What Is a Business Plan and Why Do You Need One?
Many consider a business plan to be a formal document containing five key elements:
1) Business goals,
2) The reasons why these goals are attainable,
3) A plan for reaching those goals,
4) Data backing the uniqueness of the products and services to be sold, and
5) Supporting information about the organization and team attempting to reach those goals.
A business plan is comprised of these elements, but it is much more than a physical document; it is a structured process to test ideas to determine if they are feasible and financially attractive. Viewed this way, a business plan becomes a road map to successful implementation of the business idea. This road map then morphs into tactical plans and budgets. During the process of developing a business idea, you develop a consistent set of messages, based on facts and analysis, describing your business idea, which will be used in discussions with funders, investors, customers, board members, advisers, vendors, and employees.
Some events that trigger the need to write a business plan include:
1. Starting a new business (the classic reason)
2. Growing an existing business through new products, new channels, and/or new markets
3. Acquiring a business or franchising your existing business
4. Exiting from the business and the need to provide potential buyers with information about the company. They will be interested in the past as a benchmark, but as you have already reaped the benefits of these accomplishments, potential buyers are interested in the future as you see it. What is the potential they may buy into?
Who Is a Business Plan Written For?
Although most people think the goal of business plans is to seek funding, ultimately, a business plan is written primarily for yourself—to help you decide whether or not to start or grow a business, to set goals and benchmarks, to use the process for developing a set of compelling and consistent messages describing your business and why you will be successful, and to understand the two roles you have as owner and employee.
Factors To Consider When Writing a Business Plan :
1. Clarity
The person reading your business plan is busy, often has other problems to deal with, and is consciously or unconsciously judging you by the way in which you express yourself. Therefore:
● keep your language simple;
● avoid trying to get too many ideas into one sentence;
● let one sentence follow on logically from the last;
● go easy on the adjectives;
● tabulate wherever appropriate.
2. Logic
The facts and ideas you present will be easier to take in and make more impact if they follow one another in a logical sequence. Avoid a series of inconsequential paragraphs, however well phrased. Also, make sure that what you say under one heading chimes in with all you have said elsewhere.
3. Truth
Don’t overstate your case.
4. Figures
The banker or investor reading your plan is numerate, thinking in terms of numbers. Words will not impress a banker unless they are backed by figures that you have made as precise as possible. So try to quantify wherever you can.
4. Designing the business plan
The layout of your business plan can help greatly in keeping the a logical pattern. You could present your material in the sequence shown here, using headings, so that the reader can survey your plan and navigate without difficulty.
Steps to follow when preparing a business plan:
1 A brief statement of your objectives.
2 Your assessment of the market you plan to enter.
3 The skill, experience and finance you will bring to it.
4 The particular benefits of the product or service to your customers.
5 How you will set up the business.
6 The longer-term view.
7 Your financial targets.
8 The money you are asking for and how it will be used.
9 Appendices to back up previous statements, including especially the cash flow and other financial
projections.
10 History of the business (where applicable).
Tackling each section
1. The brief statement
This should be to the point, just something to show the reader what it is all about. Say what you do in one sentence. In a second sentence, state how much money you want and what you want it for.
2. The market
When you come to the main body of your document, start with the section that is most likely to impress your reader. The majority of people lending money believe that what makes for success in business is finding and exploiting a large enough market. So, as a rule, the ‘market’ section should be the one with which you lead off.
Although your product may be the best since the invention of the motor car, and you may have the talents of a Henry Ford, you will get nowhere if there is no call for your brainchild or you lack the means of projecting your product into the market. The person reading your plan will know this only too well, and will want to find out whether you are aware of these facts and how well you have done your homework. Your market research is crucial.
Note that where figures are given, and they should be given freely, the authority for the figures should be quoted. If your figures can be checked, this will promote confidence.
3. The skills, experience and resources of the persons involved
A lender or investor will want to know the track record of the per- sons to whom his or her own or clients’ money is to be entrusted. Therefore, you must give a fairly full account of your own business career and those of your co-directors or partners.
School and technical qualifications, technical qualifications, on the other hand, are. Of almost equal importance is the degree of your financial invest- ment. You cannot expect others to risk money in an enterprise to which the founders themselves are not financially committed in a big way.
4. The benefits of your product
This is the most difficult part about which to comment because it is the section in which you are likely to wax most enthusiastic. Human progress depends on new ideas, and people with good ones need all the support they can get. That having been said, you must face the fact that only a minority of innovations can be made commercially viable. Your banker or financier has probably seen hundreds of absolutely brilliant ideas come to nought, and for all kinds of reasons. So this is the section you will have to write most soberly.
A famous American writer, Ralph Waldo Emerson – a writer, not a businessman – once said that if you made a better mousetrap, all the world would beat a path to your door. This is just not true. Any successful business person could have told Emerson that simply making a better product is only one step on the way to success, and not even the first or the most important step.
Do not get too disheartened. You have, you believe, a first-class product, and as you demonstrated (under number 2 above), the market for it is there. What you must do now is to persuade your reader that your product is a good one and that it will have the edge to help you exploit the opportunities set out in ‘the market’ above.
Stick firmly to hard facts! ‘Puff’ sentences, such as ‘This is the best widget-grinder on the market and will be the cheapest too’, cut very little ice. Show, with figures, why it is the best and why, despite this, it is not the most expensive. If you have some independent test results, say so, and give at least a summary of them in an appendix. A few genuine figures are worth a page of adjectives, on which, as was stated earlier, you must go easy.
Information that could be included in this section is:
● A brief description of the product or idea;
● How it works;
● Why it is better than its rivals;
● Any independent appraisal (with details in an appendix).
More are coming soon! ……
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