Congratulations, you’ve finally decided to turn your dream of a business into hard reality. But setting up a business means planning, planning, and more planning. It doesn’t matter how old you are. One of the best ways for anyone to develop a blueprint of where they want their business to go is to create a detailed business plan.
Do You Really Require A Business Plan?
Business plans are important according to the Tennessee State University (PDF). In fact, almost every business management course devotes at least three classes to educate students on framing and creating an effective business plan. However, not every entrepreneur has attended business school, and they might not know how to create an effective business plan.
The aim of every business is to get funding for a new business and that means impressing investors and financial institutions. However, every financial institution and private investor must be able to understand your idea. Potential investors may not be familiar with your business idea, and they might not understand what you are trying to convey. A business plan allows you to put down your ideas in a set format that can be understood by anyone. In fact, most investors have been known to skip forward to relevant areas and then make spot decisions about investing in a company or business idea.
Creating the Perfect Business Plan
Now that you know the importance of a good business plan, it’s important to frame the best business plan possible for your business. Of course, you cannot incorporate everything, as individual businesses tend to vary considerably. You will have to adapt and modify a basic business plan template to suit your particular requirements. However, apart from a basic template, you should include these following critical points in your business plan irrespective of which business you are setting up.
How Much Do You Want To Write?
Good business plans have been known to be almost 30-90 pages thick. These types of plans will cover everything about a business starting from conception, lateral investment fields, expansion goals, and all the way down to shutting down and dissolution in case of loss. However, single page business plans have become increasingly popular with entrepreneurs and investors and they are quite effective. If you really think about it, no one actually has the time to hack through 90-pages of data, right?
Wrong, with an increasingly shaky economy, financial institutions are tightening criteria for lending and they have whole divisions devoted to going through business plans and saying yea or nay to business funding. But before you start panicking, you should know that it’s possible to strike a balance between a one-page business plan and 3-pound book says ASB Business Banking Limited. You can do this by structuring the very first page or part of your business plan, the Executive Summary, as a single-page business plan. This page is a short overall summary of your business plan and it will include the business concept, financial features of your business, financial requirements, pros and cons, lateral business ventures, major achievements, future prospects, etc. Try not to waste words and be as economical as possible to make an impression. Structure the Executive Summary as a one-page business plan and your readers will realize at first glance that your business is going to be successful. You can always continue writing your business plan and make the full version at your leisure.
Marketing and Market Research
One of the most important aspects of setting up a new business is determining whether your product has a market. For example, a window and office cleaning company will do well in a large urban city, but not so well in a small rural location. Similarly, a dog walking company will do well in a suburban area where people can keep dogs, but not so well in a large urban city where people cannot keep pets in small apartments. Ideally, in this section, you are showing your market, the demand for your product; whether the service is fulfilling a demand and its potential for success. The marketing research you do also needs to include assessing political factors for your business. Other points that should be included in a good marketing section of a business plan include the following:
Describing your competition is necessary. It’s amazing how many business plans do not describe the companies already present in the market. Your competitors may have substandard products being sold at higher than normal rates but unless you research this and enumerate these facts, no one is going to know about them. Factors like product quality, distribution, pricing, packaging, etc. all have to be analyzed and described in this section. Make sure you enumerate existing businesses and new entrants expected to enter the market and their impact on the industry.
Customers are the most important part of all business. As a new business, you should be able to demonstrate a clear demand for your product. Ideally, this section should identify and describe primary and secondary markets, nature and future of these markets, etc.
With the advent of the Internet, it is now possible to create pre-release advertising for your product. This can demonstrate how customers are interested in buying your product as soon as it hits supermarket shelves. You may also need to elaborate on how you plan to advertise your product through business cards, networking, exhibitions, trade shows, posters, media, print and Internet ads, etc.
Market segmentation should also be covered in detail in this section. For example, garages usually do get a lot of business as almost everyone has a car. However, if you specialize in repairing and restoring Alfa Romeo cars, you are specializing in a niche area of car repairs. You should also know that this market segment might also be saturated with professionals with years of experience in dealing with expensive cars like Alfa Romeo. Apart from pre-release marketing, this section of the business plan should also include a marketing strategy that will elaborate on distribution, pricing, selling incentives, location analyses, trade market data, etc.
Organization and Management Team
Every business will have a management team and outlining these team members in the business plan is necessary. Investors will want to know about company owners, management teams, sales personnel, etc. The business plan should also include the names of investors and their share in the business, information about extent of involvement, their biography, profiles of manufacturing divisions, etc. If you have used the services of an attorney and an accountant, their names, personal details, and educational profiles should be included in the business plan.
With your business plan, you are showing financiers that you can make this business a success. As a result, performance benchmarks have to be built in to the business plan. For example, for an online clothing store, the first benchmark can be any number of sales or a finite number of customers using the website. Having these benchmarks will help you assess how well your business is running and whether it will meet the projections, you have listed in your business plan.
The Appendices Are Important
Everyone forgets that appendices are an integral part of research. As you write your business plan, you are stating facts and data that have to be backed up with documentation. This provides evidence to the reader and ensures that you have facts to back up what you are stating. Appendices should also contain the following.
- Market research data should be included in the appendices in as much detail as possible. You can add survey results, SWOT analyses, internal and external research, etc. in this section.
- Copies of leaflets, promotional literature, marketing procedures, etc.
