7 Powerful Lessons to Adopt Before Writing A Business Plan
You like being an entrepreneur.
You have a great product that you want to share with the world, and you are doing it, but somehow deep in your heart you know you haven’t realized your full potential, not even remotely.
You have tried different sales techniques, you have changed some of the staff, and heck you even went to the extent to upgrade your leadership skills, all with mediocre results.
And now you are stuck, not sure what is about the next best approach.
You are right to feel confused; there are lot of quick fixes out there, that really don’t lead anywhere, but to another dead end street. And yes to another frustration.
So now time is to get back to the basics, i.e. to the planning itself. You need to plan carefully in order to execute successfully. We will help you do that.
But before we start, take a quiz and TEST YOUR KNOWLEDGE ON BUSINESS PRE-PLANNING
Nowadays most people connect the making of a business plan with a Start Up in the quest for financing. New founded ventures need to make a business plan, but also it is wrong for an existing business to skip planning cycles especially when venturing into new initiatives. In fact, all successful entrepreneurs and definitely all corporations invest in annual business planning process, as a part of their usual business.
Business Plans are relevant if you are:
1. Start up
2. Existing Small or Medium Enterprise
3. A corporation
Yes, all successful organizations need to make a business plan, no matter in which development cycle you are in, or how big you are. The thing is they are somewhat different in nature and need to be adjusted for the purpose.
So here is your Valuable Lesson number one: Write the damn Business Plan!, I don’t care how busy you are, you need to do it. You wanna succeed? Then structure the plan and go ahead and do it. Otherwise, yeah go ahead and continue being sucked up in the daily grind not sure about direction of your business and I will bet you are lying wide awake at night when nobody sees you and try to figure your next step.
Before you even begin, you need to know why you are doing it (common sense don’t you think?). You would be surprised at, how many fellow entrepreneurs, don’t address this first. You need to appreciate the reason for preparing a business plan.The focus and level of detail will vary depending on answering the purpose.
There are two major purposes of any business plan:
a. To secure financing
b. For operational purposes and budgeting
Valuable lesson number two: do not move unless it is on the paper. Digital format will also do. Seriously do not consider to do any new venture, project, business idea, products, services, (you get the gist), without putting it on paper first. Also, don’t finish the year (that could be any period you set out, but most common is a fiscal or a calendar year), if you haven’t prepared a solid plan for the future. Just don’t. Start as early as October in every year for the coming year, or period or whatever that is.
It would be so easy just to copy and paste, wouldn’t it? You just take a similar business, figure out how they have done it and bingo you create your own plan. Apologies if I will disappoint you, but no, this is not the right way. Here is why: no two business are alike, but also no two readers will be looking the same issue or messages in the business plan. In other words, the different needs of different audiences can be such that is will be necessary to create more than one version of the same plan.
If your audience is:
a. Bank or any other entity that will provide a loan, they will be looking to your plan to answer the following (definitely not exhaustive):
a. What will be the EBITDA (cash generated) by the business to meet interest payments on the loan and repay of the principal?
b. What is your collateral (ie assets) within the business against which a loan can be secured so that, if the business were to fail, the lender would be able to get all or some of its money back?
c. Also is the loan you are seeking only one element of the financing necessary, or are there other sources of finance in place and secure?(a quick tip, if you don’t have other means of financing to cover the total funding needed, don’t even try to go to the bank. You will not be approved. Banking people like to see you share the burden.
b. Provider of equity funding, he or she will be looking for different answers compared to our beloved loan officers. Some typical examples include:
a. What is the expected Return on Equity (ROE). Meaning for every$1 they put in how much profit you will generate for them?
b. Do they trust you as an entrepreneur (and your management team)?Are you enough capable and experienced enough to drive the business?
c. What are the growth prospects of your business? The better the prospect, the more likely you will find an investor.
c. The owner or C-level of existing business, will need to approve your business plan for any new business initiatives and as the management team prepares for each business cycle they would want to know the following (also not exhaustive):
a. Is the plan consistent and supportive of the business overall strategy? Yes, it all starts with the strategy. (A quick tip here, please don't confuse strategy with business plan, these are totally different aspects of your business. The strategy defines WHAT and has longer term view, typically up to five years, while business plan answers the questions on HOW and covers shorter periods, typically up to one year)
b. What is the impact of the plan on revenues, profits and gearing(the level of debt we are taking)?
c. Can we do it? In other words do we have existing organizational capabilities and resources now that will be sufficient enough to pull this through?
So here is your valuable lesson number 3: know to whom you are going to address the plan before you write it down. If your audience doesn’t get the message, because you haven’t answered their most pressing concerns, no matter how brilliant the plan is, the plan won’t matter, even if it is brilliant.
