1. Why write a business plan?
You might start writing a business plan because you’ve been told that’s what you should do. Or your motivation might be to please the bank, a potential investor or someone else. All valid reasons, but none of them is the right one. The real reason for preparing a business plan is to develop a thorough and detailed knowledge of your business and all its idiosyncracies.
Writing a winning business plan is not easy, you need to be very honest and thoughtful about all aspects of your business, how it operates and your competition.
The insights you gain from this process will hold you in good stead as your business grows and matures. You will be better prepared to handle all the issues that will emerge on your journey.
2. Use different versions for specific audiences
A well thought out business plan becomes an invaluable document which can be adapted to many purposes. I suggest different versions to meet the different emphasis and information needs of different audiences:
lenders are interested in cash flow and an assurance that loans can be repaid;
investors need confidence that the business can grow significantly and they will receive a high return;
the marketing plan provides useful direction to advertising agencies, PR firms and others responsible for ensuring a consistent image; and
employees and management need to remain focused and working towards a common goal.
3. Vision & business opportunity
Just what is it you propose doing? Investors in particular need a clear statement of the business opportunity you are pursuing and why it is so exciting. Be clear about why are you doing it and what you expect to get out of it, and what others will get.
You have to be able to annunciate where you are going – it makes it a hell of a lot easier to others with you if they know where they are headed, and with everyone pulling in the same direction, you’ve got a lot more horsepower than if they are all pulling in different directions.
Don’t be afraid to think big – small ambition achieves small results! Be realistic though – if it just doesn’t make sense very few will want to join you.
4. Business personality
Every business has a personality, just as every person has one. Think about what you want your business personality to be, and how your customers, suppliers and employees think about the business.
This includes concepts such as broad market positioning and business values. Aspects of your personality should permeate throughout the plan, as this is often the unseen glue that holds everything together. Watch for any inconsistencies.
A good place to start this is to look at your own personality – have a frank discussion with people close to you about how you are seen. This may not be completely comfortable but will generate powerful insights about how best to run your business.
5. Competitive advantage & sustainability
There many aspects to this, but the fundamental element of each is “why should customers buy our product or service?”
Every business no matter how big or how small attracts customers for one reason or another – price, convenience, location, product features or benefits, personality, ego and so on. The more you understand about why it is that customers do business with you, the better able you are to entice more of them to you. It helps you promote the business, build systems and management disciplines that reinforce these reasons and build stronger loyalty.
Be brutally honest with yourself about comparing your products or services with those of your competition and about how well they fill customer’s needs.
Advantage can come from a number of different sources, amongst them being technology, the business model, a new way of doing things or size. It’s also important that you can demonstrate how you can keep this advantage and not let others over-ride it or match it.
Note that all business strategies can be classified as being one of three types – cost (pricing power, typically a result of size but can be alternate product form), differentiation (product features and benefits) or focus (appealing to a specific niche in the wider market).
Investors in particular are looking for a unique source of competitive advantage which can be leveraged up into a much larger business – this is how their investment will generate the returns they seek.
6. Research
Your plans have to be based on realty not perception. Often business owners don’t truly understand the reasoning behind customers buying their product or service. What is the basic need being met, and what other ways can this be met? For instance a bus company doesn’t only compete with other bus companies, it competes with all forms of transport from trains, planes, cars, bicycles, walking and not taking the trip at all.
You should have a solid understanding of how big the potential market is and whether it is a mature market or one with plenty of growth left. You should know what segments or niches exist, and which ones you compete in, together with what share of the market you have.
Ideally you should have detailed knowledge of all of your direct competitors and their strengths and weaknesses. The first aim of the game is to beat them, and the more you know about them, the better off you will be.
You also need to have a sound understanding of the indirect competitive forces that shape your trading environment. This includes the relative power of both buyers and suppliers in framing pricing or market activity, the potential for new entrants and the likely future impact of technology or product development to alter the way the market operates.
7. Marketing plans
Marketing covers more than just sales and advertising. You need to demonstrate how you will compete and be more successful than others.
You should provide detail on your product strategies – including things such as features and benefits, how these target selected niches, your new product development schedules and so on.
What is your pricing strategy – high end exclusive, middle of the road, value, low budget, are you full service or bare bones? How often and when will you discount, and why?
How are you going to promote the business and who to? What mix of advertising, public relations, and direct sales will you use to stimulate interest or create desire. What internet or e-business strategies will you adopt?
What sales distribution strategy are you adopting? – product licensing, franchising, distribution network, direct sales and so on.
8. Risk & contingency planning
Risk is a part of every business. Don’t ignore it or gloss over it when preparing your plan. Recognise it and address it – where possible develop strategies to adopt should certain circumstances eventuate.
Expect the unexpected. Some people say it’s not worth planning because things don’t often work out the way they’ve planned. The whole point is to be prepared, so that when things change, you are ready for it because you have the depth of knowledge to support a change in direction.
9. People
Does your team have the leadership, skills and experience required? Investors look to a proven track record of success in building a business – it’s a different set of expertise4 than managing a steady state enterprise. Investors invest in people as much if not more than they invest in product, ideas or business models.
How committed are your people and how will you keep them and reward them?
10. Financial plans
Many businesses fail because they are undercapitalized or because they are poor money managers. Note that a budget is not a plan. It is important to be realistic whilst erring on the side of conservatism.
Make sure that the numbers add up and are consistent with all aspects of the plan – they should come from the plan, not be prepared as a separate exercise.
Include a Cash Flow statement as well as Profit & Loss and Balance Sheets. Be clear about how much funding you need, when you need it and what the money will be spent on.
11. Exit
If you are looking for investors, they will want an exit point to allow them to realize the gains they make on their investment. Dividend streams are rarely sufficient enticement to investors, who want heir capital back. Be clear about the exit event – public listing or trade sale are the 2 most common, but there may be a share buy-back provision as well.
12. Attention to detail
Make the plan concise – most potential investors will read the executive summary and skim the rest. A 200 page monster simply won’t be read. You need the detail to support your statements, but this is best done at an investor presentation.
13. Review (get a 2nd or 3rd opinion)
The most experienced entrepreneur can still benefit from a different point of view. Even if you’re the only person involved in your business, find someone who can study your plan objectively and point out possible weaknesses you might have missed.
14. Implementation Plan
It is said that a poor plan executed well is superior to an excellent plan poorly executed. The key to successful planning is to think through all aspects of your business and how you will compete most effectively.
The key to real success is action – the planning process should give you the knowledge to react to changing circumstances and be more savvy than your competitors, but this knowledge is worth little if you don’t get on with it!
15. Plan Contents
Exec Summary (1 page)
Business Description or Company Overview (1-2 pages)
Products & services (1-2 pages)
Marketing & Industry Analysis (2 -3 pages)
Marketing Plan (3 – 4 pages)
Operational Plan (1-2 pages)
Management (1-2 pages)
Financial Plan (1 – 3 pages)
Capital & Cost Analysis (1 page)
Appendices (15 – 20 pages)
5 year Profit & Loss forecasts
5 year Balance Sheet forecasts
5 year Cash Flow forecasts (monthly & quarterly)
Resumes of founders & key personnel
Written by David Shelton Principal of Transition Capital.
Transition Capital assists emerging high growth businesses to raise the capital needed to fund growth. It also provides management support to develop more effective and powerful enterprises.
David can be contacted on davids@transitioncapital.com.au
www.transitioncapital.com.au
Tags: consistent image, goal 3, invaluable document, preparing a business plan, writing a business plan