Perhaps the most important step in launching any new venture or expanding an existing one is the construction of a business plan.
Such a plan must include your goals for the enterprise, both short and long term; a description of the products or services you offer and the market opportunities you anticipate; and finally, an explanation of the resources and means you need to achieve your goals in the face of likely competition.
Preparing a comprehensive business plan along these lines takes time and effort – the Cranfield School of Management estimates anywhere between 200 and 400 hours, depending on the nature of your business and how much data you’ve already gathered.
Nevertheless, such an effort is essential if you’re both to crystallize and focus your business ideas and test your resolve about starting or expanding your business. The core thinking behind business plans and their eventual implementation is strategic analysis.
The strategic analysis refines or confirms your view of what’s really unique about your proposition. Or to put it another way, ‘Why on earth would anyone want to pay enough for this to make me rich?’ After completion, your business plan serves as a blueprint to follow that, like any map, improves users’ chances of reaching their destination.
In this article, I give you some guidelines to make sure that your plan attracts attention and succeeds in the face of some fierce competition.
More than 1,000 businesses start-up in the United Kingdom each day, and many of those are looking for money or other resources that they’re hoping their business plan can secure for them. Making your business plan the best it can give it a chance to stand out.
6 Steps To Write A Business Plan
1. Defining your readership
Clearly, a business plan is more effective if you write it with your readers in mind. This involves some research into the particular interests, foibles and idiosyncrasies of those readers. Bankers are more interested in hearing about certainties and steady growth, and venture capitalists are also interested in dreams of great things to come.
Business angels, who put their own money at risk, like to know how their particular skills and talents can be deployed in the business. You can benefit from carrying out your reader research before the final editing of your business plan, because you should incorporate something of this knowledge into the way you present it.
You may find that you have to create slightly different versions of the business plan for different audiences. This makes readers feel that you’re addressing the proposal to them rather than them just being the recipient of a ‘Dear Sir or Madam’ type of missive. However, the fundamentals of the plan remain constant.
2. Choosing the right packaging
Appropriate packaging enhances every product and a business plan is no exception. Most experts prefer a simple spiral binding with a clear plastic cover front and back. This makes it easy for the reader to move from section to section, and it ensures that the document survives the frequent handling that every successful business plan is likely to get.
A letter-quality printer, using size 12 typeface, double spacing and wide margins, gives you a pleasing and easy-to-read plan.
3. Deciding on layout and content
No universal business plan format exists. That being said, experience has taught me that certain styles are more successful than others. Following these guidelines results in an effective business plan that covers most requirements. Not every sub-heading may be relevant to you, but the general format is robust.
The following list contains the elements of an effective business plan, one that covers most requirements. You may not need all these sections, and you may need others to cover special requirements.
The cover should show the name of your business, its website, Facebook/Twitter pages, physical address, phone number(s) including a mobile, fax number(s), e-mail address, contact name and the date on which this version of the plan was prepared. It should confirm that this is the current view on the business’s position and financing needs.
The title page, immediately behind the front cover, should repeat the cover information and also give the founder’s name, address and phone number. A home phone number can be helpful, particularly for investors, who often work irregular hours too.
The executive summary is ideally one page, but certainly no longer than two, and contains the highlights of your plan. Writing this summary is a difficult task, but it’s the single most important part of your business plan.
Done well, it can favorably dispose the reader from the outset. If you do the executive summary badly, or not at all, then the plan may not get beyond the investor’s mailroom. This one page (or two pages) must explain:
- The current position of the company, including a summary of past trading results
- A description of the products or services, together with details of any rights or patents and of your competitive advantage
- The reasons customers need this product or service, together with some indication of market size and growth
- A summary of forecasts of sales and profits, together with short- and long-term aims and the strategies you’ll employ
- How much money you need to fund the growth and how and when the provider of that finance can benefit
- The table of contents, with page numbers, is the map that guides readers through the business plan. If that map is obscure, muddled or even missing, then you’re likely to end up with lost or irritated readers who are in no mind to back your proposal. You should list and number each main section and give it a page number. Elements within each section should also be numbered: 1, 1.1, 1.2 and so on.
- Details of the business and its management should include a brief history of the business and its performance to date, if any, and details on key staff and their work experience, current mission, legal entity, capital structure and professional advisers.
- A description of products and services, their applications, competitive advantage and proprietary position. Include details on state of readiness of new products and services and development cost estimates.
