When you have decided on your business concept and conducted your market research, you can begin putting together a business plan. This is as much for your benefit as it is for any investors or lending institutions that you may approach for funding. While they just want to know that they are not going to be wasting money on an ill thought-out pipe dream, you can also take comfort in the fact that this exercise will force you to come up with a coherent strategy for bringing your plan to fruition.
Writing your Business Plan
The internet is littered with various websites selling all sorts of different business plan products, from bespoke writing services to software that will apparently write a winning plan for you. I am wary of these, as I do believe tha hte person best-placed to describe a business prospect is the one who has studied the ins and outs closely, not an anonymous writer or a bundle of code.
Regardless of the type of business you hope to start, there are certain sections that every well-written business plan will have:
- Executive Summary. This section generally tends to be written last and sums up all of the details of your business plan
- Concept. Here you describe your business idea and the business sector that you hope to enter, including the major players and the total value of the market
- Market conditions. In this section you need to demonstrate that there is indeed a market for what you are going to be selling, how much of the market you hope to gain, and what differentiates you from your competition
- Product or Service. Describe the product or service you will be offering, including the characteristic that distinguishes your product or service from those of your competitors. Include details about how you aim to take it forward in the future and what developments you hope to be able to make
- Strategy. Here you can identify how you are actually going to run your business, showing that you have thoroughly researched your market and applied that research to your business concept. This section should cover all areas, from potential suppliers and the number of staff you will be taking on, to the type of customer you will be targeting and the marketing campaigns you will initially be running
- Core Personnel. This is where you get to blow your own trumpet, and those of anyone you’re going into business. Think of it as a mini-CV, and describe what qualifies you to run this business, the qualities that you are going to bring to your role, and the skills you have to make the business a success. Do the same for any partners, collaborators, or anyone else who will have a hand in running the business
- Financial Forecasts. The maths part. But don’t worry, it really isn’t all bad. You will need to make predictions of how you are going to spend your money. Granted, certain assumptions will be made, but you can outline what they are in footnotes or in an appendix. The forecasts that are absolutely necessary are: profit and loss forecasts for your first three years of operation; cash flow forecasts, again for the first three years; capital expenditure plans for each year; proforma balance sheets for the beginning and end of each year
Of all the financial forecasts you prepare, the most important is probably your cash flow forecast. Not only will this let potential investors see how you plan to spend their money, but it will also give them an indication as to when they can expect to recoup their investment. In addition, it is also a good idea to subject your projections to a sensitivity analysis, to demonstrate the effect that changed circumstances may have on your situation. This not only shows foresight, but can also help you in coming up with contingency plans should the worst happen.
The Executive Summary
It is an irony of writing a business plan that hte executive summary will be the last thing that you write but the first section that investors or lenders will read. Think of it as your business plan’s elevator pitch – get it right, and they will read on for more details; get it wrong, and expect to receive a form rejection letter or email. It may seem like a daunting prospect, but try to keep it down to two pages of as much detail as possible. Outline your concept, the current state of the market, the main ussues from your SWOT analysis, and your key personnel. Give some insight into your strategy and highligh not just how much money you are likely to need, but also how soon you anticipate being able to pay it back. Don’t be afraid to use appendices or a supplementary section to provide more detail. Essentially the executive summary is the “greatest hits” section of the business plan and should include all the information that makes investors want to throw money at you.
Back to SWOT
Once again, you would be wise to return to our beloved SWOT analysis. This time, though, things are different: it should now develop into an assessment of your business plan as a whole, and include details of how you plan to address any threats or weaknesses, and also how you will take advantage of your strength and any opportunities that arise. Remember, anyone who you are asking for money will most likely have seen countless business plans in the past and will therefore ask you hard questions about how you plan to cope in adverse circumstances.
Having said what I did before about business plan writing services, it is still a good idea to submit the plan to somebody with a degree of business and financial acumen before sending it off to putative investors. It is always good to have a second opinion, especially if they can prevent you from making an expensive faux pas. For my money, I always choose my mother or stepfather to gove over any business plans I write for clients, as they have not only run businesses on behalf of other and also for themselves, and are wickedly strict over financial projections. My local small business clinic could do the same, but I realise that this is not an option that is open to everyone. Neverthelesss, getting an outsider’s opinion is always a good idea.
As I stated yesterday, today’s post was not a comprehensive overview for how to write a business plan, but I do hope to cover the topic in more detail in the near future. The next two posts in this series will focus on how to raise money for your business venture.
[Image by KM & G-Morris]