When you’re developing a business plan, at first you need to focus on the planning aspect. Creating a professional-looking document comes later. Here are some tips for a better business plan.
1. It’s about the planning, not the document
The most important aspect of developing a better business plan is the planning effort that goes into it. That’s where it all starts.
Early on in the business planning process you should not be preoccupied with what the final business plan document is going to look like. That comes later.
A fancy-looking document is not going to get you very far if the underlying business case is not carefully thought-out and the analysis lacks detail and rigor. It’s substance over form.
If you want to do business planning right, you have to put serious thought into your business model, challenge your own assumptions, and develop robust, detailed forecasts and financial models.
And don’t forget to think about what may go wrong and how you’re going to deal with that.
First and foremost, you should concentrate on rigorous planning. The “writing” of the business plan document comes after that. If you keep that in mind, you’ll be able to develop a better business plan.
2. Take the time to create a better business plan
If you want to do it right, business planning takes time. Rushing through the process, perhaps on a deadline to have something to show the bank, will more than likely result in a business plan that’s flawed. Not to mention all the typos and grammatical errors. An investor will pick up on these very quickly.
Business planning requires serious effort. You need to demonstrate that you know your business inside and out, so make sure to put in the work.
Good business planning easily takes a couple of months, especially if you do it in your spare time. Doing the research, carrying out the analysis, developing forecasts and financial models, none of that can be rushed.
Of course, you need to avoid “paralysis by analysis”, but it’s better to have hard data and insight than just wild-guesses.
3. No wishful thinking, keep it real
It is all too easy to get caught up in wishful thinking and creating an overly optimistic sales forecast in a spreadsheet. But, is that what is likely to happen?
Don’t make stuff up to make your business plan look better. You’ll only end up kidding yourself. And pulling numbers out of thin air and weak assumptions is not going to pull the wool over the eyes of an investor.
It’s better to have a Profit & Loss forecast that shows a steady growth based on realistic assumptions that you can defend rather than the infamous hockey stick growth curve that 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 how certain expenses, such as wages, will increase as the business grows.
Have you thought about everything that could go wrong? What are the risks involved in the start-up phase and later, once the business is up and running? Are you prepared for the obstacles along the way?
Attention to all these details results in a better business plan.
4. Know your markets and customers
It’s easy to fall in love with your own business idea and think that the world can’t wait to buy from you. Unfortunately, that’s not how it works.
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 between the “sales” approach and the “marketing” approach can make or break your business.
How well do you know the markets you plan on serving? Do you know what they’re buying, why, and how? Are your decisions based on anecdotal information or real insight? 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?
You can probably identify market segments that are ignored or underserved by the competition. These could be good opportunities for your company to jump into.
The importance of really understanding who your customers are going to be can’t be understated. Take your time to research the markets and identify those customers that represent your “ideal customer”. It’s a key aspect of a better business plan.
You also need to consider how you’re going to attract customers. How are you going to convince them to buy from you, rather than the competition? It’s harder than you think.
5. You always have competition
Overconfidence in what you have to offer can lead you to think that you don’t have any 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 that stops them from buying.
Do you know which companies offer similar products or services? Do you know how what you’re selling stacks up against theirs? How are you “better, faster, cheaper”?
Also, think about future competition. Something that looks unique today can become obsolete tomorrow due to some new technology or a competitor with a better idea. And a merger or acquisition could suddenly turn a company that was off your radar screen into a serious competitor.
In business planning, entrepreneurs often underestimate the competition. Paying attention to the fact that you always have competition results in a better business plan.
6. Don’t forget about Cash Flow
Unlike a B2C business that’s more or less cash-based, 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.
Take into account the cash needed for expenses such as mortgages, leases, salaries, taxes, raw material, supplies, utilities, office expenses, sales & marketing, to name a few. Does your financial model properly account for fixed and variable expenses?
The cash flow forecast in the business plan is very important. 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’ll end up with a better business plan if you can show that you understand the cash flow needs.
7. Who is going to run the business?
A good business plan is very clear about who is going to run the business, their experience, and background.
Does your team have what it takes to launch the business and make it successful? Have they “been there, done that?” Or are you a group of well-intentioned rookies? Has your team worked together before, or is this the first time they’ll be working together?
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?
It’s OK if you don’t yet have a person lined up for each and every position on the org chart. As long as the business plan addresses the open positions and it’s clear how you are going to fill them.
Being clear about the management team, what they bring
8. Find a reliable business partner
A reliable partner in the business is priceless. There is just too much involved in running a successful business for a single person to know everything and do it all.
Think about your own talents, skills, training, and experience, as well as your limitations. What are you good at? What not so much?
Are you the technical person or the business person? Considering teaming up with someone who has complementary skills and expertise. It’s is rare for someone to handle the technical and operational aspects and the business aspects equally well. To use a restaurant analogy, “Who is in the kitchen, who is in front of the house?”
Working with a partner leads to a better business plan. Most of the time, anyway. In particular when your know-how, skills, and experience are complementary. The key is to create synergy working together.
And, don’t hesitate to involve professionals such as accountants, tax specialists, attorneys, and business planning consultants.
9. Sometimes you just have to walk away
This last tip is not about business planning itself but about always keeping your options open. It’s to warn against falling into the trap of wanting to launch the business, no matter what.
Commitment and persistence are good. You should not throw in the towel 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. But, those are the exceptions, not the norm.
When it’s just not coming together, take a break from business planning and clear your head. Perhaps a new idea will come up that gives your business idea a new life. Or, you may think of another business idea altogether that is viable, and that will be successful.
If, in the end, your idea for a business is flawed and can’t be fixed, the smart thing to do is to walk away from it. Don’t put your money (or someone else’s) at risk. You want to become successful, not a statistic.