Why write a business plan?
For any business to be successful, it must be started and operated with a clear understanding of its customers, its internal strengths, its competitive environment and a vision of how it will evolve to compete in the future. A business also needs money to start, to operate and to grow. By expending the effort to develop a comprehensive business plan, you will have a powerful tool for attracting investors. Your business
plan is the roadmap for your company. It clearly states where you are, how you got there and how you plan to proceed.
Business plans are prepared as a necessary instrument for raising capital from potential investors, bankers and other lenders. It is an essential document and without one, asking for funds is pointless. To lenders or potential investors, it not only provides information and reveals an evaluation of your venture’s feasibility,
but also reflects your management abilities. One that is poorly researched, or makes unsupported assumptions shows that you are inexperienced and in their eyes…reckless. Lenders receive an enormous number of proposals and usually don’t spend much time with them. That means your plan has only a
few minutes to make a good impression and must stand alone as an initial sales tool.
Not only will this document provide valuable information to outside investors and lenders, it will lay out the game plan from which to operate your firm. This is, by far, the most important use for your business plan. It will become your blueprint and direct you towards achieving your overall business goals. Good business plans are comprehensive, well thought-out documents that provide the basis for entrepreneurs to make
sound business decisions. Whatever the intended use of your business plan, make sure it’s thorough, accurate and backs up all your claims with facts. The following key points should be considered in
developing your plan.
Who should write your business plan?
The only right answer is — YOU! A business plan is 75% research and 25% format. You can get help with your
format, putting your information into a readable plan, but you will have to provide the research that makes up the bulk of the plan.
What lenders look for
Begin the plan with a summary
Most investors and lenders are inundated with potential opportunities, so provide a focused and brief summary — about one or two pages in length. Your summary will give them a first impression of
whether your business is worth further scrutiny.
Describe your company — its business, goals and objectives
Describe your business. Include an explanation of the business that you are in.
When you decide on the type of business that you’re in, you’ll know the types of product and services you need to provide, the market that you should target, the competitors that you are up against. Also
include your company history, current business conditions, industry trends and what makes you unique.
Analyse your market and determine your marketing strategy
A good product is not enough to guarantee marketing success. This is one of the most important sections of your business plan. It will be scrutinised carefully, therefore, your market analysis should be as specific as possible, focusing on believable, reliable, achievable projections.
Potential market: This is where you present a picture of your customers. Convey your broad understanding by describing relevant characteristics such as their demographic breakdown, their buying habits, their interests, their special needs and their geographic location. Explain how you did your market research
— the resources you used, the types of studies you conducted.
Sales: Include your forecasted sales volume. What revenue do you expect to achieve in the next three years? Are there any other unique considerations you should include? Since cost of sales is usually a company’s largest expenditure, it’s important to forecast it realistically. Costs should be divided
among materials, labour and overheads with special attention provided to the most significant cost components.
Competitive analysis: Consider your competitors, how they market their products and why people buy from
them. Determine their strengths and weaknesses and their position in the marketplace. Investors sense danger when an entrepreneur suggests there is no competition for their product or service. In fact, there are two kinds of competition of which you should be aware — direct and indirect. Direct competition offers the same product or service to the same market; indirect competition offers similar products or
services, only to a different market.
Market feasibility: Include trends in your industry, an economic analysis and optimistic-pessimistic-realistic scenarios. Also include any anticipated impact that legislation and regulations may have on the market.
Marketing strategy: Explain how you will sell your product or service and how you will move into new markets. Identify the specific marketing techniques you plan to use.
Describe your products/services and how they are produced
Describe your product or service in layman’s terms. Explain any niche you may have. Discuss your competitive advantage — why people will choose your product over your competitors’, the benefits of your product or service and how you will sustain your edge.
Describe your management organisation
Describe your business structure, including details of your management team and their responsibilities, qualifications and experience. Also describe the legal structure of your business.
Describe your operations
Describe how you plan to operate your business. Go into detail about location, facilities, equipment, raw materials and suppliers, workforce, hours of operation and methods of recordkeeping.
Develop your financial projections
These projections serve to demonstrate not only the need for funds but also the potential future value of equity investments or debt repayment. Developing the proper financial projections and cash flow is, therefore, a critical factor in obtaining capital for your business. It may be the most crucial task in determining the viability of your business. You will need to:
Be sure to include:
Determine your proposed financing
If you are looking for funds, you’ll need to include this section. Based on your financial forecast, determine how much money you require, when you need the money, how you will use the money and how you will pay it back.
Present your plan(s) for the future
An important point to remember is that you must show that you have the potential for continued profitability. Be sure to include:
Start-up Plan: Present the tasks involved, their priorities, how long each task will take and who is responsible for each task.
Three Year Plan: Provide the detail listed above in the start-up plan. Project how your business will compete in years three to five. Much of this work has been done in the financial forecast, but
you will want to support it with a clear explanation.
Donal McAuliffe is Publisher/Editor, Running Your Business magazine.