Why Should Startups Produce a Business Plan?
What your business plan needs to include
The completed document should be a coherent summary of the project, written so that a range of people can easily understand it in order to make value decisions. A successful business plan should become "the bible" for the project: it should be used to ensure that the concepts and ideas initially identified are adhered to throughout the life of the project. The document will contain a full description of the concept of the business as well as marketing, financial and action plans.
The first step must always be to prepare the business plan. Working through your idea in a structured way allows you to check that it makes sense and hangs together. Even just writing a draft executive summary will help to focus the scope of your idea - what you are concentrating on and what, by omission, you are not. Lots of projects go astray due to a lack of clear focus about the key success criteria. A business plan helps to keep a project on track and if things go wrong, it can help you to understand how and why that happened!
Don't forget the importance of writing your plan in such a way that a range of people can easily understand it, in order to make value decisions. Avoid gobbledygook. Consider things from a range of perspectives; a stakeholder analysis is a good way of putting yourself in the shoes of the people whose buy-in is vital to make this business a success. Ask yourself question after question:
- What will be the interest on the borrowing?
- What are the start-up costs?
- What are the running costs?
- What’s the cashflow like?
The business plan should at least attempt to leave no stone unturned, to minimise the chance of surprises further down the line.
Structure and format
There are many ways to put an effective business plan together, but all have the same essential elements. Depending on the reason for the business plan, there are other elements that might be added in, but it should definitely include:
- Title page
- Executive summary
- Market research
- Financial review
- Human resources
It is vitally important that the business plan looks professional, is free from spelling or grammar mistakes and financial inaccuracies, and is in a format that allows quick navigation to each section. Luckily, there are various tools and ready-made templates that allow for a document to easily take shape and come to life.
Remember that a business has many customers so you need to make sure the "story" that you tell via your plan appeals to each of your different audiences. Why tell a story? You want the document to express your idea or project in the best light to help you gain acceptance, authorisation or funding, so it needs to be credible but also appealing.
As mentioned, you can use a stakeholders analysis chart to make sure that all your stakeholders are catered for. This should identify all the people or groups affected by your project, then rate their involvement, and finally suggest a mitigation strategy to ensure your business plan covers all the relevant issues.
You need to combine desk research - in other words things you can find out on the internet or from readily available documents - with original research that you carry out yourself. Original research should include things like visiting and getting a sense of the of the area, interviewing people to find out specific demand for your offering, and seeing how your business is likely to line up against the potential competition.
Writing a Business Plan
Although market research is a full subject in itself, for a business plan there are four main areas that need to be researched:
Product - You need to be able to describe the product in terms of its unique selling proposition (USP)
Place - You need to know how and/or where people will access your service or offering
Price - You need to find out the price point at which people will be attracted to your product
Promotion - You need to understand how you will make potential customers aware of your product
For any type of business opportunity there are two essential questions to ask about the money. Is it profitable and do you have enough cash to fund the project? There are two types of forecasting which can help you arrive at answers to these questions: cash flow forecasting, which is a time-bound plan that shows the net effect between what money you pay out against what money comes into the business or project; and profit and loss forecasting, which is another time-bound document explaining if the total revenues of thebusiness/project, less the total costs, will provide an overall profit or a loss for that period.
Understanding risk is a big part of making sure your audience for the business plan (and yourself) fully understand how you will deal with potential problems as you embark on your business/project. We can divide risk into internal and external factors and use tools to express them and mitigate against them. A STEEPLE analysis is a useful tool in this area. STEEPLE analyses mean you are assessing and potential external risks in a number of areas:
Likewise, you can use a tool to review the internal factors that affect the running of a business/project, a SWOT analysis, which looks at potential Strengths, Weakness, Opportunities and Threats. Having identified some issues for each quadrant of your SWOT diagram the next stage is to provide a mitigation. For the strengths and opportunities you might want to include the additional costs that would be required to exploit these as part of the initial investment, or set a timeline to review them again in the future. For the weaknesses and threats you should identify the specific actions you will take to minimise or mitigate them so they don’t affect performance against your plan.
Successful business plans
The really hard work begins with this stage of the process! You may well think that having produced the main elements of a business plan that your work is nearly done, but this last part is by far the most important. You should know your plan pretty well by this point, but making sure that your financial documents match your risk analysis calculations is important to ensure the whole thing adds up. So having people that you can rely on to help review the completed plan is important.
One handy way to check your business plan is to produce a list of double questions about the project and attempt to answer them using only the plan. This will make sure that the document contains all the vital and correct information.
- What is the year three profit and what will your cashflow be at the end of year three?
- What do you need the £Xk investment for and how much will be spent by month five?
- What are the key risks for the enterprise and how will you mitigate them?
- How will you market the product/service and what are the costs?
- What is unique about your product/service and what additional opportunities can you see?
Spelling and grammar checkers are useful tools, but should be supplemented by a thorough read-through by someone looking for mistakes and inconsistencies. Consider doing a list of terms for the document to make sure that each term you use has the meaning you expect and to avoid using different words to talk about the same thing.
Now that you have your completed business plan it should act as a benchmark document to make sure you keep on track with the original good ideas that got you the funding you needed. Essentially the business plan is a collection of forecasts about your business / project. These can change over time but all the hard work and strategic thinking that you have put into the plan should not be thrown away in favour of an instant reaction to a particular circumstance. This could throw you completely off track.