- The marketing section should provide a brief overview of the market by major segment showing size and growth. Explain the current and proposed marketing strategy for each major segment, covering price, promotion, distribution channels, selling methods, location requirements and the need for acquisitions, mergers or joint ventures, if any.
- Information on management and staffing should give details on current key staff and on any recruitment needs. Include information on staff retention strategies, reward systems and training plans.
- The operations section describes how you make your products and services and fulfil orders, how you assure quality standards and how you can meet output.
- The summary of the key financial data includes ratios together with a description of the key controls used to monitor and review performance.
- Include financing requirements needed to achieve the planned goals, together with how long you need the money for. Also demonstrate how the business would proceed using only internal funding. The difference between these two positions is what the extra money helps to deliver.
- E-commerce isn’t just about selling goods and services online, though that’s important. It covers a range of activities that you can carry out online to make your business more efficient. These solutions extend across the supply chain, from ordering your raw materials right through to after-sales service. It can incorporate market intelligence gathering, customer relationship management and a whole range of back-office procedures. Your business plan should show how you plan to tackle this area.
- Include major milestones with dates. For example: get prototype for testing by 20 December, file patents by 10 January or locate suitable premises by such and such a date.
- Risk assessment features high on your reader’s list of concerns, so you should anticipate as many as you can, together with your solution. For example: ‘Our strategy is highly dependent on finding a warehouse with a cold store for stock. But if we can’t find one by start date we will use space in the public cold store 10 miles away. This is not as convenient but it will do.’
- Detail an exit route for venture capitalists and business angels. Typically, they’re looking to liquidate their investments within three to seven years, so your business plan should show them how much money they can make and how quickly. If you think you need long-term investment, then you need to say something about who may buy the business and when you may be able to launch it on a stock market.
- Appendixes include CVs of the key team members, technical data, patents, copyrights and designs, details of professional advisers, audited accounts, consultants’ reports, abstracts of market surveys, details of orders on hand and so on.
4. Writing and editing
The first draft of the business plan may have several authors and it can be written ignoring the niceties of grammar and style. The first draft is a good one to talk over with your legal adviser to keep you on the straight and narrow, and with a friendly banker or venture capitalist.
This can give you an insider’s view of the strengths and weaknesses of your proposal. When you’ve revised the first draft, then comes the task of editing.
Here grammar, spelling and a consistent style do matter. The end result must be a crisp, correct, clear, complete plan no more than 20 pages long. If you’re not an expert writer you may need help with editing. Your local librarian or college may be able to help here.
5. Maintaining confidentiality
Finding an investor or a bank to lend to your business may take weeks or months. During that time, potential investors diligently gather information about the business so that they don’t have surprises later about income, expenses or undisclosed liabilities.
The business plan is only the starting point for their investigations. If you and the prospective financiers are strangers to one another, you may be reluctant to turn over sensitive business information until you’re confident that they’re serious. (This isn’t as sensitive an issue with banks as it is with business angels and venture capital providers.)
To allay these fears, consider asking for a confidentiality letter or agreement. A confidentiality letter suffices in most circumstances. But if substantial amounts of intellectual property are involved you may prefer to have a lawyer draft a longer, more formal confidentiality agreement, also known as a non-disclosure agreement (NDA).
That’s okay, but you (and perhaps your lawyer as well) should make sure that the proposed document contains no binding commitment on you.
The confidentiality letter should be limited to their agreement to treat the information as strictly confidential and to use the information only to investigate lending or investing in the business, and to the other terms set out in the letter.
You can find more information on NDAs as well as links to organisations that can help you put together an NDA at this Business Link website: (www.businesslink.gov.uk > Exploit your ideas > Protecting your intellectual property > Non- disclosure agreements)
6. Doing due diligence
Don’t be surprised if the investor wants to learn about your personal financial status, job or business history. Investors are interested in your financial stability, your reputation for integrity and your general business savvy because they will, in effect, extend credit to you until you deliver them the interest or return they’re expecting on their money.
That’s what the due diligence process is all about. Usually, the due diligence process, which involves a thorough examination of both the business and its owners, takes several weeks, if not longer. But that depends on how much money your plan calls for and from whom you’re trying to raise it.
Accountants and lawyers usually subject your track record and the business plan to detailed scrutiny. You’re then required to warrant that you’ve provided all relevant information, under pain of financial penalties.
