The Importance of a Business Plan
You don’t have to reach far to find a saying about how important planning can be. “Fail to prepare or prepare to fail” – is Benjamin Franklin’s famous adage, but every great speaker from Warren Buffett to Eleanor Roosevelt has one. They go doubly true for businesses. Things rarely just fall into place, and if they do, you’re probably riding your luck. Luck, that will eventually run out but if you’re serious about starting a new business, or even buying an existing business for sale, at some point you’ll need to get organised and prepared. And that means you’ll need a business plan.
Business Plan – for Finance
If you need to raise funding for your venture, a good business plan will set you in good stead when you sit down in front of a bank manager. Turning up with the back of a beer mat or a tissue will get you short shrift from any reputable lender. It’s worth noting that it’s not just about content here, but presentation. Take your time, choose a format that is easily presentable and easily understood, and you should see the green light.
A bank manager, or whoever you’re approaching for start-up finance, will want to see a strong business case; to know that you understand your marketplace, that you’ve spotted a clear opportunity, and that you’re aware of any competition and any threats. They’ll also want to see a financial model that outlines the monetary investment required, the working capital, how the sales and cashflow forecasts have been estimated and where the profit lies downstream. And, of course, they’ll want to know how you’ll be able to pay them back.
Business Planning – for your Journey
You’ll have heard plenty of entrepreneurs, business coaches and captains of industry talk about the importance of goal setting. This is another great use of the business plan. You can set milestones, to map the trajectory of your business business. Identify in advance where and when investment is required, and spot any financial pitfalls up ahead. A good business plan will should you where you’ve going, and where you’ve been. Without it, how can you track where you should be on your journey to success?
It’s no good setting off on a new business venture on a wing and a prayer. If you make a success of it without any serious business planning, then you really have struck it lucky and bucked the trend. It’s a sad statistic that more new business ventures fail than succeed, and of those that don’t make it, you can bet the business plan fell short.
Business Planning – for the Worst-Case Scenario
In many cases, new business start-ups just don’t factor in enough working capital to cover the early foundation periods. They find cash flow gets tight and, in short, they run out of money. So, when thinking about how to write a business plan, you need to consider those worst-case scenarios. It’s perhaps counterintuitive for an entrepreneurial-minded person, but you’ve got to be somewhat pessimistic, rather than bullish, in your cash flow forecasts. Factor in a slow start, be realistic in your assumptions, consider that, in the real world, what might go wrong possibly will, and make sure you have enough funds to cover those dips.
Business Plan – for Growth and Change
The question isn’t just how to write a business plan, but it’s also when you need to write one too. Of course, you need to write a business plan before you even start your business. It’s your opportunity to test various aspects to see whether your new venture is a pipe dream or really has some legs. If it doesn’t pass scrutiny at this stage, then you’re best just walking away. But a business plan is something that should evolve too, changing shape through the lifecycle of your business.
When you first work out how to write a business plan, it might be to establish whether there is an opportunity worth exploring. The second stage might be to source funding. But, as your business develops, there will be more growth opportunities, additional investments in capital equipment, premises or staff. And, when you come to exit your business, whether that’s through a sale or succession plan, then guess what – you’ll need to know how to write a business plan for that eventuality too.
Learning how to write a business plan isn’t optional if you are to achieve your professional goals. Start out without one and you’ll be floundering in the dark. Imagine buying a lego set, one of the complicated ones. Then, before starting out on the build, tear up the instructions. The same applies in business planning. If you have no instruction manual – no guide to determine what steps you need to take – then you really have little hope of getting the results you want at the end.
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