets change, and owners may be over-optimistic. A plan that sits in a drawer after the loan is granted does little. Its value depends on the quality of the research behind it and on being updated as conditions change.
Worked example
Amira wants a $40,000 bank loan to open a bakery. Explain two ways a business plan helps her.
- Raising finance: the bank sees her cash-flow forecast and break-even output, so it can judge whether she can repay the loan; without a plan the loan is unlikely.
- Reducing risk: researching local competitors and footfall for the plan may show that her planned price is too high before she has spent the money.
Answer: It improves her chance of getting the loan and reduces the risk of failure by testing the idea first.
Check yourself
- Which is the main reason a bank asks to see a business plan before lending?
- To set the business's selling prices
- To register the business as a company
- To judge whether the loan is likely to be repaid
- To calculate the owner's income tax
Show answer
To judge whether the loan is likely to be repaid. The plan shows forecast cash flows and profits, so the bank can assess the risk of lending.
- Which item belongs in the financial section of a business plan?
- A cash-flow forecast
- The owner's CV
- A description of the target market
- The location of the premises
Show answer
A cash-flow forecast. Cash-flow forecasts, break-even and start-up costs form the financial plan.
- A business plan for a new firm is least reliable in its
- list of the owners' names
- statement of the legal form
- sales forecasts
- address of the premises
Show answer
sales forecasts. Sales of a new business are estimates with no past data to go on.
- How can a business plan help after a business has started trading?
- It removes the need for a cash-flow forecast
- Actual results can be compared with planned figures to spot problems
- It guarantees a profit in the first year
- It protects the owner from unlimited liability
Show answer
Actual results can be compared with planned figures to spot problems. The plan provides targets against which performance is measured.
- Market research findings in a business plan are mainly used to
- calculate depreciation
- set the interest rate on a loan
- decide the tax rate
- show there is enough demand for the product
Show answer
show there is enough demand for the product. Research supports the sales forecast and marketing plan.
- Give two reasons why an entrepreneur should write a business plan.
Show answer
It helps raise finance from banks or investors, and it forces the owner to research and test the idea, reducing the risk of failure; it also sets targets to monitor progress.. One reason about raising finance and one about planning, testing the idea or setting targets.
Sources
Last updated 8 November 2026. Spotted a mistake? Tell us.