Thinking of starting your own business? Has anyone ever told you: “You’ll need a business plan for sure!”
Although people often see a business plan as a mandatory document to submit when applying for a bank loan, it is much more than that. No doubt it is perfectly possibly to run a business without one, but having a solid plan in place will make the journey of doing so much easier. Don’t look at it as extra work. Look at it as a roadmap, as a guide along the way, a document for reflection to better understand how your business is growing and whether the status quo is in line with the initial progress expectations you had in mind.
Besides that, it doesn’t only help you run a business, it also helps to better understand the viability of a business idea before investing time and money into it. Looking at a business model from a purely theoretical point of view will give insights into future performance, market size, challenges and opportunities. Young entrepreneurs are very often biased and enormously convinced of their own business idea. They have a feeling they can’t fail while nothing can stop them from conquering the world! Does that feeling sound familiar?
Putting the exact business idea down in writing and looking at numbers across all aspects of the future organisation, very often helps to place things in perspective and look at the concept in a more rational way.
Next to that a business plan is also required when looking for investor capital while it helps companies to better manage cash flows and develop accountability across teams.
Let’s have a look at a few best practices together!
Research, Research, Research
If you are going to run a viable business, one that investors are willing to put their capital into or one that will be making good profit, the information in your business plan has to be relevant, valuable and realistic. The best practice to develop a good business plan is to complete a thorough research and critically analyse all aspects of the business you are going to build. You can use databases, articles or direct interviews with potential customers as well as with other entrepreneurs while conducting your research.
Next to that? Go out and look at what the competition is doing. If you are looking to open a coffee place, spend time in all major coffee places around the city. Understand their pricing structures, look at how they operate, understand what customers order and write down the top 5 products, see how they go about promotions, how they upsell products at the counter, which technology they use and so much more.
Steal with your eyes! We promise you that no one will arrest you for it! One a final note, make sure you document and quantify your research. If you need insights when speaking to investors or other stakeholders, you want to be prepared and show them proof of your claims. Don’t forget
“It’s your responsibility to know everything you can about your business and the industry that you’re entering.”
Determine Your Purpose & Start Gathering Information
After conducting the research, look at putting the pieces of the puzzle together. Determine the purpose of your business and set a clear direction not only for you and your team but your potential investors too. Generally, your business plan should be clear and definitive.
Start gathering the information you need for your business plan. Below are some key points you must not leave out:
- Describe the problem you are solving and explain why that could be an opportunity
- Define the market size to give an idea of the total number of potential customers
- Identify your customers in detail.
- List out your competitors and understand their current market share
- Define the pace the market is growing at and point out how this can help your business
The business model
- Write down the model for yourself to really understand what you are planning to build.
- Create and include a storyline. Explaining a business idea and model in writing makes it much easier for future external stakeholders to immediately understand what you are planning to build. At the same time, writing it down will allow you to be much more critical, rational and understanding giving you the opportunity to finetune along the way.
- Define a strategic model allowing the business to create a sustainable competitive advantage over its competitors.
- List out the macro-economic factors that will affect the business. Political landscapes, emerging market states, economic and financial situations as well as local changes in consumer behaviour and technology.
Risks and rewards
- Define the main risks that the business will face while creating processes to mitigate them in advance. At the same time, try to better understand what the expected financial rewards will be for future shareholders.
“A chain is only as strong as its weakest link.”
- Who are the people that will be driving the business? What are the skills set they need to have or obtain? What are the monthly salary expectations they have and how does this fit into your budget?
Create a Company Profile
The company profile is a quick summary of your organisation. It allows your investors to get a general idea of the type of service that your business offers, its distinct strengths, its track record, team and more. A good company profile should have the following sections:
- An attractive cover page
- An ‘About Us’ section
- Products or services section
- A ‘Why Us’ section
- Your company’s team section
- A ‘Contact Us’ section
Detail Out Crucial Aspects of Your Business
Know the details of your business like the back of your hand. All investors want to finance a business they will profit from, whether it is through yearly dividends or income out of a corporate sale. They want to understand everything about your company such as cash flow, expenses, industry projections and more. Document consistently and include every detail ensuring you can provide the exact information needed at any point of time.
Keep in mind that every potential investor is different. Some invest in people and want to better understand how you will be structuring the team while also getting a sense of your hiring capabilities. Others are more numbers driven and want to see large spreadsheets documenting every individual income and expense you are foreseeing to better understand your future business performance.
Have a Strategic Marketing Plan in Place
Your business plan should include your marketing strategy. This section is essential because it shows your investors how you’re planning to grow your business in the long run and how much you are planning to spend on doing so. Keep in mind that a marketing plan is not a campaign idea. It must be a combination of input and output numbers across different activities. Lastly, don’t forget to include clear objectives and define the metrics you will be using to evaluate results.
Make It Adaptable to Your Audience
This is perhaps one of the most important steps. Ideally, your business plan should be as versatile as possible to encourage angel investors, sponsors or venture capitalists to invest in your business. Keep in mind that every investor is interested in different segments of your business. For instance, some are more interested in your marketing plans, some on the other hand, prefer the funding aspect. Nonetheless, all will want to understand how much they could profit from your business and at which rate. Hence, before presenting your business plan, tweak it to ensure it is in line with your investor’s interest. However, make sure that the alterations do not change your business goal.
Although different investors have different priorities and approaches, all of them will want to see numbers. Make sure you are well prepared. Know your unit economics by heart and make sure you can answer questions like “What will the cost be to acquire an individual customer?”, “What is the average size of a purchase you are foreseeing?” as well as “How often do you think customers will be coming back on a monthly or yearly basis?”. Being able to answer detailed questions like these, will show future investors that you are on the ball and that you have everything planned out in detail. It will give them confidence and it will increase your chances of getting working capital secured.
Explain Why You Care
Investors, team members and customers will need to know you are dedicated and passionate about your business. Speak about your mission, show them a clear vision and explain them which problem you want to solve. Share how you’re going to make it happen and create an emotional connection with others. It will help them support your organization going forward.
While perfecting your business plan takes time, it’s important to keep in mind that it will be helpful in the long run. All the best!