There are many reasons why you need a Business Plan. But what is a Business Plan? How is a Business Plan Written? What is the Purpose of a Business Plan? These are just some of the questions you may have.
How is a Business Plan Written 101
The right business plan is often the difference between a company that stagnates and one that Reaches New Heights. Many enthusiastic entrepreneurs forget to lay the groundwork for their business and head straight to the action. But how can you expect to succeed without a proper business plan?
The extent to which you plan for your company’s growth determines how well you can grow and how insulated you’ll be from threats and competitive pressures in the future. Companies with a Top Business Plan are less likely to fall victim to common startup problems like a lack of cash flow and low employee productivity. The right plan helps ensure you can successfully grow your business.
In this article, we explore the following aspects:
- What is a Business Plan?
- What is the Purpose of a Business Plan?
- How is a Business Plan Written?
- What to include in your Business Plan?
- The Benefits of a Top Business Plan
- The Elements of a Bankable Business Plan
- Tips to Create the Most Compelling Business Plan
- How to use your Top Business Plan to Raise Funding
What is a Business Plan? What is the Purpose of a Business Plan? How is a Business Plan Written? These are just some of the questions we aim to answer. Why not look at our other Free Advisory Articles in our regular blog?
What is a Business Plan?
Business plans outline the scope and strategy of a new or existing business. Essentially, they are blueprints that provide a step-by-step account of your business’s goals and how you plan to achieve them. A business plan is a document that outlines your business goals and strategies for reaching them. It can help you assess your strengths and weaknesses, map a course of action, and identify potential obstacles.
If you’re starting a new business, creating a plan is essential. But even if you’re already running a business, creating a plan can help you stay on track and make better decisions.
What is the Purpose of a Business Plan?
The key to any successful business, whether old or just starting up, is creating a sound business plan that can help you reach your goals and thus increase your company’s lifespan for years or even decades. A business plan can serve many purposes that help you and allow your colleagues, employees, investors, and supporters to all stay on the same page as everyone knows what to expect and where to place their focus.
By writing up business plans for funding, you help your investors know more about your business than they may already do. With a well-written and thoughtful business plan by your side, investors are given an official introduction that may further elaborate upon in previously held discussions. This can also help ease the minds of many investors that may be thinking about funding your business.
Business plans for funding also allow your company to share its goals and objectives with your investors once they have informed them of what your company is about and which industry it is a part of. These goals need to be explained as precisely as needed so everyone involved knows what is going on and in which direction the company is attempting to move.
Once you have elaborated upon the visions and goals that you have for your company, business plans can also give you a chance to explain your current financial and future projections to your investors and how you plan on achieving them. During this phase, you must remain honest regarding your financial situation, as this will help you make a convincing case as to why your business is worth the investment.
After all this, it is time to actively persuade investors to take the chance to invest in your business.
When finances and projections are involved, it is easy for the numbers to do all the talking, as everyone is interested in profits and seeing their finances grow. However, this does not mean you should not work to create a powerful case as to why your company is worth the investment. Persuasive arguments complement a robust financial situation and projection, and your case can be made with much greater ease with the support of a business plan.
How is a Business Plan Written?
Creating a business plan can be one of the most daunting tasks for a new business owner. It can seem like an insurmountable mountain to climb, but it can be a very simple and straightforward process with the right approach. In this article, we’ll outline the steps you need to take to create a business plan for your new venture.
Planning your business has several important benefits. It will help you understand your business’s strengths and weaknesses, help you identify growth opportunities, and provide guidance for making decisions about investments and marketing. A well-crafted business plan will help your business stand out from the competition, positioning you for success in the future.
Before developing any strategies or planning for growth, you must understand your industry clearly. Tips for improving your business plan. If you’re looking to improve your business plan, here are some tips:
- How is a Business Plan Written? ― Make sure your plan is concise. While a larger plan is sometimes more impressive, communicating and reviewing it can be difficult. Keep your plan to no more than one or two pages, and ensure the main points are easy to follow.
- How is a Business Plan Written? ― Be realistic about your goals. Don’t set unrealistic goals, like becoming a millionaire overnight. Instead, set goals that you can realistically achieve and that will help you grow and improve your business.
- How is a Business Plan Written? ― Be organised. Organize your business plan logically so everyone needing to review it can understand it easily. Use tables and charts to clarify your points.
- How is a Business Plan Written? ― Take time to research the market for your product or service. Learn as much as you can about the competition, what they’re doing well, and what areas they might be vulnerable to better position yourself against them.
- How is a Business Plan Written? ― Create a timeline for when you expect to achieve certain milestones to track progress and measure performance. This will also help you stay on track if any unforeseen problems arise.
What to include in your Business Plan?
With all this in mind, you may wonder what you should add to your business plan. Depending on who you ask, the answer might differ, but generally speaking, an effective business plan is often made up of the following:
- An executive summary
- The opportunities that your business can provide
- The company’s current financial situation and projections
- Current as well as future loan requirements
- A summary of how such loans will be used once acquired
- Current and future loan repayment plans
- A description that briefly describes your team
- And lastly, an appendix if one is needed.
This may seem like a task that can be strenuous and challenging to put together in a clear, compelling, yet concise way. Thankfully, there are Business Plan Writers throughout South Africa that can help you put one together without hassle.
A good business plan should include a detailed summary of what the business does, how it develops its strategies and where it wants to be. The most crucial point that should be covered is a strategy to increase existing sales and processes that achieve the desired growth. The business plan should include the following:
- The marketing objectives and aims. For instance, how many new customers the business wants to acquire and the anticipated size of the customer base.
- Business operational information. This should include where the business is based and detailed information about suppliers, premises and equipment.
