Opinions may be divided over when to do it, how to do it, and even why to do it, but one thing is certain; devising an effective business plan can be a key to success for entrepreneurs with big ideas.
A strong business plan creates focus, links short-term operations with long-term strategy, and encourages efficiency within the business. It helps the business owner to communicate their vision to those outside the business, and can be crucial for attracting investment and increasing sales.
Here are ten steps to creating an effective business plan:
1. Know your business model before drawing up the plan
First and foremost, any business worth its salt has to be clear about what it is offering, who the competition is, who’s buying and who’s paying.
Many new businesses create a business plan first as a matter of course, without thinking why they are doing it, says Ian Shott, chair of the Royal Academy of Engineering Enterprise Committee.
“The result is that many business plans contain extraordinary detail and spurious accuracy built on unvalidated assumptions that there are customers who will buy their product,” he says.
2. Know your market and your customers
The importance of market research can’t be overstated. As the business owner, you should know your customers better than you know your own mother. And in your business plan you must be able to demonstrate why they will buy from you. What are they doing now and why do they need you in their life? Unless this can be clearly shown in the plan, the viability of the business in its chosen market will come under question.
3. Seek support from market insiders
Getting to grips with the market is easier said than done, particularly for entrepreneurs who are just starting out. When building a business plan, acquiring insights from market insiders can shave off years of trial and error, explains Shott.
“Gaining access to these people can be tricky, but there are enterprise programmes in place that can help,” he says.
4. Drafting out the plan
Instead of treating your business plan as just a document, see it as an actionable plan for your business. There is nothing to be gained from simply getting everything down in writing on a document that is never referred to. The real key is to demonstrate an understanding of your business that you can talk about in any level of detail.
A business plan can be communicated just as effectively in a 15-slide PowerPoint presentation as a 200-page tome, says Alliott Cole, a member of the ventures team at Octopus Investments.
He says: “Think about who the business plan is for and how it will be used; for prospective or current investors, the board, the management team or perhaps just for yourself. What it looks like will depend on who your audience is.”
5. Keep it simple
If you can’t easily express your vision for your business, you will struggle to raise money from investors, convince prospective employees to join you, or sell to customers, no matter how great your business concept is. To ensure clarity and simplicity, share your business plan with a friend or family member who has little or no real knowledge of your sector. If they can grasp your basic business premise you can feel confident that you are on the right track.
6. Know your numbers
A fundamental element of running a successful business is having a firm grip of its finances. When writing a business plan, you’ll need detailed financial projections that you know inside out.
Stuart Marks, the angel investor behind L Marks, says: “Check, double and triple check your break-even point, cashflow forecasts and pricing and cost calculations. Be realistic and detailed. Engage the services of a finance professional or accountant to look over them and make sure they all make sense. No investor will take you seriously if you don’t know the figures.”
7. Forecasting for the future
When providing forecasting data in your plan, make sure this extends to 30, 60 and 90 days, as well as 12 months, three years and five years, to help you understand and set targets for the immediate to longer-term.
“These forecasts can help to set targets throughout the business including sales revenue targets, marketing activity targets and operational delivery targets,” says Tom Craig, co-founder of digital marketing agency Impression.
“When setting targets we suggest setting different tiers, perhaps low, medium, high, for example, and sometimes these can be broken down further. It’s important to understand the minimum sales or revenue your venture needs to stay in business.”
8. Show your margin for error
Another key stage in writing a business plan is to show that you have factored in a margin of error. “Your business plan needs to show that if you halve your income and double your costs, the business still works,” says James Layfield, founder of Central Working, a membership-based club for startups. “It will likely take you twice as long to break even as you think it will, and it’s vital that you’ve planned how to survive those lean early days.”
9 Plan your exit
It may sound strange, but investors care little about the business, its customers, or its owner. Their priority is the return they will get on their money and how much they will get back, so be realistic in telling them what return they can expect.
The numbers are the numbers, says Layfield. “Make your forecasts believable and you should be able to confidently show potential investors how you’re going to hit those projections. In reality, you won’t. Things never go to plan, but any decent investor will know this.”
10. Have an agile business plan and revisit it regularly
Too many entrepreneurs write their business plan, file it, and forget about it – job done. But a growing company must be agile, prepared for opportunities and able to recover quickly from setbacks, and a robust business plan should be equally flexible.
Stuart Marks says: “Sticking rigidly to a business plan can make it hard for you to pivot when you really need to. Ultimately, it’s a guide for investors about the strength of your potential, not a bible to dictate your actions. Use the business plan as a mental exercise to plan realistically for your future and demonstrate that you and your team have the vision to drive the ship.”
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