So you have decided to make a business plan, you know exactly for what purpose and you have figured out to your audience. Now what?
Well, now we come to the content. And the typical content (you have guessed it by now) depends, on all of the factors below. Don’t despair, the content is not that much different, as it has underlying features in each and every plan. Here is a common framework any decent plan must have (not exhaustive):
1. Your strategy, first and foremost (everything starts from here)
2. Analysis of your environment (you know we live in fast paced world,what was normal yesterday, might be gone forever tomorrow)
3. Analysis of your firm. Know thyself first (leaders, resources start with human resources, then assess other assets)
4. Industry and competitor analysis. Know thy enemy.
5. Product and portfolio analysis (if you are not doing this on a regular basis, do it at least once a year, when you make the plan)
6. Market analysis and forecasting
7. Finance model (this topic is too big altogether to start explaining here, but this must have how you generate revenues, projected profit and loss statement, funding issues, projected cash flow statement, several finance metrics)
Valuable lesson number 4: the content depends on several factors. Although we have listed at least three factors you should consider before you start making your plan(the development stage your business is, the purpose and the audience), the underlying business plan shares commonalities which can be used and re-addressed depending on what you want to achieve.
Ah sexy Finance. Whenever I explain to my clients how finance figures can bring pleasure, inescapably there is a little smile on their faces. Maybe if you we will work together in the future, you will get the same smile. To date my experiences that when I mention finance to my clients most freeze, panic or display some kind of disgust. It is fine. I will teach you to make Finance your friend.
On a more serious note, financial issues in a business plan is one of the most important features and you must understand them and I promise it is really not that difficult. Whoever is trying to sell you something else on the topic of Finance just show him off. Finance is showing off. Finance is all about commonsense and as all of you have finished elementary school, you can do this. All you need to know as the entrepreneur how the money is coming in and what you need to pay out so you get to the bottom line, commonly know as a profit.That’s it. The rest is finesse. (get it finance – finesse, hmm I wonder is there is something in it).
When you construct the financial model of your business plan consider this:
1. How is the money coming in aka revenues? The basic formula is ridiculously simple. It is how much you sell at what price (quantity x price).Of course you know that. The catch is to dig deeper on your product lines,discounts you will have to apply or what not. This is a topic alone.
2. When you have sorted the revenues, got to profit and loss statement and put in also the costs associated to generate these revenues, as well as your fixed costs that have to be there no matter if you generate revenues, plus the amount of the different payoffs you need to do, in order to get to the bottom line. Do this not only for one year, but try to make estimates for at least three years in advance. This is as well too broad topic;we will cover later.
3. Teach yourself several financial indicators, i.e all how much profit are you making versus the investments you are making and if you are going to stay liquid, and in the end how much cash you will have
Valuable lesson number 5: Finance is a Friend. The more you understand it, the better you manage run your business. Repeat after me, finance is a friend.
The best way to present a business plan are through slides and an accompanying spreadsheet for finance model. Of course, there are tools that can help you automate part of it. All you need are basic tools, which you already have in your computer.
When we talk about the verbal presentation, definitely create a story board and use the best the very best of your presentation skills. Do not neglect to cover important messages (remember the audience you are targeting). Needless to say (or is it?) it is important to communicate your message effectively. Different decision makers require different level of details, which means a succinct two-page executive summary might be enough. Yes all that hard work, to be reduced to two pages.
Valuable lesson number 6: Do Not Neglect How You Will Present Your Business Plan. Present it well. Let your hard work be communicated so people will understand what is it you would like to achieve.
So how do you go from plan to execution? Different businesses have different techniques, but your existing business probably has operational procedures written down for day to day activity. If not, please do it, no matter how small you are. Bringing structure and order to your organization is key not to mention increased productivity which will reflect on your business which will generate more money.
Coming back to executing business plan. Of course there is timeline, so use this time frame to set out initiatives that ought to be done if they are new to your existing business. Treat them as mini projects. This means there will be a firm objective written out on what you want to achieve,how long will it take you, what resources are needed, what are important milestone, how would you want to measure progress, who are the team responsible in making it happen. Haven’t done that before in a similar fashion? Not to worry, we will teach you, just stay tuned.
Valuable lesson number 7: Implementation After Business Planning Is Everything. Make sure while you do the planning, that you are clear in your head on how you are going to make your plans happen. Do it in the writing and when your business plan is approved, make the implementations steps and then monitor execution.
Why don’t you START IMMEDIATELY by downloading a simple tool to build your business plan.
Here is what you will find when you hit Download button: