How to Write a Business Plan
How to write a business plan? What is it and what are the things you should include and not to include?
A business plan has a fundamental purpose which is to attract investors and convince them that the business project you propose is a unique opportunity that they can’t let go of. Unfortunately, it is never that simple and fast.
A business plan is the main tool used by the financial investor to evaluate a business project. For us as entrepreneurs, it becomes the first stone of touch, the first contact with these financial profiles who will want to know what it is that it boils in our heads.
A Business Plan serves two main functions:
– First, force the promotion team to set its objectives. Identify what differential factor you are offering to determine action strategies.
– Second, the business plan is the company’s business card to the investors. It has to be attractive to them and show that the business is really interesting to invest with. Forget the obvious, vague, and general information; messages should be clear and forceful. The plan has to show the true nature of the business.
A business plan should not be longer than 30 or 40 pages. We should be able to prepare a short version of 4 or 6 pages that will serve as an introduction as the first contact with investors.
It may seem like a lie, but the executive summary is the most important part of a business plan deal. Although it usually appears at the beginning of all plans, it is the last section that we will write.
It is about summarizing in just a couple of pages all the analysis of the document and the establishment of our strategies. Whether the investor continues reading it or not, it will depend on these two sheets and how concise we can be.
It is not a question of carrying out a marketing or sales exercise of the business but rather must present the business logic, why we have decided to start it, what is the activity that is proposed, what problem we solve and how we will be able to carry it finished. We must not hide our weaknesses but show that they are known and that they are in a position to overcome them.
In the case of a start-up company, there is no history of the company as such, but yes, everything that has been done; the achievements that have been reached— list the relevant achievements that have been achieved to date.
The composition of the promoter team is one of the critical aspects of the business plan.
Is the whole team really committed to the project? What are the motivations to work on it? What experience do they have and what does each one bring to the company? Identify the needs and the gaps that are not covered, in case of reaching an agreement; identify the collaborators and advisers of the project. Explain what steps you will take to attract and keep them attached to the draft.
Products and Services
Do not make the mistake of making a detailed description of your product or service. Nobody cares! Try to think more about the customer and express what you need to cover. Your products or services have to be presented in a simple way, especially if they are based on high technology. You have to emphasize competitive advantages, the state of development in which it is, the weaknesses it presents and patents, if applicable that there is such a possibility, that they are either requested or may be requested and what advantages do you get versus your competitors.
Market and Competitor Analysis
Are your products attractive to customers? What is the market potential that exists in the sector? The answer to these questions is the estimate of demand, the possible revenues that you will get are usually always answered in an overly optimistic and competitors are often underrated too. It is necessary to determine what the needs of the customers are today. No matter how novel your technology or your model of business, there are always competitors.
We should be able to show how the market is evolving if it is in growth or recession and what is happening in our particular segment. Try to describe the strategic position of your competitors, barriers to entry, and channels of distribution, the potential risks, and the response you have prepared.
Marketing: Marketing and Sales
Now you have to show how you are going to manage to access the market potential that you have detected. In short, how much market share are you going to get.
You have to describe what is your distribution policy is going to be, in which sales channels you will be present and why, and how are you going to make your product or service known to your clients—how you are going to make them see the true value that your products or services bring them and in what period of time you be able to do it. This is the point at which you will define the pricing strategy, how do you intend to differentiate yourself from your competition. You will also have to develop your promotion and communication plan.
Indicate how the business will work on a day-to-day basis and what internal resources you will need for it, the flow of operation until the sale of a product or service, the R&D, social policies, or possible alliances you plan to undertake.
A reminder of the Relevant Hypotheses that support the plan
Prior to introducing monetary projections, it is a smart thought to remind financial specialists of the primary speculations and affirm the rationale of the plan of action. This includes how the proposed product or service responds to a detected opportunity, a need not satisfactorily covered, what resources are needed (marketing, equipment, finance, and production) and what are the main risks. At this point, you can preview the information that follows and perform a list of those elements that will generate your income or those resources that involve the main costs.
Our financial projections have to be realistic and show the potential for business growth. All hypotheses have to be justified and consistent with the previous analysis that you have done in the market in which you operate. As long as possible, ask help for someone who specialized in finance to assist you with the financial projection that can ensure that your model is balanced. Prepare projections for the next three to five years: the operating accounts and the cash flows for each of the different lines of business of the company. The cash flow projections allow you to plan your liquidity needs (payment of salaries, interest payments on a loan, and payments to suppliers) so that you can prepare to avoid the risk of insolvency.
Your balance sheet and income statement will allow the investor to verify that their money will be profitable throughout the entire period of the operation. Check the critical aspects of your business and its effect on the company’s accounts. What happens if the turnover decreases 10% of the expected? What happens if the suppliers raise prices by 5%? How does working capital evolve? What are the possible levels of admitted debt? What is the maximum sustainable debt/equity ratio? If the company is already operating, we need to report on the financial history of the company in order to give greater credibility to the projections.
Lastly, don’t forget that investment analysts are experts at reading balance sheets and bank accounts.
They will quickly realize if your financial projections are realistic or not. The projections will serve to check if the business plan is progressing as it was planned.
Financial projections determine capital needs. It allows us in a way easier, to determine which financing methods we are interested in using: venture capital, bank loans, business angels, or any other. Establish how you will use the capital raised, what are the priorities, when it will be needed to disburse the money, and what will be the capital structure before and after each operation investment.
Indicate, according to your financial projections, when will the investor will be able to divest and recover the principal and capital gains derived from the operation.
Therefore, it is really important to properly write a business plan. As mentioned above, a business plan serves as an important tool to help entrepreneurs like you to achieve short-term and long-term objectives– and help you make your business idea come into reality.
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