Too many businesses fall into the trap of starting to trade before they have fully planned their new venture and then they wonder why it fails. If they had put the time into researching and writing a business plan, they would either have predicted the company wasn’t viable, or altered the business model.
The act of writing a business plan forces you to examine every aspect of your proposed business, exposing any weaknesses and how to address them before you start incurring expenditure.
It’s a common misconception that a start-up only needs a proper business plan when they need to raise finance. Of course, this is when it becomes indispensable, but you’ll also find a business plan invaluable in establishing a company, as not only will it clarify your thinking as you set your business up, but it will go on to help you evaluate its performance against your projections. This is essential for identifying areas of shortfall or poor performance that could go on to affect your start-up’s profitability and potential for growth.
So how do you write an effective plan?
Unfortunately, you can’t just download an off-the-shelf template, because every business has different requirements and your considerations will vary, depending on the type of operation and the return that you hope to realise. Perhaps the most effective technique is to put yourself in the shoes of a potential investor; what would you want to know before putting your money into someone else’s business idea?
Broadly speaking, every business plan should include the following information:
1) An executive summary
Brief and to the point, this should summarise the contents of the plan. It should include what your business will do; where your businesses opportunities are; if you or your team has a track record in the sector or in business; financial projections; costs and funding needed. If you are using your plan to attract funding, remember that this might be the only sheet that gets read before it lands on the ‘no’ pile. You’ll find it easier to write this last, once you’ve collated all the data for the plan and your thinking will be at its most informed.
2) Background detail on your business
This should expand on the executive summary and explain in more depth what the business is; what it does, what its advantages are, what makes it different, why customers will buy your product or service, and what position the business is presently in.
3) Research based market analysis
This should establish that there will be a market demand for your offering. Combine primary and secondary research. In other words, talk to potential customers and read up on the market. Actually speaking to potential customers will give you a real world response to your idea, so ask what they would like to see included. If their needs aren’t being met by competitors, find out why and aim to incorporate this into your business model. It is also crucial to understand your competitors strengths and weaknesses. They will have proven there is a market in your sector, but how can you attract their customers?
4) Sales strategy
Explain how you will sell your product or service and how will it reach the end consumer. Include your marketing plan here, explaining how you intend to generate growth and, most importantly, projected profit margins. State any existing customers or interested parties for large orders.
5) Relevant experience
Remember that if someone is considering investing in your business, they are investing in you or your management team. You need to convince them that the business either has industry specific or general business experience, preferably both. Even if you’re not seeking investment, you still need to ensure that your business has the right leadership to ensure success.
6) Financial projections
This is the single most important area of your plan, so you should spend a lot of time on it. It should detail projected income and expenditure to establish whether the business is profitable. You’ll need to include realistic forecasts regarding sales, cashflow, three-year profit-and-loss forecasts, break-even analysis, and projected balance sheets. Don’t fix the figures to suggest rapid growth and unrealistic profits. Any investor will see through it and you’ll only be fooling yourself. If the income you need to cover the required spend based on your research is unrealistic, this is the time to revise your business model, or consider another venture entirely. Far better to do that now, than after months or years of hard graft.
7) Exit strategy
No business will last forever and, particularly if you have raised finance from investors, they will want to know your exit strategy so that they know how, and when, they will get their investment back. There is an old saying that investors always walk into a room backwards so they can keep their eye on the exit! Keep this is mind and set out in your plan how and when you intend to exit the business.