It is easy to develop an idea and start the process but without proper planning, it is like a journey without a roadmap. You might, at any given point in time, get lost on your way. This is precisely the reason that made me write this blog – the importance of business planning. Business planning is a very time-consuming process which also requires some amount of money. Which is why many small business owners tend to avoid the initial spends on planning. However, contrary to such misconceptions, I strongly believe that benefit of good planning far outweighs any loss of initial earnings.
The best thing about a business plan is that it acts as a reference tool to keep management on track with sales targets and operational milestones. Your business plan will help you in coming back if you have drifted from your original goal. The value of business planning cannot be undermined. Putting your ideas, concepts and the roadmap on paper is invaluable and proves to be very useful in your future business years. Let’s now focus on some of the reasons why you should start with a business plan:
Clarify direction and future vision:
The primary objective of a business plan is to tell your readers what your business is all about and chart specific courses of action to be taken to improve your business plan.
To support growth and secure funding:
Investors need to see a business plan before they decide whether or not to invest. A well-crafted business plan can help you convey your USP to prospective investors.
For a business to succeed, attracting talented resources is of utmost importance. One of the objectives of the business plan is to find the right talent, starting from an executive to skilled staff and showing them the right direction and growth.
Good management requires specific objectives and then tracking and following up. A business plan can assign milestones to specific individuals and groups which can ultimately help the management to monitor progress.
The reasons above for having a business plan should be enough to convince you. But in case, you’re still confused, do consider the things that can go wrong if you don’t take time to plan.
- You might run out of cash as you have not anticipated your startup costs well.
- You work on incorrect sales projections as you don’t know who your target customers are and what they want.
- Your quality of service might not be able to maintain consistency and hence you lose out on customers.
- Drifting from the main goal or objective of the company as you did not have a distinct vision and mission of the company, to begin with. Finally, a sum of the parts above, going bankrupt as you don’t have a rational business model or plan for how to make money.
Now that you understand the need for a business plan, it’s time to roll up your sleeves and get everything down on paper. We will now describe in detail the essential elements of a business plan. With that in mind, jump right in.
The executive summary is the main element which tells all about your company, explains what you do, and lays out the overall foundation of the business plan. Structurally, it is the first chapter of your business plan. And while it’s the first thing that people will read, I would recommend you to do that the last. Why? Because once you complete the full business plan, you will know your business much better and hence will be able to do it well.
Typically, the executive summary also acts as a standalone document that covers the highlights of your detailed plan. In fact, it’s very common practice for investors to ask for only the executive summary when they are considering your business. If they like what they see in the executive summary, they would ask for a complete plan, pitch presentation and other details of your business.
The opportunity section is the real heart and soul of your business plan. This is where you will describe in detail the problem that you’re solving and your solution. What is your target market and competition? Investors and readers of your business plan will know about your business in the executive summary. But, this chapter is still extremely important because it’s where you expand on your initial overview, providing other details and answering additional questions which were not touched upon the executive summary.
One of the first questions to ask yourself when you are testing your business idea is whether there is a market for it or not. The market will ultimately indicate how successful your business will be. Begin your market analysis by firstly identifying your market segments and then determining how big each segment is. You also need to evaluate the trends affecting them and if these trends predict your future success?
Don’t fall into the trap of defining the potential market as ‘everyone.’ The classic example is a shoe company. It would be tempting for a shoe brand to target everyone who has feet. But realistically they need to target a specific segment of the market in order to be successful. Perhaps they need to target sports persons/athletes, or women and children to achieve a reasonable market share.
Competition analysis is again a very crucial step in the making of a business plan. This is to determine the strengths and weaknesses of competitors in the market. This analysis will help you to develop strategies that will provide you with a distinct advantage over competitors. One of the biggest mistakes entrepreneurs make in their business plans is asserting that they don’t have any competition. The most important thing to highlight in this section of your business plan is how your solution is different or better than what competitors are offering the customers. Investors will want to know what advantages you have over the competition and how you plan on differentiating yourself.
There is an old saying that investors don’t invest in ideas, they invest in people. Some investors even say that they would rather invest in a mediocre idea with a fabulous team behind it than a fabulous idea with a mediocre team. In this section, provide a brief overview of your team and why you and your team are the right people to execute this business idea. Running a successful business idea is all about the right execution. Do you have the perfect team in place that will turn a good idea into a successful business?
Financial data is always at the end of the business plan, but that doesn’t mean it’s any less important than other elements like market analysis and management team. Smart investors look prudently at the charts, tables, formulas, and spreadsheets in the financial section because they know that this piece of information is like a heartbeat in a human-it shows whether the patient is alive and what are the odds for survival. A typical financial plan will have monthly projections for the first 12 months and then annual projections for the remaining 3-5 years. 3 years projections are mostly adequate, but some investors might look for a 5-year projection.
Finally, consider closing out your business plan with an appendix – a place for lengthy, partially relevant and/or reference information. Charts, tables, definitions, legal notes, or other acute information, can be a part of the appendix.
There you have it. We hope this has helped you get a better idea of what a business plan should look like. Now it’s time to turn that business idea into a reality. If you have a sound business plan and present it accurately, there is no reason why your business plan should not get funded. Good luck!