Whether you’re starting out or scaling up, a sound business plan can serve as a route map for your business journey – and a vital tool if you need to secure funding along the way.
Getting your business plan right can help win the trust of investors, customers and staff. Get it wrong, and your business may not survive, let alone thrive. It is a task that many business owners struggle with, according to business adviser and author of The Startup Coach handbook, Carl Reader, who explains that this is because they approach business planning in the wrong way.
“Instead of obsessing over it, ignoring it, or doing it simply to raise money, as many do, they should see the process of preparing a business plan as a really useful way of distilling their dream into actionable steps and measurable targets,” he says.
At the very least, a business plan should include a history of the company and its current and future products or services, with an explanation of how the business operates and why it will be successful. It should also include information on the marketing strategy and sales and distribution process, plus detailed financial information, including any existing debt finance, and a risk analysis.
However, the key ingredient of a good business plan is honesty, which means being completely realistic about projections, honest about the market and competition, and transparent about any weaknesses and threats.
“Almost all businesses underperform compared to plan in the early days,” says Reader. “But those that honestly appraise themselves tend to be able to continue trading through any missed targets.”
If the primary role of a business plan is to map the future, help you to understand your business better and chart specific courses of action that need to be taken to improve your business, its role in securing business finance, whether via borrowing or investment, comes a close second.
Banks require considerable information, including financial forecasts and annual accounts, when considering loan applications. So a detailed and well-prepared business plan will reassure potential lenders that you take financial planning seriously. If you are looking for equity finance, a good business plan is absolutely crucial for raising the interest of business angels and venture capitalists in investing in your company.
A business plan should be exciting but credible, with clearly identified customer benefits, and offer evidence of growth and future prospects. It must also be concise, summarising what the business does and the value it delivers to potential customers in just a few sentences.
“Explain why you are different,” says Julia Payne, co-founder of marketing agency Incisive Edge. “The possibility that there are 20 other companies creating a business that’s very similar to yours is high. If you can’t explain why you are different – in other words your competitive advantage – then don’t waste your time putting a business plan together.”
While it is natural for entrepreneurs to be enthusiastic about their big idea, they should avoid over-embellishment and stick to the facts, while their business plans must contain robust research and well-evidenced financials.
Martin Atkins, partner and startup adviser at accountancy firm Menzies LLP, says: “Lenders and investors will expect to see this level of detail, and plans that leave them wanting more will probably be an opportunity missed. There is nothing more off-putting to a potential investor than a lack of hard data to back up business or market forecasts.”
In the digital age, businesses are increasingly reliant on digital traffic to drive growth and win new customers. But the digital landscape is also unpredictable, and for business owners active in that space, forecasting can prove challenging.
“When it comes to growing a business in the digital age, there are a few main channels,” says Glen Allsopp, founder and CEO of marketing intelligence firm Detailed. “You can purchase ads on Facebook or Google AdWords, you can try to improve your website’s ranking in Google’s organic search results, or you can connect with influencers on platforms like Instagram and YouTube. All three of these avenues have volatilities that you can’t predict in a business plan.”
Facebook, for example, recently made changes to show more of its members’ family and friends’ content in its news feed than viral posts from pages or general company updates. If Facebook ads were a significant feature of your business plan last month, this month the figures could look very different.
“Similarly, if you’re getting into the cryptocurrency space, you can no longer advertise on Twitter, Facebook, and from 1 June, on Google,” says Allsopp. “Finally, ranking organically has no guarantees, so you can’t predict exactly when that source of traffic may kick in for your website.”
In the digital era, the way that businesses and their owners market themselves and bring in revenue is changing all the time. However, the fundamentals of a business plan haven’t changed. “Investors will still want to know whether you have a viable, scalable business and, crucially, whether the financials stack up,” says Payne.
When you are struggling to cope with the pressures and demands of getting a new business off the ground, spending time writing a business plan may not feel like a priority. But as a gauge for what works and what doesn’t in your business, a means of tracking your success and adjusting accordingly, and the key to accessing business finance, a robust plan is something that no business should be launched without.
