If you do not have a business plan then you do not have a clear direction with which to take your business forward.
At best you have a general idea of the right direction at worst you end up going in completely the wrong direction. Without a plan it is impossible to raise money and almost 100% of businesses will require external finance in the early years in order to achieve the business promotor’s ambition.
All aspects covered.
Having a business plan shows that the business promoter has considered all aspects of the business which need to be considered and in the right order in which they need to be developed.
This ensure that nothing is forgotten and nothing is left out. The plan provides a check against the businesses actual performance after the business has started trading. It provides the opportunity to review the business promoters’ ideas before commencing the business which a friend or a professional advisor can provide from reading business plan itself. The importance of this process of review should not be underestimated. It may cost a few thousands of pounds but it is money well spent. Out of the process will come an improvement to the plan and a significant increase the businesses chances of survival, as well as a significant increase in value of the business at a future date sale or flotation.
If you need to raise money in order to take the business from pilot stage into full production then a compelling business plan is vitally important. Most people think that the business plan they write is wonderful. In practice they have probably never written a business plan before. They wouldn’t know the difference between one that was compelling encourage investors to invest and on one that repelled investors and encourage them to head for the hills. This is why being involved with somebody who understands and has significant experience both business plans and fundraising is vitally important.
The longer the business plan, say 50 pages or more, the less likely it is to be read in full by the potential investor. Investors reading the business plan will read the first few pages then maybe they will read 25% of the total plan in some detail. They then scan the rest to see if what is there to change the decision that they are have already arrived at in their mind. It is very important that those first few pages are well written and are able to convince any investor. It is no good leaving key data to the appendices if the investor doesn’t get beyond page 3 because he is bored or uninterested and you have not made your inevitability case.
it is important that the first paragraph grabs the attention of the investor reading the business plan. It needs to start to answer the question of why me and why now. The next two pages need to flesh out the answer to the question ‘ why me, why now.’ So that by the time the investor has read the first couple of pages they are ready predisposed to considering investing in your business. The rest of the plan needs to support the statements and claims made in the first two pages so that the investors predisposition is continually reinforced.
The order which I recommend, which is included in my business planning templates is as follows:
What is your vision or WHY?
Reason for having a section on the company’s vision or the companies why is to provide potential investors and employees with an understanding of what is driving the business promoter to undertake this new business opportunity. Why might be to provide a new piece of software to help children suffering from educational disadvantages do to Covid-19.
This would provide everyone with a clear understanding of why the product is important and what need it is meeting. It would also provide a sense of mission to those participating in the business as well as encouraging customers to participate in this mission which everyone can agree is terribly important. An alternative vision might be for a company involved in green products which helped to address the climate changes issue.
This would also provide a sense of mission for investors and employees who I believe climate change is a vitally important matter. Therefore they are prepared to invest their money to address a concern which is consistent with their beliefs and values.
What are you selling?
This section provides an opportunity for the business promoter to describe the product or service or platform that they are creating and to explain why the public would want to purchase the product service or platform in sufficient quantities to ensure that the companies is successful. The section can be as detailed as is necessary to provide the understanding to the investor so that they can appreciate the benefits of the product and that there is a sufficient market for the product.
Who are you selling it to?
At this section is relating to not just who are the potential customers for the product, service or platform. This section is where the wider market is discussed takes place and discusses the products, services and platform of competitors. It will be important to assess the competitor products and explain why this new product, service or platform meets the market need better than the alternatives. A discussion of pricing strategy can take place in this section alongside competitors ability to copy your ideas quickly. The protection of IP will need to be considered under this heading.
How are you selling it?
This section discusses the details as to how these potential customers are to be turned into real paying customers. This will include brand development, marketing plans, CRM systems, LinkedIn strategies which may also include advertising both digital and in traditional media. Important aspect of this section is to ensure that the company has developed clear plans as to how to get customers before they she starts trading so that they don’t waste time trying to work out who they are or where they are after the business has started trading. Thereby consuming large amounts of valuable cash which could be better spent elsewhere in the business. The company should have a sales pipeline before it starts trading with clarity around which customers could be converted quickly to paying customers.
What is your Rollout plan?
This section is not in my business planning template but is becoming more important since the investment is usually needed to finance the building of the new product, service or platform. The fact that this is new and may take a few months to get ready to launch and a few years to complete increases the risk to the investor and may delay receiving the investment if investors are concerned that the risk in this area are too high. They will want others to take that risk and only come on board after the development phase is complete.
What is the 1st 12-months budget?
The importance of the first 12 months budget is that it is a place in which to consider all of the costs that are likely to be incurred over the first 12 months of the business is life. This then forms basis around which early-stage investment is required either from the first shareholders or perhaps from a SEED round. It is important that there is “buffer money” in this budget so as to take into account unforeseen costs. It is vitally important that the budget is not exceeded since this will put the future of the business in doubt. There is nothing that investors like less than bad financial management because it increases their doubts that the management teams have the ability to manage additional funds in the future.
What is the financial model and 3-5 year financial forecast?
Mental model it’s important because it shows how the company makes profit. it explains the cost to sale for each product and shows that there is sufficient profit in the pricing and cost of sales to meet the overheads head. It will show how many units need to be sold in order to cover the overheads providing an ability to model the impact of differing levels of activity.
The completeness of the financial model will show not only the importance of profit and the assumptions around how long until you get paid and what are the payment terms for your costs but also the impact of capital expenditure. This will then provide a benchmark against which the future can be measured. This is an most important aspect of this exercise since understanding of the key assumptions underlying the business plan is vital to its survival. These assumptions need to be front and centre of the CEO’s daily, weekly and monthly review since failure to keep to these assumptions can put the company significantly off track. As soon as that CEO understands that’s some of the assumptions need to be reconsidered quickly then the financial impact of these changes can be assessed and action taken to bring cash flow back within previously planned at levels.
A compelling business plan is vital before the business is started since it provides a benchmark to compare belief to reality. it also provides my compelling basis for external investment in the early stages of the businesses life without which business may not survive.