“ If you fail to plan, you are planning to fail.”
Setting out on an entrepreneurial journey is a dream for many. It is quite daunting, to venture into the unknown. Things are a lot different when you run the show yourself. However, the rewards come to those who are willing to take the risk.
That said, after taking the first step, people are often left wondering, what next?
This cluelessness is the reason why businesses fail even before they start. This is where a business plan comes to your rescue. A well-defined business plan helps you develop a strategic approach to your business and business goals. With the prerequisites defined, you can get a clear idea about the current stage of your business and how to take it forward.
In this article, you will understand the nuances of a business plan. Additionally, you will gain insight into the crucial points you must keep in mind while creating a business plan.
What is a business plan?
A business plan is a well-written document of your business idea. It helps you chalk down the nitty-gritty of your business idea. Additionally, it enables you to identify, isolate and strategize your business goals to achieve entrepreneurial success. Although it might seem unnecessary at the start, it becomes necessary as you go forward in your business. It also plays a crucial role in attracting investments and business loans. Lastly, it also helps you measure your growth and plan better for the future.
Business plans make it easy to understand the viability of your business goals. While creating your business plan, you will also gain insight into the possible flaws and loopholes in your business strategy. This will help you rectify and restrategize if need be. This is particularly important as it serves as a precursor, even before you go about seeking investments. It lets you think from the investors’ point of view and helps you critically analyze every detail of the plan, thus making it foolproof.
Do you need a business plan?
Yes, you most definitely do!
It is a worthwhile pursuit, as it helps in obtaining funds for your business. Investments happen not just because of the Return on Investment (RoI), but also because of the trust, you instill in your investors. Investors are always keen on understanding how you plan on spending their money.
For instance, if you intend to use the money for marketing purposes, it is a vague proposal. It would be best if you laid out a marketing plan in front of your investors. Tell them how much you would be spending for branding, digital marketing, market analysis and so on. When you lay out your plans vividly, it shows how driven you are with your business idea. Business plans, then become a measure of your level of expertise.
Aspects to include in your business plan:
A strong mission statement
‘If you can’t explain it simply, you don’t understand it well enough.’
– Albert Einstein
Your mission statement should be able to explain in simple terms, the goals of your company. It should talk about your company’s offerings to the customers, to the employees and yourself. The more concise your mission statement is, the better. A poorly crafted mission statement does not leave a good impression. Therefore it is imperative that your mission statement is loud, brief and leaves a lasting impression.
Market research and competitor analysis
‘Marketing without data is like driving with your eyes closed.’
– Dan Zarella, author, ‘The science of Marketing’
As mentioned earlier, it is necessary that you know your business industry like the back of your hands. Agreed, it is a tedious process. However, it will help if you identify your potential opportunities, customer expectations, and the scope of growth. Drawing an elaborate marketing plan is not just about the growth of your product or business. It helps you determine your competitors, their growth strategy, industry demands, and the government regulations concerning your industry. This information is vital, to further understand the market requirements, and plan strategies accordingly.
Most often, the idea to start a business arises when you don’t get what you need. For instance, take Fyle. It was created to address the need for automating expense reporting. Is that how you found your business idea? Is your business addressing a common pain point among your customers? If your answer is yes, then, that becomes your USP. Elaborate on how you stand out from your competitors. Additionally, it will help if you are confident about why your customers should buy your product or service instead of your competitors.
Your Staff’s contribution
A company’s culture is the foundation for future innovation. An entrepreneur’s job is to build the foundation.’
– Brian Chesky, co-founder of Airbnb
Your employees define your company’s culture. The kind of employees you have decided the potential growth and scale of your business. You must mention the type of employees you are going to hire, along with the perks you would provide to sustain their employment.
Ideally, it is best if you make a note of the skills that your employees possess and how they contribute to the growth of your company. You need to elaborate on the contribution of each employee to the growth of your business. After all, a company is made of the employees working in it. The kind of employees you choose and the work culture you adopt talks a lot about your company’s core values.
Your financial standing
‘Never take your eyes off the cash flow because it’s the lifeblood of business.’
—Sir Richard Branson, investor, philanthropist
While seeking investments, your business plan should talk about your financial standing. You should know where exactly you are spending the most. Your current profits should speak for you.
Alongside, remember to include the following documents
- Cash flow statement : talks about how you would like to spend your money. It is your startup budget.
- Costs worksheet : includes the cost of all overheads required for running your business.
- Break-even chart : projects that point in your business journey when you start making a profit.
- Projected profit and loss statement : Also known as pro forma project and loss statement, it shows how much profit you are expecting to make and how much taxes you are likely to pay.
- Sales projections : talks about how much sales you plan to make in a given period. Ensure your sales numbers are the same as the numbers projected in your profit and loss statement.
- Pro forma balance sheet- It talks about the assets you own and liabilities you owe from the start of your business.
Ensure that your profit and loss statement reconciles to your cash flow statement, which in turn matches the balance sheet. Your numbers should speak for themselves, and you should be able to explain each projection vividly. It is essential you show how your business will sustain itself in times of crisis with its income.
Return on Investment:
No matter how foolproof the plan is, starting a business involves a considerable amount of risk. When you are seeking investments, you are asking your investors not just to finance your business, but to be a partner in the risks involved. As a result, the RoI you provide becomes a deciding factor when it comes to investments.
Most of the times, your RoI calculations showcase the best case scenario. However, investors are looking for a realistic RoI. Ensure that your numbers are based on real-life business scenarios and not typical cases. Since investing in a startup is quite risky, most investors ask for an RoI as high as 40%. This is to offset a potential loss that the investment might incur.
How to calculate RoI?
Although there are several methods to calculate RoI, the most common practice is to divide the investor profit by the amount of investment.
For instance, you just landed an investment of $200,000. You use the money to hire a few more employees and spend on marketing your product/service. At the end of the year, the investor receives a profit of $50,000. Therefore, his Return on Investment is 25%
Running your business comes with its risks. Your primary goal, as a company should be to minimize the risk as such as possible. Without a proper plan, it is likely that you would lose your way. This is where a business plan comes in.
Having a strategy in place is like a roadmap for your business. It lets you align your organization’s structure with your goals. There will be times when you have to prioritize one thing over another. At that point, You have to be quite agile with your plans as well. Even with a rigid roadmap, you have to provide scope for experimentation. To succeed in your business, you need a bit of both. Most importantly, have the courage to take risks.