The cost of this due diligence process, rarely less than a big five-figure sum and often running into six, is borne by the firm raising the money, but is paid out of the money raised, if that’s any consolation.
Using Business Planning Software
You may consider taking some of the sweat out of writing your business plan by using one of the myriad software programmes on the market. You need to take some care in using such systems, because the result can be a bland plan that pleases no one and achieves nothing worthwhile.
Don’t buy a package with several hundred business plans covering every type of business imaginable. The chances are that the person who wrote the plans knows far less than you do about your business sector and can add little or no value to your proposition.
Worse still, at least an even chance exists that the reader of your plan has seen the fruits of these packaged plans before and may be less than enthusiastic to see yet another one.
1. Recognising the limits of software
Good business planning software provides a useful structure to drop your plan into and may provide a few helpful spreadsheets and templates for financial projections and market analysis.
It also provides a valuable repository for your work in progress as you assemble the evidence to convince yourself and others that your business can succeed.
What software doesn’t do is write a convincing business proposition by itself. The maxim ‘garbage in, garbage out’ applies to business planning software just as it does to everything to do with computers. The other danger is that you end up with spreadsheet solutions – numbers just pumped into the financials – without any evidence of the underlying logic to support them.
2. Reviewing systems
This section provides reviews of some business planning software packages and related websites that have been used to good effect:
BizPlanit.Com (www.bizplanit.com; email [email protected]): BizPlanIt.Com’s website has free resources offering information, advice, articled links to other useful sites and a free monthly newsletter, the Virtual Business Plan, to pinpoint information. It also has an email service, providing answers to business plan questions within 24 hours.
NatWest (www.natwest.com/business/business- school/business-guides/planning-and- management/business-plan/default.ashx): They claim to offer a business plan in 60 seconds. They also offer some tips on writing plans and at the bottom of the page is a link to download NatWest’s free business planning software.
Royal Bank of Canada (www.rbcroyalbank.com/business): This site has a wide range of useful help for entrepreneurs. Click on Resource Center, then Starting a Business and then Create the Plan to access its business plan writer package and sample business plans.
The Royal Bank of Scotland: The bank offers a free business plan writer to download at www.rbs.co.uk/business/banking/g2/planning.ashx#tabs =section1.
Presenting Your Business Plan
Anyone backing a business does so primarily because she believes in the management of the business. She knows from experience that things rarely go according to plan, so she must be confident that the team involved can respond effectively to changing conditions.
You can be sure that any financier you’re presenting to has read dozens of similar plans, and is well-rehearsed. She may even have taken the trouble to find out something about your business and financial history.
1. Starring in showtime
When you present your business plan to financial backers, your goal is to create empathy between yourself and your listeners. You may not be able to change your personality, but you can take a few tips on presentation skills. Eye contact, tone of speech, enthusiasm and body language all have a part to play in making a presentation go well.
Rehearse your presentation beforehand, having found out how much time you have. Explain your strategy in a business-like manner, demonstrating your grasp of the competitive market forces at work.
Listen to comments and criticisms carefully, avoiding a defensive attitude when you respond. Use visual aids and if possible bring and demonstrate your product or service. A video or computer-generated model is better than nothing.
Allow at least as much time for questions as you take in your talk. Make your replies to questions brief and to the point. If your potential investors want more information, they can ask. This approach allows time for the many different questions that must be asked either now or later, before an investment can proceed.
2. Making an elevator pitch
You never know when the chance to present your business plan may occur – maybe even in a lift between floors (hence the term elevator pitch). You need to have every aspect of your business plan in your head and know your way around the plan backwards, forwards and sideways. It’s as well to have a 5-, 10- and 20-minute presentation ready to run at a moment’s notice.
One entrepreneur was given a chance to make a presentation of her business plan to the most powerful and influential person in her industry. This person could make or break new businesses and frequently did.
The opportunity was a ten-minute ride in a chauffeur-driven car between the Dorchester hotel and Harrods. She had no room to demonstrate the product, set up flip charts or PowerPoint presentations or to involve the team.
She had just enough space and time to convey a handful of powerful facts with passion, conviction and authority. Fortunately, the entrepreneur concerned had rehearsed her impromptu presentation and was completely prepared to seize the opportunity presented. She built up £20 million business barely a decade after taking that fateful car ride.