There are many different reasons for writing a business plan and many different factors you must consider. I have seen literally hundreds of business plans over the years and have discovered the key elements that must be considered to get the best results. Here are my top 5:
Know your Audience
Who are you writing the business plan for? Is it for a potential investor, your management team, yourself, the bank who you are trying to get a loan from or someone else? Try to put yourself in their shoes and ask the question if I was in their position what would I want to know about your business? If it is for the bank they most likely will want to see cash flow projections as well as a snapshot of the current assets and liabilities of the business, commonly know as a Balance Sheet. If it is for an investor it may be what are they going to expect to receive as a financial return for their investment in your business. What are the risks to achieving this return?
Now you may have had a little chuckle when I mentioned you may be writing this business plan for yourself but if you are in this position as a sole trader then the importance of writing a business plan must not be underestimated. Writing a business plan for yourself allows a reference point for you to always make sure what you are doing on a day to day basis is taking you towards your goals for the business. It also allows you to clearly set out how you are going to attempt to win customers, what opportunities you are going to go after first and how much revenue needs to be generated to at least cover costs.
Remember when writing a business plan that it is not a sales document. Whilst I am sure you are truly passionate about your business and are excited about the opportunities be fair and balanced in how you layout the opportunity and give equal credence to the potential pitfalls and risks that you may face a long the way. You will earn a lot more respect when you can demonstrate a clear understanding of your business’ weaknesses and threats and have well articulated strategies for dealing with them.
Know Your Market
If you don’t know your market how are you going to be able to keep up with the constant changes that are occurring? What if a competitor releases a product that renders your best selling product obsolete? What if a new and well funded competitor sets up a store just down the road and sells a similar product to yours at a reduced price?
Having a good understanding of what your competitors are doing and what new challenges and opportunities that you expect to face forms the basis of your market analysis section of the business plan.
There are many ways you can do this, you can visit your competitor’s stores/websites and find out what they are doing well and what they are either not doing or doing not so well. You can attend trade shows for your industry, and don’t be afraid to speak to your competitors to get ideas. It is always much better to look for ways to grow your market for the benefit of you and your competitors rather than all trying to compete for the same customers.
There are also services such as IBISWorld & Forrester Research amongst others that produce industry reports with information including gross industry sales, sales growth, sales by region etc to give you a good understanding of how in demand your service and/or industry is.
Break it down in to bite sized pieces
Writing a business plan can be a daunting task for those who haven’t done it before and whilst we have all heard a thousand times before how important it is to have one many of us would just prefer to get down to business and start making money. The idea of spending hours working through preparing a business plan can quite often seem unnecessary to the small business owner. For those of you who think that way, consider this great quote by Benjamin Franklin:
“By failing to prepare you are preparing to fail”
I don’t think you need to be reminded of the horrible statistics that show the majority of businesses fail in the first few years of operation.
There is a solution to this procrastination however; my mother was on to something I think when she was always reminding me to “Chew my food”. Little did she know that I would keep that thought in mind all these years only to apply it to writing business plans!
Break the business plan down in to bit sized chunks. Plan out your diary for the week and allocate a certain amount of time each day, even if it’s only 15-30 minutes and stick to it until you have completed it. Palo Alto has some great software for this with their Business Plan Pro product and also give you some useful advice along the way whenever you get stuck at a particular section. Perhaps you aren’t sure what to write in the Market Analysis section or you have never done a SWOT analysis before. Their software takes you step by step through the process of writing a business plan.
Last but not Least – Enjoy it!
Whilst the idea of writing a business plan may not seem pleasant, once you get started on it if you are truly passionate about your business and the success you are going to get from its growth you will be unstoppable!