Writing a business plan
Below we examine the elements of a good business plan and how to write something that is actually used.
We are often told by experts and potential backers that writing a business plan is a crucial part of the business setup process that must be undertaken. No investor or any other source of finance will talk to you without one. And with this in mind we set off on the usual process.
The usual process
Typically the Business Plan is a daunting dry process that is agonising to complete and nothing more than a dump of obvious information that is presented to banks and potential investors to somehow convince them that you have a good idea and you know what you are talking about.
If nothing else, the Business Plan demonstrates how serious your intentions are, given the hard work put into this brick of paperwork.
Once completed and presented and you have or have not the backing you require, the Business Plan evolves into something to put your coffee mug on or turn over to write your shopping list on the back.
In effect it was a tool to achieve a specific something else such as getting money support and is no-longer required. Now it is ticked off, you can move on with reality.
The vibrancy of a good business plan
A good Business Plan however is not like a published book that is read then left alone. The good Business Plan is both a sturdy foundation to your business model and an interactive and evolving tool that remains your companion through the life of your business; it is your second head, your map, your compass that will get you to that defined destination.
It will remind you and keep you focussed on why you are doing this and not taking a relatively normal job on easy street.
“The Business Plan should be an operating manual for your business. Constantly referred to and updated.”
And much like a Sat Nav, if you ignore its instructions, you are likely to crash or get lost. This means that a dry Business Plan developed as a chore to impress banks or investors probably lacked inspiration and started from the wrong place.
The most formidable tool to protect against failure
85% of all business start-ups fail.
They often fail for one of two reasons.
The Business Plan was non-existent or wrong or the Business Plan was not active.
Active being defined as tuned in with action and evolving with the circumstances as presented by the reality of the outside world.
Much like a plane slightly adjusting its approach to a runway, an active Business Plan will also be adjusting and evolving so that it lands you on your business objective.
This is your business plan
You have to first write the Business Plan for yourself and only for yourself, with the view of using it as your navigation system.
The Plan has to make sense to you and when it is amended by experts or investors, the Plan still has to talk to you as a friend that you can understand and respond to. Without the meaningful logic, it becomes a paper brick.
If you think you have arrived at the end of that process and you are still none-the-wiser, then more work is required.
If at the end of that process, you find yourself in a place you do not want to be or you discover the thing is not feasible then congratulations. You have just saved yourself a lot of potentially wasted time, money and heartache. That was a close call. You are not in the queue to being one of the 85% of business failures.
Writing the business plan did its job.
In other words, there is a cold logic to using a well thought through businesses plan to avoid business failure.
For start-ups out there that fail, it’s not the business that was at fault, it was the business plan.
This is great because if you can honestly stress test your plan both while writing and at review when completed then you have greatly reduced your risk of failure.
How to produce an interactive business plan
So how do we get to that vibrant plan? Three things.
- The insight to construct an active plan.
- The discipline and process to refer to the plan.
- The energy and diligence to evolve and amend the plan to changing circumstances and emerging opportunities.
Your Business Plan is now not only a vibrant navigation system for your business but it is also ever improving.
This means your business and strategy is also evolving.
That makes you a stronger proposition within your chosen market and more capable than your competition.
Rules for writing a good business plan
Creating an interactive tool
Write the Business Plan in a format and style that you understand. A second format can always be evolved to suit investors later. In fact, you may end up with various editions of the plan containing different levels of details and targeting different audiences. These are not different versions, simply varying pieces of details taken from the same core plan.
But keep and evolve your core plan. It is the interactive quality we seek.
Keep it sweet
Make sure the Plan is concise and sweet. The Plan should be an easy read. Not too long and not dry. If the pages are not leaping out at you with inspirational logic but instead delivering an agonising read then it’s not an active Business Plan.
Counter – check every fact
Every fact or justification stated in the Plan must be counter-checked. In other words, always seek at least two sources for the same information.
This will limit the risk of taking action on wrong data or simply someone’s opinion. Let the data guide you. If the data is different from your expectation then pause and consider this as a warning.
For example: you find an article believing that toys sales are increasing in the UK. Great, add this statement into your plan. Then seek out the source data. Find historical data, look for trends then add this to the plan. Then you need to find out why toys sales are increasing. New in-vogue toy brands? New in-vogue retail brands? Demographic changes. Increasing buyer wealth? Cheaper imports? How long is this trend likely to continue and why?
Test your findings against the three rulers of marketing and market research: Variables, Constants and Constraints.
At the end of this little exercise you should have two or three key variables that determined whether this trend remains true. It is these variables you must keep an eye on when you are in business. If they change then you need to review your plan and perhaps alter course. That is one element of the interactive part.
Interactive elements to a business plan
- Monitoring fact and data changes.
- Amendments in response to an increasing experience curve: The more you learn and the more experience you have = the more effective your response in terms of efficiency and potency.
- Taking actions from the plan.
- Feedback to actions that evolve the plan.
Keeping previous versions of the Business Plan
When a plan is amended then date and file the previous version. You can then refer back to previous versions. This is a file of your experience: the single most valuable asset in your business.
The ingredients of the Business Plan
Typical Business Plan
Each statement you make in your plan must be justified. Opinion is not enough. It is “this” because of “that”.
BUSINESS PLAN SECTIONS
This is a summary of the key points in the Business Plan. The reader should gain an overview of the Plan simply from this section. In fact, many read this section before deciding on whether to continue reading the rest of the Plan.
The Executive Summary can be written in rough draft at the beginning but confirmed and detailed when the rest of the plan is completed.
What added value are you bringing to the marketplace, to life, the universe.
A single definitive sentence or paragraph exclaiming the objective of the business. This should include summary financial objectives.
The feasibility section is important because not only does it test whether your plan is good or nonsense, it also provides a definition to be regularly tested in the future.
For example, your plan may be feasible now but if a variable or circumstance changes then this section as defined may no-longer be feasible. Monitoring this will give you the heads up and the choice to either navigate your way through this by amending your plan or stopping. Without this, you may drift off course and wonder way things didn’t work out after all.
- Exit strategy at failure.
- Exit strategy at success.
- Business structure at start up.
- Expected business structure and various levels of managed development.
- A defined line or two describing the business.
- Summary of the business: what it will do (service, products).
- Customer profile.
- Competitors including your competitive advantage and why.
- Management team – expertise.
- Employees – expertise required and when
- Providers – outside sourced expertise such as professional services and freelancers.
- Strategy – added value: positioning in relation to competition.
- Communication channels.
- Competition: SWOT – The Strengths, Weaknesses, Opportunities and Threats presented by you and your competition) and the expected reactions to any actions taken.
- Market – zero sum or growing.
- Structure and logistics.
- Funding and funding sources – setup and working capital – how when will funding be financed and paid back.
- Period forecast over set periods and time – these are also objectives and will be reviewed as each session passes.
- Cashflow Forecast
- Forecast Balance Sheet
- Forecast Profit and Loss account
- Accounting ratios
This section will include particular detailed justifications of the statements made in the main section of the report and a list of points-of-reference sources.