Do I need a Business Plan?
What is a business plan?
Wikipedia defines a Business Plan as
“a formal written document containing business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved. It also describes the nature of the business, background information on the organization, the organization’s financial projections, and the strategies it intends to implement to achieve the stated targets. In its entirety, this document serves as a road map that provides direction to the business. Written business plans are often required to obtain a bank loan or other kind of financing.”
Is it hard to create a business plan?
The creation of a Business Plan is the second most important thing that you will do behind the idea itself. It will require you to understand every aspect of your business and is a great learning curve in your path to success.
As you work through each part of the Business Plan you will find that there are things you do not know and each of these will require additional research.
While doing this, you will most likely have moments where the experience is overwhelming. When this happens take a break and come back to what you are doing because it is extremely important that you take control of your business plan.
It is a fallacy to think that you can go online and have someone write your Business Plan for a few hundred dollars. They don’t know you, probably have little experience in business themselves and, for that amount of money, will deliver a pre-formatted stereotypical set of answers.
Business Mentors can assist but they generally rely on their personal experience to ask you questions that help them understand what you need and will suggest a set of tasks for you to complete.
On the other hand, hiring a consultant who has real experience in your field and who will assist in working with you to understand your business and deliver a comprehensive Business Plan tailored to your needs can take at least a month’s work and cost up to $20,000.
If you choose to go it alone and search articles online it is a good thing to check that they come complete with explanatory text covering all aspects of:
- the business
- guidelines for completing documentation
- plus, any other relevant information.
The most cost and time effective solution for most business owners is to learn from those that have succeeded and have been prepared to make the knowledge and tools available at a nominal cost.
It is not uncommon to be led into a set of information that is there solely as a front to sell consulting services.
What are the components of a business plan?
A typical Business Plan includes:
Additional sections will be needed if the intent of the Business Plan is also to raise funds from an investor or financial institution.
*Just a quick note…
If you intend the Business Plan to be read by others outside your company e.g. by investors or financial institutions the Executive Summary is the most critical part of your Business Plan.
In today’s venture capital and investor space it is not uncommon for them to receive as many as 200 proposals every month. The time they spend on each is rarely more than 90 seconds, not enough to read what you are telling them in the full Business Plan.
The Executive Summary MUST contain ALL of the important points condensed into a maximum of 2 pages. Knowing how to do this is vital to your business’ survival.
A handy tip for this is to write the rest of your plan first and then your Executive summary last. It may go at the beginning, but you can’t really write about what you don’t know about.
Building a business plan framework
There are several steps in creating a Business Plan and the time you spend on this is invaluable. It will provide you with insights into your company that can surprise you, it can also reveal opportunities and revenue streams that you have not even considered.
Collaboration with your co-founder – if you have one, your key employees and/or executive team will deliver insights that can be keys to important parts of information that are put into the Business Plan.
Every element is important and the more you know and understand about each, the better the business is prepared for future events. In the book “From Idea to IPO” you will find more than 100 questions that you could and will most likely be asked about your company.
Each of the questions has its origin in your Business Plan and the more prepared you are to answer these questions, the more it will pay off when you are talking with financial institutions or investors.
Expect them to be ruthless in the questions they ask as they want to know that you understand your business and have the vision and capabilities to lead it to greater things.
A common mistake when preparing a Business Plan for a new product or service is to underestimate your competition.
I have been in a room full of investors looking for the next Unicorn where the Founder of a company has stated that they “do not have any competitors”.
For investors this is a RED FLAG as they assume that the Founder has not done their homework and most serious investors will walk away. A
ll the work the Founder has done in creating a Business Plan has been in vain as it is unlikely he or she will get a second chance to present to the same group.
In the past it could be argued that the hurdles in setting up a new venture (also known as “Barriers to Entry”) were high as it would take significant capital and resources to enter or compete in a new field.
Today those barriers in most sectors have disappeared and technology has enabled companies operating in one sector to suddenly start operations in a new sector.
For anyone that doubts that competitors can arise at any moment in a traditional industry, they should search for 3D printed houses. S-Squared 3D Printers (SQ3D), 3D-printed a basic prototype home in an estimated 12 hours. (Source: https://newatlas.com/sq3d-sq4d-3d-printed-house-prototype/61123/)
The message here is that you might think that there are no competitors, however, you probably do have competitors or someone that can jump into your field at a moment’s notice.
Some businesses have Intellectual Property (IP) that can be protected by Patents and these can afford a measure of protection, but also take years to obtain.
One point to bear in mind is that having a Patent does not guarantee that there is a need in the marketplace for the product, it is just a part of the Business Plan that can be attractive to investors.
Life of a Business Plan
Business Plans are important at the start of a business; however, they need to be updated on a regular basis.
Most Business Plans include a 3-year cash flow and sales forecast based on circumstances current and predicted at the time of writing.
Your Business Plan should be revised and updated when there is a significant change in sales landscape including:
- Predicted volumes
- New opportunities
- Legislation changes that affect your product or service
- Significant changes in competition
- Changes in company structure and ownership
- Or any other event that will have an impact on the business
When a Business Becomes a Unicorn
The goal for many founders, companies and investors is to reach Unicorn status with their company. That is, a company whose capital worth on the stock market exceeds $1 billion.
Having personally founded one Unicorn and been associated with a second company that achieved this status; the process from the Idea to the Unicorn took about 10 years to complete, requiring numerous revisions of the Business Plan and eventually an Initial Public Offer ( IPO) on a stock market.
The IPO process is a Business Plan in itself that requires immense effort by many parties within and outside of the company.
The planning phase is intense, and the required public documentation and verification is substantial, however the lessons learned in your first Business Plan will form a great basis to assist in this process.
“Unicorn Insights – From Idea to IPO” covers the path to an IPO in detail and provides insights to what’s in store.
Always bear in mind the message from others that have gone before you:
“If you fail to plan; you are planning to fail”
You have a great idea – make sure you do everything to make it succeed.