Once you have thoroughly done the necessary market research for your project and decided to go ahead and start your own business, your next step is to write a business plan that summarises the following points about your business:
• Where it has come from.
• Where it is now.
• Where it is going in the future.
• How it intends to get there.
• How much money it needs to fulfill its plans.
• What makes it likely to succeed.
• What threats or disadvantages must be overcome on the way.
The document can range in length from a few typed sheets of paper to several hundred pages. However, since professional readers of business plans – bankers, venture capitalists, and enterprise officers – are offered more business plans than they can intelligently digest, the more concise your business plan, the more likely it is to be read.
The purpose of a business plan
A business plan can have several purposes. The main ones usually are:
• To establish the fundamental viability of your project.
• To document your plan for the business.
• To act as a yardstick for measuring progress against plans.
• To communicate your plans for your business to outsiders, particularly those you want to invest in your business.
Although the business plan is most often used as a marketing document for raising finance, even if you do not need to raise finance you should still prepare one since it will:
• Focus your thoughts.
• Check your numbers.
• Provide a basis for monitoring results.
• Enable communication of your ideas.
Each of these purposes places its own demands on the format and contents of the business plan.
The focus of your business plan will vary, depending on the relative priorities that you assign to these purposes. Let’s look at each in turn.
Establishing the viability of your project
There are many ways of researching whether your project will succeed. All, however, finally require an act of faith from the entrepreneur when the time comes to commit to the business. Before this point is reached, a great deal of planning and careful thought should have been completed.
A well-prepared business plan will assist immeasurably with that process, simply through the discipline it imposes. Too often, entrepreneurs are carried away with their own enthusiasm. They neglect the most cursory checks on the viability of their brainchild. Broad, and sometimes rash, assumptions are made about the market for the product, its cost of manufacture, distribution channels, acceptability to customers etc. But when a reasoned, written case must be made – even if only to oneself – it is less easy to overlook the unpalatable. At least, it is difficult to do so without being aware of it.
Documenting the plan
“The plan doesn’t matter, it’s the planning that counts”, said Dwight D. Eisenhower, former US President. He was right. The quality of the planning you do for your business is critical to its success; how you document that planning process is less so. Nonetheless, a good business plan document actively aids the planning process by providing a structure. It forces you:
• To cover ground that you might otherwise, in your enthusiasm, skip over.
• To clarify your thinking –- it is almost impossible to get your plan onto paper until you have formulated it clearly.
• To justify your arguments, since they will be written down for others to see.
• To focus on the risks and potential for loss in your plans as well as on the potential for profit and success.
Avoid unnecessary pessimism. Be realistic, but don’t carry caution to extremes. If your proposal is realistic, have confidence in it.
A yardstick for measuring progress
Preparing any plan demands an objective. An objective assumes that you are going to make some effort to achieve it. Some objectives are quantifiable: if your aim is to sell 500 gadgets, sales of 480 is below target, while 510 units sold gives you reason to feel pleased with your performance. Other objectives cannot be quantified; all the more reason then to document them so that you can clearly establish whether or not you have achieved them.
Your business plan should contain the objectives, quantifiable and otherwise, that you have set for your business. Reading through your plan at regular intervals and comparing your performance to date with the objectives you set yourself one month, six months or two years earlier can help to focus your attention on the important things that need to be done if targets are to be achieved.
Communicating plans to third parties
Though they would readily acknowledge the importance of good planning, many businesses would not prepare a formal business plan document if it were not for the need to present their plans for the business to outsiders – usually to raise finance. But, if you wish to raise finance for your business to develop, you will have to prepare a plan.
Financiers, whether bankers, venture capitalists or private investors, need:
• A document they can study in their own time, and which makes its case independently of the promoters of the business.
• Evidence that the future of the business has been properly thought through and that all risks have been taken into account.
• Information about the business.
In addition, others may have reason to read your business plan – key employees or suppliers, for example. So it must communicate your message clearly.
No matter how good a writer you consider yourself to be, if you can’t put your business proposition clearly and persuasively in writing, it suggests that you have more thinking to do. It doesn’t mean that your project won’t work. On the contrary, your business may be a resounding success – but you need to be able to communicate it!
Who should write your business plan?
Very simply, you. No one else. You may receive offers from consultants, many of them highly reputable and professional in their work, to write your business plan for you. They will quote their extensive experience of business, of raising finance for start-up businesses, of presenting financial information – all valid points and, in many cases, true.
However, whatever experience consultants may have of business in general, and drafting business plans in particular, they lack one essential ingredient: your intimate relationship with your business. You are the one who has spent your waking hours – and many of your sleeping ones, too, probably – dreaming, planning and guiding your tender and frail creation to this point. You know what makes you tick; what makes your team tick; what will and will not work for you. Only you can assemble these thoughts.
Therefore, the first draft of the business plan is your responsibility. Do it yourself. Refine and redraft it – again, and again, if necessary – until it’s finished. Then, and only then, should you entrust it to someone who can put the right gloss on it. But let them do only that. Don’t let them put their words on your pages.
How long should your business plan be?
How long is a piece of string? Your business plan should be as long as it needs to be – no longer and no shorter.
How long is that? No one can decide that except yourself. It depends on the purpose for which you are preparing the plan, the level of knowledge that likely readers will have of your business, and the complexity of your business.
Few businesses can be done justice to in less than, say, 10 pages; equally, it will be a dedicated reader (or one who has spotted an outstandingly good business proposition) who will continue past the first hundred pages or so.
If a reader wants more information, they will ask for it. But make sure that they don’t have to ask for information they should have had from the start – or, worse still (and sometimes fatal to your hopes of raising finance), that the absence of the information doesn’t lead them to discard your plan altogether.