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As per the research conducted by CBInsights, the top reasons for startup failures have their roots in lack of business planning.
As a prospective entrepreneur, you always face the difficult choice of writing a business plan or simply taking the plunge.
Although, both approaches are commonly practiced. But, entrepreneurs who undertake pro business planning have a higher chance of achieving venture viability.
Business plans act as roadmaps for successful business ventures. They help you to understand what to achieve and how to achieve it.
An HBR study concludes that entrepreneurs who write formal business plans are 16% more likely to achieve venture viability over those who don’t.
Accordingly, it is always advised to plan. But simply putting the business plan on paper doesn’t help your startup to thrive. Business plans pay only if they generate results for your business.
In this article you will learn, what is a business plan, why is a business plan important, writing a business plan, and components of a business plan.
What is a Business Plan?
A Business Plan is any written document that enables you to look ahead, allocate resources, focus on the key business areas, and prepare for challenges and opportunities.
It helps you to visualize how your business idea will take shape depending upon the product or service you wish to sell, the business strategy you implement, the market you cater to, etc.
Thus, your business plan describes what you plan to do and how you plan to execute things. In other words, a good business plan is the one that is:
- Simple to understand,
- Delegates work,
- Sets milestones, and
- Gives results for your business.
Why is Business Plan Important?
It does not matter whether you are a startup or an ongoing business. Having a well-written business plan is important.
A sound business plan helps you to set goals and keep a check on their progress as your business grows. Furthermore, it helps you to identify critical cash flow challenges, get skilled candidates on board, and attract investors to put money into your business.
Therefore, preparing a business plan is important because it helps you to:
- Identify your business objectives, set milestones, and means to achieve them
- Convince investors to provide investment if you are seeking one
- Track performance and measure variance between planned and actual performance so that you can take the necessary steps
- Evaluate the feasibility of a business idea in case of a startup and new product or service line in case of an established business
- Identify new business opportunities
- Take decisions about expenditures like hiring employees, buying equipment, etc with confidence
- Identify key cash flow challenges early on to avoid any cash crunch
- Lay down your organization’s structure.
- Attract desired executive candidates or partners for your business
Top Tips To Writing a Business Plan
Writing a business plan can seem to be a difficult task. This is because you are putting your business idea on paper. You are writing details concerning how you are going to start and eventually grow your business.
But writing a business plan is not that hard and time-consuming. Follow these pro-tips to formulate a simple, realistic, precise, and result-oriented business plan.
Choose A Business Plan As Per Your Purpose
There is a standard format for a business plan. But you need to change its content according to the purpose you wish to achieve.
For example, management information must be included in your business plan if you are planning to approach investors to seek funds.
Make Sure Your Business Idea Caters To Customer Pain
Make sure that your business idea would solve the pain your prospective customers are experiencing. In other words, the product or service you plan to sell must be something that your target market needs.
Check If Your Business Idea Makes Sense
Ask yourself if your business plan is feasible. Draw a draft plan laying out certain basics once you are satisfied that there is a market for your product or service. These basic components may include your goals, key factors of success, market, and break-even analysis.
Write What You Want To Sell
Make sure you write down the details of the products or services you wish to sell. Answer questions like the benefits, cost, target markets, competition, and value you would create for your customers.
Conduct Management Analysis
Undertake management analysis to understand the existing gaps that need to be filled. Make sure that you write down the structure of management, roles and responsibilities, experience, skill, and education of people, personnel cost attached, and employee benefits.
Study Your Industry Thoroughly
Take time to know your competition as this will help you to figure out the areas in which you can stay ahead of your competition. Further, it will help you analyze things that would make you different like price, better features, better service, etc.
Assess Cash Flows
One of the top reasons why companies go out of business is because they do not have sufficient cash balance. Don’t confuse profits with cash as being profitable does not mean that your business has sufficient cash to meet its milestones. Study your financial statements thoroughly and plan for cash accordingly.
Calculate Other Financials
Work out other projected financials like ratios, assets, and liabilities, etc apart from assessing cash flows. This would give you an understanding of the various aspects of your business over some time. For instance, calculate the collection period for your business and compare it with industry standards. This will help you to take the necessary steps if needed.
