A farm company wants ₦600m to expand. The bank asks for a business plan. A good plan lets a busy banker see in two pages what the business is, what the market looks like, what the money will be used for and what could go wrong. A poor one buries the answer in appendices.
Once a plan is approved, it also has to be turned into targets that managers at every level understand.
This topic covers the structure of a business plan, the contents of each part (including the PESTEL and SWOT analyses that sit in the business environment section), critical success factors, key performance indicators and how targets are linked through the organisation. The previous topic covered how strategies are assessed. The next covers strategic change. Neither the May 2014 nor the November 2014 Pathfinder sets a stand-alone question on this topic.
In 30 seconds
A business plan has a title page, contents, introduction, executive summary, body, conclusions and recommendations, and appendices. The body covers the business description, business environment (industry, PESTEL, SWOT, competitors, market), operating plans, management summary and financial plan. The executive summary says what the report is about, the problems, the conclusions and the recommendation. Conclusions must follow from the body and add nothing new.
Appendices hold detail that is not essential: at least the detailed financial information and the CVs of key managers. Critical success factors (CSFs) are the essentials for success. Key performance indicators (KPIs) are the targets for each CSF. Targets are linked from strategy to budgets and to day-to-day measures, and senior management must communicate them.
Key terms in plain English
| Term | What it means |
|---|---|
| Business plan | A document that sets out what the business will do, why, and how it will be financed |
| Executive summary | A short summary that gives the whole picture to a busy reader |
| PESTEL | Political, economic, social, technological, ecological and legal factors |
| SWOT | Strengths, weaknesses, opportunities and threats |
| Critical success factor (CSF) | Something that must go well for the strategy to succeed |
| Key performance indicator (KPI) | A measurable target for a CSF |
Syllabus check
This topic is in syllabus area B (strategic management, 10% of the marks). It covers:
- the preparation and content of a business plan;
- communicating strategy through CSFs, KPIs and performance targets;
- environmental and internal analysis used in the plan.
CAMA 2020 and business plans
The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 308 | A director must use the care, diligence and skill of a reasonably prudent director | Directors must test the assumptions in a plan |
| s. 377(1) and s. 378 | Directors prepare statements that follow IFRS and give a true and fair view | The financial plan should use the same basis |
| s. 385 | The directors’ report covers performance and risk | It reports progress against the plan |
| s. 404(7) | The audit committee reviews policies and internal control | It reviews the control of plan targets |
Structure of a business plan
- Title page
- Table of contents
- Introduction
- Executive summary
- Body: business description; business environment analysis (industry background, competitor analysis, market analysis); operating plans; management summary; financial plan
- Conclusions and recommendations
- Appendices: detailed financial information and CVs of key management
The components
Title page and contents
The title page attracts the reader and helps them find the report later: title, author (internal reports) or organisation (external reports), reference numbers, confidentiality and date. The contents lists the sections in order with page numbers.
Introduction
It reminds the reader why the report was written and what question it answers. It makes the subject clear, states the purpose and briefly explains the methods used.
Executive summary
For senior readers it may be the only section read. It states what the report is about, the problems, the conclusions and the recommendation, with the overall picture and little detail. Writing it also tests whether the report is logical.
Body
Sections have logical headings, which act as signposts.
- Business description: mission and objectives, history and ownership, products and services.
- Business environment analysis: industry background, competitors and market (size, segments, growth or decline).
- Operating plans: the marketing plan and the operations plan.
- Management summary: the key managers and their backgrounds, with a summary organisation chart.
- Financial plan: summary income statement, statement of financial position and cash flow statement.
PESTEL and SWOT
PESTEL describes the outside factors. Political: a policy change may cut grants. Economic: high interest rates make expansion loans dear. Social: an ageing population raises demand for healthcare. Technological: change from button phones to touch-screen smartphones. Ecological: raw materials such as fish or timber may run out. Legal: environmental and safety laws change how products are made and sold. SWOT describes the business itself and its position.
Strength: a skilled, committed workforce. Weakness: old machinery that often breaks down. Opportunity: strong overseas demand. Threat: a large competitor opening in the one town where the company is the only supplier.
Conclusions and recommendations
They must follow logically from the body, and be justified by the facts in it. Never introduce a new argument here. Check them against the purpose of the report and make sure the reader’s key question is answered.
