Writing a business plan can be a daunting experience for anyone who has never done it before but it needn’t be so. For most people it’s actually the thought of having their plan rejected by investors or the bank that makes them nervous about writing one. The very process of writing a business plan should be what gives you confidence that you either have a viable proposition or not.
By working your way towards a comprehensive business plan, you’ll answer most, if not all, of the questions that potential investors will ask. The key to success is in making sure you know what questions will be asked so you can have your answer and proposal ready.
A business plan is a document that you will use for a number of purposes. Primarily, it’s to record your idea and business proposal, but it’s also a tool to use to convince investors and stakeholders that you know what you’re doing and that they should trust you and your plan for the business.
There are therefore a number of key elements that any business plan will need to address. You can choose in which order they appear in your plan, but you should make sure you cover all of them.
The nature of your business
The first thing you’ll need to be able to do, even before you set pen to paper, is describe what your business is being set up to do. If it’s based upon a product or a service, can you describe that and can you say why your product or service has merit or is unique?
Your strategy and business aims
Describing what your business will do may be relatively easy, but ask yourself whether you can articulate the direction your business is heading in and what your aspirations are for the future. When laying out your business strategy, you will need to set it in the context of the market and environment around it, taking account of influencing factors and dependencies. Potential investors will want to know what you are planning for in the future, what the future direction of the business will be and ultimately what you intend to achieve.
Every business sits within a market. Whether it’s your customer base or your competitors that represent your biggest challenge or opportunity, you need to be able to articulate where your business will sit and fit in the marketplace.
Your plan should discuss the sector that you will operate in, the demand for your product or service and where your business will sit in relation to customers and competitors. How strong are you or your products in comparison to those of the competition? Will you be able to carve out a market share? If so, how and why?
It’s vital to deal with how you will promote your business within your chosen market. Make sure you can describe what your marketing approach will be and that you demonstrate your understanding of routes to that market as well as areas for potential growth.
From where will the business get its money? Not the investment money to get moving, but the day to day sales revenue, the life-blood of the business.
When discussing revenue in the plan, you should consider where the money will come from. Is it through sales of products and services or are you expecting to rely on some other earning stream? How much are you expecting to receive either annually, monthly or even weekly and what do you see the growth of revenue being over time?
To make your information easy to understand, use graphs and charts as well the more established accountancy table formats. This lets the reader see your estimations quickly without having to wade through text to get a feel for your overall forecast.
Before you can predict profit in any way based on the revenue you described, you will have to work out what it is going to cost you to run the business. Your business’s cost base is the normal expected cost of running the operation. It’s not about the amount of money you need to get started. You can cover that elsewhere in the plan.
Make sure you look at the cost of accommodation, salaries for any staff you may have, utilities costs and the costs of raw materials or goods you may be purchasing on a regular basis. Make sure you lay this information out in a way that can be easily understood and always check your assumptions.
If you are heavily reliant on manpower, make your staff levels clear and show how they will grow with time. It’s also a good idea to spend give a brief outline of the roles you envisage being needed and what skills they will require.
This is the amount of money, or capital, that your business will need injected into it to get off the ground or to expand. Potential investors will want to know how much money is needed and for how long you will need it. What is equally important, but often missed in business plans, is what you will do with that money and what impact you expect it to have on the business. Consider very carefully what you will do with the investment you are asking others to make and ask yourself if they will understand your strategy and agree with your approach.
You can also consider splitting the investment requirements to reflect what you need in the short term to achieve some initial goals and what you will need for the longer term to meet strategic aims. This gives investors an indication of your level of foresight and your ability to set long term, achievable goals for your business.
Profit and return on investment
If you are asking people or institutions to invest money in your business venture, you will have to be able to tell them what they will receive in return. At a basic level, this will be a description and an estimation of what returns you will give them for what will effectively be the loan of their money.
Examine payback periods, particularly for initial investments and be clear about how long you think it will be before the investment breaks even and starts to make money for you and the investors. If the main purpose of your business plan is to attract private investment, rather than banking facilities, you may want to consider mentioning what other methods might be possible for return on the investments made. This could include taking a share in the business or profit-taking after a set period for example.
Take your revenue and costbase estimations into account and forecast the profit levels your business might make over the period of your plan. Bear in mind that for new businesses, profits may not be available immediately and getting the business into a profitable state may take time. If this is the case for your business, try to be as clear as possible on how long this might take and on what it may depend.
Many a sound business has gone to the wall through cashflow problems. It’s one of the fundamental issues that faces every business and must be addressed in a business plan. If need be, get some help from an accountant to estimate cashflow and get advice on how to present it in your plan. If you try to produce a business plan that does not sufficiently address cashflow, it’s almost certain that you will be turned down for investment of any kind. The main points you will need to consider from an investor’s point of view will be the maximum cash exposure, so that you can see the maximum amount you are likely to be out of pocket at any point in time, and for how long will this exposure last.
Few businesses, if any, are risk free. If someone tells you they have a no-risk business proposition, it’s more than likely that they’re either lying or just haven’t considered where the risks actually lie. Don’t expect potential investors to fall for the no-risk argument. Think about the things that could impact your business. What are the factors or events that would cause your business to fail or be held back in some way? List them along with an indication of the probability of them actually occurring. Beside each risk describe actions that can be taken to mitigate the risk either completely or partially. Where these mitigation actions have costs, estimate them. You should also consider what you will do if the risk occurs. This is common project management practice and is known as the fallback position. Since launching or developing your business is a project, it makes sense to use project management techniques. Again, where these fallback actions have costs associated, state what they are.
Management capability and background
Lastly, investors will want to know who is running the business and what it is that makes them the right person to do so. If it’s you who will be running the business, include your resume, or CV, and explain why you are the right person with the right skills and experience. Investors will want to establish the credentials of whoever will be managing their investment.
There are lots of other elements of a business plan that help to ensure it’s a comprehensive document that shows your business proposition in the best light possible, but these ten are absolutely essential. If you cover these, you’ll be well on the way to having a plan that covers every point investors could want to query.