- Photocopies of newspaper articles, online articles, etc. that showcase a demand for your products or your business line.
- Pre-release of advertising or demand for your product from an existing base of customers who are waiting for your product.
Cash Flow Forecasts
The financial aspect of every business plan is the most difficult and predicting or planning cash flow forecasts is not easy. Simply put, a cash flow forecast sets out exactly how much money you can get through sales, and through funding and how much you plan to spend in the form of inventory, stock, overheads, marketing, rentals, salaries, etc. This is not a way to estimate how your business will profit or whether it will succeed or fail in the long term. It just estimates whether you will get enough money every day to pay off daily expenditures and still have a little left over. Most businesses don’t break even in the first few years but in the long term, the cash flow will show an eventual profit.
Producing a well-thought out cash forecast, can help financial investors and underwriters take a long view and invest in your business. Enter the most certain figures first into the cash flow format. For example, you may already know how much your inventory, furniture, loan repayments, wages, and rental will cost you. You also know your start-up funding and existing income. In that case, make sure you plan these costs first. Uncertain items like utility bills, advertising bills, repairs, petrol, insurance premiums, etc. cannot be predicted with accuracy and they may increase or decrease with time. Make sure you add the cost for creating one article, the selling price for the article, difference between manufacturing and sale price and profits. With a properly drawn up cash flow analysis, you can even estimate your break-even period and ensure business solvency during tough times.
Tailor Your Business Plan
Most people make the mistake of creating a stock business plan and then submitting it to every investor they can think of. This is not the way you want to go. Write a stock business plan but consider your audience. For example, if you are submitting your business plan to a bank, make sure you tailor-make your business plan to suit the audience. Leave out sections, add sections or build up sections as required. A word of caution though: Make sure the financial data and marketing sections are retained as they contain the most relevant data required by investors for funding.
Damage Control Plan
The economy does tend to be variable and market downturns should be included in your business plan. Your business survival depends on how well you anticipate threats and what steps you have planned to deal with economic downturns. Ideally, industry watchers like My Own Business recommend planning for a 35 percent or more loss of business. Businesses should also plan for unforeseen disasters and extra insurance payments. Product obsolescence is also a very large concern and evolving technology can result in products being outdated very quickly. Although you cannot plan for all these features, you should include as many venues as possible to assure investors that are committed to your business becoming a success.
Using a Template or Hiring a Professional
Financiers are used to a set business plan format and it’s a good idea to stick to the plan. You can add or remove sections but you should know that it is necessary to elaborate on every section to make an impression. Templates are available online that you can personalize to suit your business idea. Most of these templates are free and they are very easy to download and fill in. In fact, with a good template, the entire business plan writes itself. Yes, you can hire a professional to do the job but that is not a good idea. You, as the business owner, are the resident expert on the business and you will be able to write the business plan in much more detail than an outsider will. Of course, it is always a good idea to hire an accountant and/ or legal expert to help you with the legal and financial aspects of business plan writing or just to go over the business plan to correct mistakes.
Generals Dos and Don’ts
- Make the plan logical, comprehensive and as simple as possible.
- Articulate profits and risks as clearly as possible.
- Disclose all current or potential drawbacks or problems already existing in the venture.
- Accept customers and orders even if it means you might have to cut the amount of time you have to spend on writing your business plan. Remember, your plan is a map to your success and it is not a good idea to turn away paying customers.
- Don’t assume that the reader is a market expert in the product. Explain technical jargon and specifications in the body of the business plan as simply as possible but make sure detailed technical plans are present in the appendices.
- The market analysis section should also contain a detailed market penetration report for the next five years after launch.
- Do check financial data with figures quoted in the document. Check and recheck the operational specifics with the financial information you are providing. Any inconsistency in these two sections will affect your business in the future and result in investors striking down your business plan.
- Don’t be arrogant and assume that your business idea is the best and the most unique. Now, very few businesses are completely proprietary or original and setting up a business means showing your investors that you have something better than the competition.
- Don’t rush through writing a business plan to get funding or to get customers. Take your time, check the grammar and language and rewrite if required. On average, a simple business plan may take anywhere from 50 to 80 hours to complete.
- Put yourself in the place of the investors. If you had to invest in a business, what would you want to know about the most? Elaborate on these sections in your business plan to ensure that the information is ready for use.
- Start with the easiest sections of your business plan and write them out completely. This may seem silly but it actually helps you prepare mentally for the entire process.
- Always use the first draft as a brain dump. Then add and remove sections as you see fit. As you rewrite, you may be able to streamline the entire report, add information, change data, etc. to make the report that much more relevant and interesting.
- Investors might reject the first few drafts but they will provide valuable feedback. Make sure you incorporate this feedback and create a better report.
- Do not cut, paste, copy from existing sample business plans available online. This is a sure-fire way of making mistakes and it will inevitably result in your report being rejected.
Now that you have a general idea of what constitutes a business plan, it is time to sit down and actually start writing. Take your time and make sure you put in as much effort as possible to make your business plan complete.
However, you should know that every business plan requires intensive pruning before it is considered complete. The first writing will immediately show you gaps and weaknesses in your business idea and you can work them out by streamlining the business plan. In writing your plan, you are putting your personal objectives, your resources, and your business idea on record for investors. It should make investors actively consider your business as a feasible and even profitable venture. If you have managed to do that, then you have created a successful and even impressive business plan.
(Photo courtesy of plantoo47)