Appendices
Only include detail the reader can do without to understand the main argument, such as calculations, questionnaires and CVs. Each should be referred to in the body and listed last in the contents. As a minimum, most plans include detailed financial information and the CVs of key managers.
Communicating the strategy: CSFs and KPIs
A critical success factor is an essential requirement for achieving the strategy and the objectives. For a commercial company, CSFs include financial factors such as profit and return on investment, and should also include non-financial factors (as with the balanced scorecard and the performance pyramid). For each CSF there should be a KPI, a target for a given period. KPIs should ideally be quantitative, though some are qualitative. Actual results are compared with the target.
Linking targets through the organisation
Senior management should explain long-term objectives to managers at every level, so that each can see how their area contributes. Strategic KPIs are linked to operational targets through budgets and non-financial targets. Each budget target should support a strategic KPI and CSF. Operational results are tracked in monthly control reports, and these link to weekly or daily targets at first-line level. The system works only if senior management communicates the targets.
The rules in more depth
Why the executive summary is written last
It can only summarise what has been decided. Writing it last also shows gaps in the report.
Why conclusions add nothing new
A reader who finds new material in the conclusion cannot check it against the evidence.
Why non-financial CSFs matter
Customer satisfaction, quality and staff skills drive future profit. A plan with only financial targets measures the past.
Why KPIs must cascade
If a sales manager’s budget target does not support a strategic KPI, the manager can meet the budget and the company can still miss its strategy.
Effect on analysis
When you are asked to draft or criticise a plan, check the structure first, then the logic, then the numbers.
Worked examples
Example 1: cascading a target. CSF: keep existing customers. Strategic KPI: retain 85% of customers each year.
- Operational target for the sales team: renew at least 85% of contracts, with a budget for account visits.
- First-line target: contact each customer within 30 days of a complaint.
- Monthly report: renewals and complaint response times against target. Each level supports the one above.
Example 2: PESTEL for a farm company (illustrative).
- Political: a change in import policy on fertiliser.
- Economic: high interest rates on expansion loans.
- Social: more urban demand for packaged food.
- Technological: drip irrigation and drones.
- Ecological: drought or flooding.
- Legal: land and environmental rules.
Example 3: the executive summary test. A plan says: “This report sets out a ₦600m expansion. The main risk is rising loan rates. We conclude the project is viable at current rates and recommend approval with a rate cap.”
- It says what the report is about, the problem, the conclusion and the recommendation, in four sentences.
- It is the right length and leaves the detail to the body.
Example 4: appendices. A plan has three questionnaires that are not mentioned in the body.
- Appendices must be referred to in the body, so either refer to them or remove them.
- If not essential, leave them out and invite the reader to ask for them.
How to score full marks
- Follow the structure in the order given.
- Make the executive summary stand alone.
- Apply PESTEL and SWOT to the facts given, not in general.
- Include numbers in the financial plan.
- Link each CSF to a KPI and each KPI to a budget target.
- Keep conclusions inside the evidence.
Common mistakes in the exam
- Writing a general essay on planning and not a plan for the company in the question.
- Listing PESTEL factors with no link to the company.
- Putting new arguments in the conclusion.
- Giving only financial CSFs.
- Setting KPIs that cannot be measured.
- Forgetting the appendices and management summary.
Quick revision
- Plan: title, contents, introduction, executive summary, body, conclusions, appendices.
- Body: description, environment (PESTEL, SWOT, competitors, market), operations, management, finance.
- CSF is what must go right. KPI is its measured target.
- Targets cascade through budgets to day-to-day measures.
- CAMA 2020: ss. 308, 377(1), 378, 385, 404(7).
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Recall check: multiple choice
The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.
Question 1. The executive summary should include:
- Only figures
- What the report is about, the problems, conclusions and recommendation
- The appendices
- Staff CVs
Show the answer
B. It gives the overall picture.
Question 2. PESTEL stands for:
- Political, economic, social, technological, ecological, legal
- Profit, equity, sales, tax, equity, loans
- People, energy, stock, tax, EBIT, loans
- None of these
Show the answer
A. Outside factors.
Question 3. A weakness in SWOT is:
- An outside threat
- An internal shortcoming such as old machinery
- A law
- A competitor
Show the answer
B. Strengths and weaknesses are internal.
Question 4. Conclusions should:
- Add new arguments
- Follow from the body of the report
- Be omitted
- Be placed first
Show the answer
B. They must be justified by the evidence.
Question 5. A critical success factor is:
- An essential requirement for success
- A tax rule
- A budget line
- A loan
Show the answer
A. Include non-financial ones too.
Question 6. A KPI is:
- A target for a CSF
- A type of asset
- A law
- A bank
Show the answer
A. Ideally quantitative.
Question 7. Strategic KPIs are linked to operations through:
- Budgets and targets
- Dividends
- Audit fees
- Share prices
Show the answer
A. And through monthly reports.
Question 8. Appendices should:
- Hold essential arguments
- Hold non-essential detail referred to in the body
- Be omitted always
- Replace the body
Show the answer
B. And be listed last.
Question 9. The financial plan in the body is:
- A full set of ledgers
- A summary of the main statements
- A tax return
- A budget only
Show the answer
B. With detail in an appendix.
Question 10. Which section of CAMA 2020 sets the director’s duty of care and skill?
- Section 308
- Section 400
- Section 405
- Section 409
Show the answer
A. Directors test a plan’s assumptions.
Written questions
Question 11 (10 marks). (a) List the main sections of a typical business plan. (5 marks) (b) State what the executive summary should contain and why it matters. (5 marks)
Question 12 (20 marks). Zuma Agro Ltd, a farm company, seeks a ₦600m loan to expand into packaged food. You are asked to outline its business plan. (a) Outline the body of the plan. (6 marks) (b) Give two examples each of political, economic and technological factors, and two strengths and two threats, that might appear.
(8 marks) (c) Suggest two critical success factors with a KPI for each, and show how one KPI would reach a sales manager. (6 marks)
Question 13 (10 marks). (a) Distinguish a critical success factor from a key performance indicator. (4 marks) (b) Explain why strategic targets must be linked to budgets and operational targets. (6 marks)
Model answers
Show the model answer to Question 11
(a) Sections (5 marks). Title page; table of contents; introduction; executive summary; body (business description, business environment, operating plans, management summary, financial plan); conclusions and recommendations; appendices. (5)
(b) Executive summary (5 marks). What the report is about, the problems, the conclusions and the recommendation. (3) Senior readers may read nothing else, so it must give the overall picture briefly; writing it also checks that the report is logical. (2)
Show the model answer to Question 12
(a) Body (6 marks). Business description: mission, history, products. (1) Environment: industry, PESTEL, SWOT, competitors and market. (2) Operating plans: marketing and operations. (1) Management summary: key managers and organisation. (1) Financial plan: summary statements and cash flow. (1)
(b) Factors (8 marks). Political: change in import policy on fertiliser; farm subsidies. Economic: high loan interest rates; exchange rate changes on imports. Technological: drip irrigation; processing equipment. (1 each, up to 6) Strengths: skilled workforce; own land. Threats: a large processor entering the region; drought. (1 each, up to 4, total capped at 8)
(c) CSFs and KPIs (6 marks). CSF: reliable supply of produce, KPI: 98% of orders filled on time. (1.5) CSF: customer retention, KPI: retain 85% of customers a year. (1.5) The sales manager’s budget includes a target to renew 85% of contracts, funded for account visits, and monthly reports show renewals against target. (3)
Show the model answer to Question 13
(a) A CSF is something that must go well for the strategy and objectives to succeed, and should include non-financial factors. (2) A KPI is a measurable target, ideally quantitative, set for a CSF over a period. (2)
(b) Senior management must communicate objectives so that each manager sees how their area contributes. (2) Budget targets should support a strategic KPI, so meeting the budget moves the company towards the strategy. (2) Monthly reports track operations and link to weekly or daily targets at first-line level. (1) Without links, managers can meet their budgets while the strategy fails. (1)
Pathfinder on Business plans, CSFs and KPIs
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Neither the May 2014 nor the November 2014 Pathfinder sets a stand-alone question on this topic. Plans and report writing appear inside scenario questions that ask for a recommendation to the board or a lender. Worked examples 1 to 4 show the main points.
Revise first: Worked examples
Questions ask you to link strategy to targets. See the section on CSFs and KPIs.
Revise first: Communicating the strategy: CSFs and KPIs
Source: ICAN Pathfinder, Strategic Financial Management. Diets covered: No stand-alone question in the May 2014 or November 2014 Pathfinder.
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