Write Down Your Marketing and Sales Strategy
Write your marketing priorities in terms of your target market, brand positioning, pricing strategy, etc. Also, write down how you would achieve these priorities. This will help you in getting clarity as to how your business would bring prospects into the lead funnel.
Likewise, plan for how you are going to convert the leads in the lead funnel towards closure as part of your sales strategy.
Formulate Expense Budget And Set Milestones
You must make careful expense projections and resource allocations to make your business plan successful. Also, make sure that your expense budgets are realistic and are linked with your milestones.
Write Down How Would You Implement Business Strategy
A strong tracking and follow-up process apart from a realistic business plan is what leads to the successful implementation of your business plan. Also, make sure that you plan a process evaluating planned vs actual performance. This would help you take the necessary steps to fill the gap if any.
What Does a Business Plan Template Include?
A business plan has a standard format. However, the components of a business plan can vary depending upon the purpose you wish to accomplish.
There are some critical business plan components that you must consider while preparing your business plan. The following are included in a business plan:
The Executive Summary is nothing but an outline of your business plan. The objective of the Executive Summary is to put together the key points of your business plan to encourage readers to go through the remaining elements of a business plan.
The Executive Summary must contain the best parts of a business plan so that readers get concrete reasons to read the complete plan.
Some readers read only the Executive Summary. Therefore, make sure that you keep it precise and clear.
Elements of the Executive Summary
Following are the key parts that must be included in your Executive Summary:
- Business name, place, and contact information
- Products or services that you intend to sell together with their value proposition
- Your target market
- Purpose of writing a business plan
- Your competitive advantage, that is, important factors responsible for your business success
- Marketing and sales plan
- Financial projections for at least three to four years
- Brief background of owners, their expertise and experience
- Ways in which you plan to execute your business plan, that is, processes, responsibilities, deadlines, milestones, etc.
You need to include Company Summary into the business plan if you are drafting a business plan for outsiders. The outsiders are keen to know about various aspects of your business to get a better understanding.
A good Company Summary provides readers important company information like (i) the products or services it intends to provide, (ii) their benefits, (iii) competitor analysis, company numbers like past performance, and important events in the company’s history.
Accordingly, the key components that form a part of the company Summary section include:
- Your company name
- Type of ownership such as sole proprietorship, partnership, corporation, or LLP
- Your business location
- The business proposition, that is, the value your business would create for its customers
- Competitive advantage, that is, how your company is better than the competition
- Company history
Products Or Services
The external readers need a detailed description of the products or services you intend to offer within your business plan. Also, make sure that you define the product or service offerings in terms of the value they create for your customers.
In addition to this, emphasize the key points that make your offerings unique. This will help the readers to understand how you are better placed relative to your competitors in the marketplace.
Also, writing about the need that your products or services solve also helps you to come across other pain points of your customers.
This is one of the critical parts of a business plan. This is because you need a clear understanding of the requirements of your potential customers.
You first need to identify your customers’ needs and then design a product or service to solve that need. Then, you need to understand if there exists a good number of customers who can buy such a product or service.
Creating customer personas is one of the good ways to have a deep understanding of your target market, the value you intend to create for them, and your uniqueness against your competitors.
The following are the key points that need to be included in the Market Analysis section of your business plan.
This section includes details like the current industry state, trends, size, projected growth, and any major changes that are seen coming.
- Target Market
This section must specify or contain details about customer personas and the market size. The customer personas help you to identify the market segment and validate the need for your product or service.
Market size, on the other hand, tells you about the number of people who are willing to buy your product or service.
- Competition Analysis
This section includes the strengths and weaknesses of your competition. This will help you understand the opportunities you can encash and the areas you can improve upon.
This is a section where you would project the market share that your business would be able to grab. Such a projection is made considering:
- The number of customers who would buy from you and
- The price that they would pay for your product or service
Business Strategy and Implementation
You need to formulate a business strategy once you have a clear understanding of the value proposition and the price of your product or service.
This includes planning for the ways in which you would create visibility for your business idea and how you would convert the leads into buyers.
Accordingly, this section of the business plan includes:
This section would include your plan for creating awareness of your business idea. You can answer certain questions here such as:
- How do you plan to position your business?
