Business Plan: Failing to Prepare is Preparing to Fail
What is a Business Plan?
For most people, starting a road trip requires a map, an itinerary and a destination; the same principles apply when starting a business.
Before starting any new business, it is important to have a strategic roadmap in place. That roadmap is a business plan. A good business plan is the roadmap to success. It consists of the following:
- Features of the proposed business,
- Projection of the business is headed in the next 3–5 years
- proposed growth of the business in terms of employees, branches, etc.
“A good business plan can take anywhere from 50 to 100 hours to prepare. This sounds like a lot of time, but not when you are making a five or six figure investment.”
To write a coherent business plan, it is important to establish the audience of the plan first, that is, whether it is internally focused or externally focused. The internal focus will benefit the company management, and external focus will help stakeholders and potential investors. Although it does not matter who the audience is, a business plan is a formal statement of the goals and objectives of the business, and its plans for achieving them.
Why is it Important to Prepare a Business Plan?
A business plan:
- Defines the objectives of the business.
- Gathers and analyses the research done before setting up the business.
- Helps to compile the strengths and potential weaknesses of the proposed business model.
- Helps in getting legal/business advice and professional opinions.
- Acts as a tool to build relationships with potential investors, bankers, and other lenders or stakeholders.
“Those who prepare a business plan are 10 to 20 times more profitable, according to anecdotal evidence.”
What Should a Business Plan Contain?
1. Vision Statement
A vision statement is an outline of the business plan, its purpose and goals.
2. Executive Summary
The executive summary states what a business owner wants to achieve from his business. It is a detailed version of the vision statement and forms the dialogue between business owners and their audience.
3. Business Profile
A business profile is the description of the business you want to do. It starts by describing the industry first. Then it describes the position the business seeks to take in that industry. Finally, it states the present and future potential of the business in the industry. A business profile should also include information on various markets within the industry. Such as, information on any new products or developments that may benefit or harm the business.
4. Business Analysis
A business plan analyses many aspects of setting up a business. These aspects are explained below. The analysis will be easy if some key questions form its part.
Company Analysis: What products and/or services are the business offering? What are the future plans for developing these offerings?
Industry Analysis: How big is the industry and how fast is it changing? What are the trends in the industry? How will these trends make the business successful?
Market Analysis: How will the business reach its target customers? What promotional tactics and marketing techniques will be used? How will the products and/or services be priced? Who are the main competitors? What are their key strengths and weaknesses? How will these competitors affect the business? In what areas will the business have or gain the competitive advantage over the competitors and how? Who are the target customers? What are their demographic and/or psychographic profiles? What are their needs in the market that they occupy?
Document, document, document!
5. Management and Operations Plan
This plan describes how the business will function on a continuing basis. The operations plan highlights the logistics of the organisation. For instance, various responsibilities of the management team and tasks assigned to each division within the company. It also measures the capital and expense requirements related to the operations of the company.
In short, this segment deals with the “People” involved in running the business and their roles in it.
6. Financial Plan
Formulating a financial plan is important. Even more important is the financial analysis of this plan. The analysis is always easier when a set of questions are asked. How much external funding (if applicable) does the business need? In what areas will these funds be invested? What are the projected revenues and profits of the business over the next one to five years? What assets need to be acquired?
Every business will experience ups and downs. Survival depends on how well prepared the business is. Thus, the financial plan must include a damage control plan. A damage control plan predicts any threats to your business and states how they might be overcome.
In short, a financial plan is a complete understanding of the liquidity of the company.
“If you can’t communicate your plan over a napkin, it’s probably too complex.”
Important Tips for Writing a Good Business Plan
- Employ professionals to conduct market research.
- Get experts for analytical aspects of the business plan.
- Outline the specifics of the business plan by asking “what, where, how and why”.
- Make realistic future predictions.
- Graphics such as pie charts, bar graphs etc.make the business plan easier to read.
- Share drafts of the plan with trusted advisers for feedback.
- Finalise the business plan after you receive feedback.
- Be open to last minute changes. Leave room for revisions at all stages.
“The best way for a business plan to fail is to have the CEO and management team develop it.”
How to Tell if Your Business Plan is Good
A good business plan:
- Includes a good business concept.
- Clearly understands the market that the business wants to enter.
- Creates a stable and capable management to run the business.
- Ensures that the business is financially sound.
- Contains a backup plan to cover initial losses.
” A business plan is an overview of your journey, not the destination.”