Put simply, a business plan is a document that clearly outlines what your company does, your USPs and any strategic long-term goals. The most successful business plans give clarity on where your business sits in the marketplace and how to navigate any competition.
You can use a business plan to work towards specific growth goals, guide you through difficult times or just to ensure things are moving in the right direction.
It’s worth noting, however, a business plan is not a one-off activity. The most successful businesses keep going back to their business plans as their company grows, moving the goalposts regularly.
Having a firm business plan in place not only helps owners, shareholders and management understand the fundamental needs of a business, but can also unlock access to external funding through a financial lender and enable a company to maintain a healthy cash flow.
Business plans act as a roadmap, so you don’t want to start your business without one. Rather than risk getting lost along the way, business plans keep you on the right track, mitigating the risk of making costly mistakes as you go.
Although it may seem tedious and time-consuming (especially when you’re trying to juggle managing a business!), it’s not as bad as it seems. We’d strongly suggest setting some time aside for business planning, and here’s why:
Running a business involves making lots of tricky decisions daily. Making spur-of-the-moment choices can easily backfire if you’re not careful. Business planning makes these decisions easier.
When you create your business plan you should think of all eventualities so if they eventually surface you won’t waste any time in making a decision. You can also rest assured knowing you’ve made the correct one.
If you’ve done your research thoroughly in the beginning, you’re far less likely to discover there is no market for your product, you’re trying to break into an uber-competitive market or you’ve made an error on your pricing. By thoroughly researching and thinking through all possibilities you’re much less likely to fail early on. For example, in London, only 39% of businesses survive their first 5 years.
Sitting down and considering potential roadblocks or barriers at the outset will allow you to identify any gaps in your strategy more easily.
By conducting thorough market research, you can plan exactly how you’re going to turn your passion project or brilliant idea into a successful business.
If you find out your initial idea isn’t workable, it’s much better to discover that sooner rather than later.
If you’re pitching to investors, borrowing from a financial lender or otherwise - you’re going to need a business plan.
Investors and lenders want to know exactly how the money is going to be used and whether the business is sustainable in the long run. Business plans are therefore one of the best ways to prove you have a financially sound business idea.
Arguably one of the most important reasons to create a business plan is that it considerably reduces risk.
Thorough business planning involves drawing up financial projections and devising logistical and operational strategies. That all feeds into a deeper understanding of the market and how your business will navigate some of the trickier elements such as your competitors, pricing and long-term goals.
Having a robust business plan leaves less to chance and allows you to make informed decisions, reducing the risk of inadvertently making the wrong ones.
Knowing how to write a good business plan is an essential part of setting up or growing a thriving business. In overcrowded industries, a stellar business plan is often the difference between a business that is booming and one that is struggling or just getting by.
A good business plan sets out how your business will operate in the market and how it plans to make money. In short, it is designed to show how and why your business will succeed when so many before it have failed.
Just like most things in life, it’s not a good idea to “wing it”. Instead, the better approach is to plan diligently. While running a business day-to-day can get you so far, without over-arching goals many SMEs fail due to the absence of a sustainable business strategy.
Whether you’re just starting out or have ambitious plans, read on to find out how to make a business plan that ensures longevity and gets you through thick and thin.
Knowing how to make a business plan is (or should be!) a key part of the business setup. Luckily, creating a business plan is easier than you think.
If you’re not sure how to create a business plan, we’d strongly recommend following these 4 simple steps:
1.Know your audience
Before putting pen to paper, think about why you’re creating your business plan. Are you trying to put together a clear vision for your employees? Do you want financial backing? Do you want to communicate your business plan to stakeholders? Whatever your reason, try to create the business plan with your audience in mind.
If you’re pitching for investment, consider focusing on the viability of the business. If you’re business planning and want to share it with your employees, the feasibility of the business would be less important, but the milestones and objectives would be valuable to communicate.
2.Ask yourself how well you know your business
You’d hope the answer is “very”. Anyone serious about creating a flourishing business should be aware of their competition, customers and USPs. If you aren’t sure, how can you expect anyone else to be?
When writing your business plan, make sure to be clued-up about all aspects of your business so you can share your vision with conviction.
3.Research, research, research…
While it can be tempting to rush into things, research is arguably the most crucial stage of business planning. Without knowing your market, the future growth of said market, what your customers want and your competitors, you’re taking a gamble.
Step back and ask yourself why your customers want your product or service above anyone else’s. Make sure you can answer all the difficult questions. If you can’t, it’s time to do some more research.
Whether you’re pitching for investment or not, your business plan should include hopeful and realistic costs as well as projected earnings and a break-even chart.
If you’re pitching to lenders or investors, you should also consider your exit strategy. After all, most investors will want to know when they’ll get their money back.
Be warned - investors may tear your scheme apart. As your business plan will be under intense scrutiny, it’s a good idea to play devil’s advocate when looking at your figures to prepare yourself for any difficult questions.
If you’re unsure, it’s best to consult a professional who can look over your figures for you.
While there is no one-size-fits-all approach, there are still some fundamental elements that should be present in your business plan. To have a business plan that succeeds in attracting financial support, it needs to tick numerous boxes.
If you’re unsure about what to include in a business plan, as a rough guide you should look to incorporate the following:
Every business plan should begin with an executive summary. It is a brief overview of your business plan, like the blurb of a book.
If you’re familiar with business reporting it should follow a similar format, and it’s often easiest to do last. That way, you’ll know what key points you want to make.
Quite crucial is a description of your business. While there is no set rule as to what to cover, you may wish to include:
Any business at the top of their game has remained that way because they constantly assess the market and take the time to understand what their competitors are doing well so they can do it better.
A great way to do this is by conducting extensive market research and SWOT analysis. A SWOT analysis is essentially assessing your business’s strengths, weaknesses, opportunities and threats.
This ensures any challenges are being addressed head-on rather than being swept under the carpet only to reappear later.
Once you’ve established where your business sits in the market, it’s time to think about how you’re going to run it. Think about everything from your marketing and sales strategy right through to operations and your team.
While an exaggerated business plan might look attractive to shareholders, it ultimately becomes void if it’s not an accurate representation of what has been (or can be) achieved.
Try to be as honest as possible and don’t be overly optimistic with sales forecasts. If your financial projections are overambitious, this can lead to huge cash flow problems. It’s best to be honest.
As well as financial projections, you should have a sound budget in place. Include everything from staffing to manufacturing and marketing costs. If in doubt – include it!
While it’s tempting to go overboard with descriptions, simplicity is key when it comes to how to put together a good business plan.
If there’s a requirement for more detailed information, it is best to include this in an appendix. For companies seeking external funding, lenders may expect to see some extra evidence as to why the business requires financial support.
Now you’ve created a robust business plan, you can run your business with confidence knowing you’ve planned for all eventualities.
Not only that but armed with your water-tight business plan you can pitch for financial backing knowing you can prove to potential creditors your business provides good value for money and will yield excellent returns.
For more advice, visit our finance glossary where you’ll find plenty of useful hints and tips when it comes to business and finance.
5 August, 2022