How to Write a Business Plan
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A business plan is a living breathing document that outlines the various facets of a particular business entity in the short and long term in order to achieve success. A business plan is not something you draft and forget. You need to keep revising it, reviewing it, and building upon it. Also, when drawing up a business plan you need to look at multiple facets from different stakeholder’s viewpoints. Finally, you need to steer the ship always keeping the long term destination in sight.
Here are some tips and tricks that will help you to craft a good business plan.
Why is a business plan required?
One of the most common reasons to write a business plan is to raise risk capital. When starting a new venture or moving business to the next level, a business plan helps in convincing investors to loosen their purse strings. A b-plan also gives the company’s loan application a better chance of success.
It helps attract high level management talent. It educates strategic partners about the company and its goals. It measures and analyzes the performance of the company against set parameters.
It helps predict and strategise future growth patterns and scenarios affecting business revenues. It guides the company’s horizontal and vertical business units. It helps monitor changes in the company and its affect on the overall business goal.
What are the components of a business plan?
Though a business plan is not a precursor to getting funded, having a detailed business plan is always a good sign. Having a business plan helps you get your foot in the door. A well laid business plan establishes that you are serious about your start-up.
The following twelve points are recommended components of your b-plan.
Executive Summary– This is the abstract of your business plan which briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful.
Company Overview– This provides more information about your business, why and when it was formed, its mission, business model, strategy, and any existing strategic relationships.
Team Overview– This section explains the background of your company executives and managers and how that will help you meet business goals.
Product or Service Overview– If you sell products, state whether you are the manufacturer, distributor, and/or retailer and tell about your manufacturing process, availability of materials, how you handle inventory and fulfilment, etc. If you provide services, describe those services.
Proof of Concept– This section demonstrates the feasibility of your business idea.
Market Size, Trends and Opportunities– Use this space to showcase your vision of why your business will be successful, backing that up with market research that identifies your target market and industry and customer trends.
Competition Offering– In this section, Address what your competitors are doing and what makes your product/service different from theirs.
Business Model– Explain in this section how you intent to generate revenue and make a profit from operations.
Operational Workflow– Describe the tasks, procedural steps, organizations or people involved, required input and output information, and tools needed for each step of your business process.
Sales and Marketing– This section explains what your marketing strategy is, how you will execute it and how you will ultimately generate sales.
Revenue Forecast, Investment Requirements & Capital Structure– Write this section only once you have completed the above sections. In this, include your projected profit and loss statements, your balance sheet, and your cash flow statements for the next three years.
Potential Risks and Gaps– Explain the possible pitfalls that your business may face.
What does an investor look for in a business plan?
We have talked about the reasons why an entrepreneur requires a business plan. Now let’s get onto the other side and gain an insight on what investors look for in a business plan.
Business Idea Feasibility– The investors want to know if your business idea is thought through. Weather it is addressing a need and whether there is a market for it.
Owner/Team Credibility– Passion, perseverance and focus on execution are traits that investors look for in entrepreneurs.
Business Model– Your business model should be stable and should evolve based on the numerous market dynamics.
Market Size, Scalability & Opportunity– Every investor will look at your business from a scalability standpoint since scalability determines exit options.
Validation of Business & Revenue Model– Have you tested your product in the market? Have you generated traction? These are important questions that investors want answered.
Investment Return– How much return would they get on their money is something that is always at the back of an investor’s mind.
Competition & Other Risks– State the market risks and corresponding mitigation techniques.
Execution– An execution timeline infuses an investor with the confidence to invest in your business.
Market Position & Profitability– Convincing your investor that you have a comfortable market position and can increase your profitability based on this is important.
Exit Options– Any investor who invests in your business also wants to make an exit. Hence, stating exit options is crucial.
How to Attract Capital?
One of the major reasons for charting out a business plan is to attract capital. Here are few things you can do to smoothen the process of getting funded:
Set up a professional company
Gather a great team (experience and education helps)
Build a prototype before you get to the investor
Protect your intellectual property (trademarks, patents, trade-secrets)
Get customers to try your product and make a few sales
Think through your business plan
Build a professional financial model
Minimize cash burn rate
Network! Network! Network!
Leave cash on the table
Traps and White Lies
Given the over abundance of well meaning advice available to a budding entrepreneur, it is easy to be misled. There are typical mistakes that entrepreneurs often make. Some of them say that they don’t need a good business plan. Others think that they don’t have any competition at all.
Complacently declaring to an investor that you have first mover advantage when chances are that you just might not have heard of competitors is another common trap many entrepreneurs fall into. When you are a veteran in your industry, holding onto the smug notion that you know everything there is to know in this industry could be a deal-breaker.
Don’t tell an investor that customers will come after you build your product. Rather try to build your product/service and have customers before you approach an investor.
Investing your own money gives confidence to the investor so put some skin into the game. Some think that the investor is going to run away with their idea. You need to remember that the investor is there to help businesses grow. Don’t approach investors expecting them to sign a non disclosure agreement.
Apart from these traps, there are various white lies that investors always hear. As an entrepreneur, it is crucial that you avoid these. Never say that your projections are conservative.
If you have done your market study/research well then your projections are realistic. So even if you think that your projections are conservative, chances are that there are various noise parameters that you have overlooked. Conduct a good study of your market before approach an investor.
Do not rely on reports of other companies. Confidently stating- nobody else is doing what we do, is another typical mistake. Also, never underestimate large competitors. Even if their current pace is slow, when they do get on track they can pump in more money and wipe you out.
Instead, say that you are younger and faster rather than saying that the mega corps are slow. Last but not the least, many say- all I need to do is get 1% of the market. Again, always be realistic in your estimates.
Having a great business plan, is the first step towards achieving everything you have dreamt about for your business. Hope you found the tips shared in this post to be useful. Wish you all the best with your entrepreneurial journey.
This post is based on a Webinar by Mr. Tim Mathews, director at Research PE India. You can find a recording of the session here.