Whether you’re trying to raise capital or you need a clear roadmap for making your business venture successful, it all starts with a good business plan.
Business planning takes time, effort, and the right mindset to do it properly.
To help you off to a good start, here are a couple of things to keep in mind when you start putting together that business plan.
1 – It’s the process, not the document
The most important thing is focussing on the business planning process itself. Early on, don’t worry about the looks of the business plan. Making the document look good comes later. A fancy-looking business plan is less important than the thoroughness and quality of thinking that went into describing the business venture and how it is going to be successful.
Of course, you need to document your research, analysis, and decisions. But, the documentation does not have to look pretty. And if your business plan is only an internal document, not intended for the bank or an investor, you don’t have to worry about “pretty” at all. Just make sure that all documentation is clear, well written, and easily accessible by everyone involved.
Again, it’s about putting serious thinking into your business model, challenging your assumptions, and developing robust financial models. And don’t forget to think about what may go wrong. Quality of thinking, that’s what business planning is about.
2 – Proper business planning takes time
Don’t rush it, take your time. The goal is to create a carefully thought-out business model that’s viable. If you rush it, perhaps on a deadline to meet with the bank, or if you’re just going through the “motions”, the business plan is likely to have serious flaws, not to mention typos and grammatical errors. An investor will pick up on these very quickly. You want to present your business idea in the best light possible.
And if your business plan is an internal document, would you rather have a solid plan to work from or something that’s wishful thinking and pie-in-the-sky? Keep in mind, your business plan is the operational manual and roadmap for your firm. Not a fancy binder for the bookshelf.
3 – Keep it real
Don’t fall in love with your own business idea and assume that the world can’t wait to buy from you. More than likely, they’re not. Think about how you’re going to attract customers. How are you going to convince them to buy from you, rather than the competition? It’s a lot harder than you think.
Do you offer a real solution to a customer problem? Do you sell what customers want to buy? Or do you want them to buy what you happen to be selling? Understanding the difference can make or break your business. Are your assumptions about market size realistic? How quickly will the business grow?
It is easy to get caught up in wishful thinking and creating an overly optimistic sales forecast in a spreadsheet, but is that what will really happen? Have you thought about everything that could go wrong? What are the risks involved in starting and operating your business? Are you prepared for the obstacles along the way?
Don’t make stuff up to make your business plan look better. You’ll only end up kidding yourself. And you’re certainly not going to impress an investor with weak assumptions and numbers pulled out of thin air. It’s better to have a Profit & Loss forecast that shows a steady growth based on realistic assumptions that you can defend rather than something that looks like it belongs in fantasy land.
Be realistic about how many customers you’ll be able to attract, the price they’ll be willing to pay, the revenue you’ll be able to earn and all expenses your business is going to face. Do you have good estimates for start-up costs and operating expenses, salaries, material, equipment, rent and utilities, marketing, etc.? Don’t guess, but develop accurate cost estimates and don’t forget to take into account that how certain expenses, such as wages, will increase as the business grows.
If the bottom-line doesn’t look good, figure out why. Did you make a mistake somewhere, or does your business model need to be refined? Or is this perhaps a bad concept that just cannot be turned into a profitable business?
If you don’t like what you’re seeing, you’ll have to admit that your original business model is not viable. Think about a different approach. What needs to change? A business plan usually goes through a number of revisions to fix all the issues and incorporate new ideas.
4 – Know your customers
How well do you know the markets you plan on serving? Do you know what they buy, why, and how? Are your decisions based on anecdotal information or real insight into the marketplace? What are your customers’ real needs? What other solutions may they be considering? Do you know the size of the market? Which market segments would be your best targets? Which ones the worst?
Keep in mind that there are probably market segments that are ignored or underserved by the competition. These could be good opportunities to jump into.
The importance of this aspect of business planning can’t be understated. Take your time to research the marketplace to identify those customers that represent your “ideal customer” and understand why.
5 – Think you don’t have competition? Think again.
Overconfidence can lead you to think that you don’t have competition. Think again, you always do. If it’s not someone else selling a similar product or service, it may be the customer’s reluctance to spend money that is the obstacle. Or it could be their lack of understanding of what you’re selling.
Do you know which companies offer similar products or services to your target markets? Are these companies local, regional, or national? Do you know how your solution stacks up against theirs? How are you “better, faster, cheaper”? How strong is your competitive position really?
Also, give some thought to future competition. For instance, new technology could make your products or services obsolete. Another firm could enter your market. And a merger or acquisition could turn a company that’s off the radar screen into a serious competitor.
6 – Pay attention to Cash Flow
Unlike a retail business, for most B2B firms a sale does not automatically mean money in the bank. If you invoice your customers, it may take 30 to 60 days to get paid, perhaps even longer.
Make sure that the business plan includes a cash flow forecast. It’s all too easy to run out of cash, even though Accounts Receivables look good. If many customers pay late, a cash crunch is a real possibility. Think about ways to accelerate the payment process.
You also need to take into account the outgoing cash for things such as mortgages, leases, salaries, taxes, material, supplies, utilities, office expenses, sales & marketing, to name a few. Does the financial model properly account for fixed and variable expenses?
Suffice to say, your business plan needs to include detailed financials. Not paying enough attention to the financial aspects of the business will come back to haunt you very quickly. Keep in mind, you’re creating the operating manual to make your business successful.
7 – Does management have what it takes?
Does your team have the knowledge and experience to make the business successful? Have they “been there, done that?” Or are you a group of well-intentioned rookies? Has your team worked together before, or are they new to working with each other?
A seasoned, experienced management team with an average business idea is more likely to be successful than an inexperienced team with a great business idea. There is a lesson to be learned from the saying “investors bet the jockey, not the horse.”
Make sure that your business plan clearly addresses the management positions as well as the employees needed to make the organization successful. What talents, experience, and knowledge do they need? What training will you provide?
Creating an organizational chart can help your thinking about the roles that need to be filled, accountability, and the skills and talents required for each position.
It’s OK if you don’t yet have a person lined up for every position. As long as the business plan addresses the gaps on the org chart and is clear on how you intend to fill these openings.
8 – Don’t go it alone
A good partner in the business is priceless. There are just too many moving parts to running a successful business for a single person to know everything and do it all.
Think about your talents, skills, and experience, as well as your limitations. What are you good at, what not so much? Are you technical? You should consider teaming up with someone who will focus on the business side of the new venture. If you’re the business person, who is the technical or operations expert? To use a restaurant analogy, “Who is running the kitchen, who is in front of the house?”
Also, creating a business plan with a partner leads to a better result. Most of the time, anyway. In particular when the know-how, skills, and experience are complementary. There can be great synergy in working on the business plan as part of a team. And don’t hesitate to involve professionals such as accountants, tax specialists, attorneys, and business planning consultants.
9 – Sometimes it’s better to walk away
This last tip is not so much about the business planning process as it is about keeping your options open. It’s to warn against falling in love with your idea to the point where you don’t see its weaknesses. It’s all too easy to fall into the trap of wanting to launch the business, no matter what.
Commitment and persistence are good, you should not give up at the first sign of a setback. But, if you can’t get the numbers to look right, even after you revised your business model a dozen times and double-checked your assumptions, you’ve got to wonder if the business venture is viable. Of course, we’re all familiar with the stories of companies that started out in a garage and became hugely successful, against all odds. These are the exceptions, not the norm.
If, in the end, your business idea looks flawed and can’t be fixed, the best thing to do is to walk away and not put your money (or someone else’s) at risk.
Take a break from business planning and clear your head. Perhaps an idea will develop that gives your business model a new life. Or, you may come up with another business concept that is viable, and that will be successful.
Bottom line: don’t rush it, think it through. You want your business to be successful, not to become a statistic.