- How do you plan to price your product or service?
- What ways you can adopt for creating awareness of your business idea?
Make sure that you write your sales strategy different from your marketing strategy. This is because sales and marketing are different from each other.
Where marketing helps in creating market visibility, sales help in converting potential leads to customers.
Thus, define the following while defining sales strategy:
- The ways in which you would convert leads into customers
- Your training plan for the sales personnel
- The pricing tactics for converting prospects into customers
You must ensure that the right people take up the right job in your company when it comes to getting people on board. This is because people do not feel motivated to do the work if there is a mismatch.
Accordingly, the Management Overview section of the business plan must include:
- Organization structure
- Management background
- Personnel cost projections
This is one of the critical business plan elements. You need to plan for the cash flows so as to meet your working capital needs.
Also, make sure that you are not complacent in planning for your cash flows. This is because many startup companies run out of business because they run out of cash. Not because they are not profitable.
The cash balance is different from profitability. Having a profitable business does not necessarily mean that you have enough cash to meet your business expenses.
Therefore, you need to consider the items in the income statement and the balance sheet that impact your cash flows.
|Items That Increase Cash Balance||Items That Decrease Cash Balance|
|Cash Sales||Credit Sales|
|Decrease In Current Assets||Increase In Current Assets|
|Sale of Long Term Assets||Purchase of Long Term Assets|
|Cash Received Via New Current Debt||Payment Of Current Debt|
|Cash Received Via Long Term Debt||Payment Of Long Term Debt|
|Outstanding Creditors||Outstanding Debtors|
Similarly, calculate important ratios to understand the financial soundness of your business, potential debt, and your performance against the competition.
Finally, come up with the break-even analysis. This will help you to figure out the number of units that you must sell to make enough revenue to cover your costs.
Why You Should Start With a Business Plan Template?
As mentioned earlier, a good business plan helps you organize your thoughts and acts as a roadmap for your business growth.
But many entrepreneurs find it difficult to design a business plan as they get overwhelmed and do not understand where to start.
This is where a business plan template comes in handy.
Get A Structure
A business plan template provides you with a structure of a standard business plan.
In addition to this, it provides you with step-by-step guidelines on the information you need to include in your business plan.
Save Time and Cost
You do not have to start things from scratch which helps you save time and cost. Also, you do not have to worry about the critical business plan components that must form part of your business plan.
Choose An Appropriate Business Plan Template
In addition to this, there are a number of free business plan templates available. You can choose the one that fits your purpose. This could be seeking a loan from a bank or approaching a venture capitalist for investment in your business idea.
Here is a business plan template to help you design your own business plan.
Why You Should Not Use a Business Plan Template?
A free business plan template is a great option if you are new to business planning and want to understand how a business plan looks like.
But, a business plan template may not be the best way of undertaking business planning despite the above-mentioned advantages.
There are a number of areas in which a business plan template may not solve the purpose.
Working Out Financials
There are a number of tasks when it comes to preparing a business plan. This includes completing your financial statements and doing all the calculations. Working out financials would include preparing projected income statements and balance sheets, calculating financial ratios, preparing budgets, etc.
In addition to this, you would have to be first aware of the method of undertaking such calculations. Having an understanding of all such methods would ensure that whatever you are doing is correct.
Thus, the process of writing a business plan would not be easy using a business plan template. This is because you would have to prepare the financial statements all by yourself and include them in the plan.
The task becomes all the more challenging when you do not know how all of this needs to be done.
In many cases, business plan templates do not provide you with sufficient step-by-step guidelines. Hence, preparing a business plan would be extremely challenging if you are making business plans for the first time or do not have a clue about how the financials need to be put together.
Lack of Flexibility
Business plans are prepared for a variety of purposes. This could be preparing a business plan for launching a new product or a service or approaching venture capitalists for investment.
Thus, a business plan template may not solve the purpose you intend to achieve as it lacks proper guidelines and has a limited scope of changes.
Challenge to Consolidate Financials
Preparing financial statements is one task. However, integrating these financial statements into the business plan is another.
Thus, a business plan template may provide you with a general layout. But it can be challenging to include all the financial spreadsheets in a free business template.
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