- Financial information. This should include profit, loss, sales, cash flow, and audited accounts.
- Exit plan. This is only in the case of an owner-managed business where it should have detailed plans about the departure circumstances.
The Benefits of a Top Business Plan
There are multiple benefits to creating a business plan. These are the key ones.
- The Purpose of a Business Plan ― Understanding your market. Creating your business plan forces you to really understand your market. You will get a clear picture of your marketplace by researching your industry, customers and competition. Ideally, this market research will alert you to trends and opportunities you can target that competitors are ignoring.
- The Purpose of a Business Plan ― Attracting funding. A business plan is vital to attract funding from investors or lenders. Both investors and lenders want to see a well-reasoned business plan. Such a plan gives your company credibility and allows investors to gauge their potential return on investment.
- The Purpose of a Business Plan ― Tracking your business’s progress. When creating your plan, you’ll identify your company’s milestones, financial goals, and objectives. With proper business planning, you gain a guide to help you track the progress of the business. Revisit your business plan monthly, or at least annually, to track your progress and/or modify your plan.
- The Purpose of a Business Plan ― Attracting others to your cause. The right business plan can get employees, partners, advisors or others to join your company. If you can present an inspiring vision in your plan, the sky is the limit to what you can achieve.
The Elements of a Bankable Business Plan
Business plans are essential for any business but can be especially important for small businesses. A business plan is a document that outlines your business’s strategy, objectives, and goals. It should also include your company’s history, financial information, and product or service description.
There are 10 key Elements of a Business Plan:
- Executive summary. This section gives a brief overview of the entire business plan.
- Company overview. Management explains the company’s genesis with information such as where the company was incorporated and milestones achieved to date.
- Industry analysis. This section overviews the industry or market in which you compete. Answer questions such as the size of the market and trends that affect it or might in the future.
- Customer analysis. The customer analysis section of your plan details your target customers. It identifies how many target customers you have and their psychographic and demographic profiles. (What is a Business Plan? – Read more about the Topic of Customer Analysis).
- Competitor analysis. This section of your plan identifies your direct and indirect competitors. It explains their strengths and weaknesses and documents the areas where you have a competitive advantage. (What is a Business Plan? – Read more about the Topic of Competitor Analysis).
- Marketing plan. Here, you lay out your company’s marketing and promotions strategy. You should also include a list of the key products or services that your company sells or intends to sell. (What is a Business Plan? – Read more about the Topic of Market Research Techniques).
- Operations strategy. Here, you will state your short- and long-term goals and key milestones to achieving them.
- Financial model. This section forecasts your company’s income statements, balance sheets and cash flow statements for the next five years. (What is a Business Plan? – Read more about the Topic of Financial Models and Financial Projections).
- Management team. In this section, you will provide the bios of the founder(s) and key employees.
- Annexure. Finally, you will include any additional information that supports the rest of your top business plan, such as customer lists, store designs or employee agreements.
Tips to Create the Most Compelling Business Plan
- Don’t skimp on the research. Researching your industry, customers, and competitors can make you a true expert on your market. The insight you gain can make you a prominent player in your space.
- Create realistic financials. The right financial model will allow you to test different assumptions. For example, you can see the implications of growing at 10% versus 20%. Try to root your assumptions in reality as much as possible. For example, if no company has ever grown to R1 billion in revenues within one year, don’t claim you’ll be the first.
- Document your milestones. I prefer setting quarterly milestones for the first year and annual milestones for the next four years. Milestones can be hitting sales goals, launching new products or locations, hiring key employees, etc.
- Don’t try to answer every imaginable question in your business plan. Your business plan should be 15 to 20 pages long and answer most questions. But before writing you a cheque, investors and lenders want to meet with you. During those meetings, you’ll have the opportunity to answer any additional questions they have.
How to use your Top Business Plan to Raise Funding
Most entrepreneurs and business owners create plans to raise funding. Upon completion of business plans, the three most common funding sources are banks, angel investors and venture capital firms.
The Purpose of a Business Plan, Funding Source #1: Banks.
Banks provide loans, which the entrepreneur must pay back with interest. Conversely, angel investors and venture capital firms are equity investors. They provide money in return for shares in your company. This has a big cash flow benefit because you must not pay back the interest or the principal. If and when you sell your company, a percentage of the proceeds will go to the investor, not you. Banks are simple to find. In most cases, you should approach banks within a few kilometres of your company. Banks will judge your business plan with an eye to whether you can repay the loan’s interest and principal.
The Purpose of a Business Plan, Funding Source #2: Angel Investors.
Angel investors are much harder to identify than banks. While some angel investors work together in networks (which are easy to find), most angels are successful individuals who don’t tell the world they are angel investors. Rather, they are doctors, lawyers, executives, business owners and others who occasionally have the means to invest in private companies. To find them, network with lawyers, accountants and other professionals. Individual angel investors commonly write cheques between R500,000 and R2 million. If you are looking to raise more funding than that, you will need to find multiple angel investors.
The Purpose of a Business Plan, Funding Source #3: Venture Capital Firms.
VCs are easy to find online, but they are the most difficult source of capital to obtain. This is because they receive so many business plans and thus are highly selective. When you read about how selective universities like Stanford or Harvard are, they pale compared to venture capital firms, which fund well under 1% of the companies they see.
Venture capital firms want to see the potential for your company to earn them up to a tenfold return. That means that if they give you R5 million, they want to see your ability to grow to an R100 million company (and if you sold at that amount, they could receive R50 million, and the remaining R50 million would go to you). In most cases, venture capital firms don’t write cheques for less than R20 million. They also want to see business traction, such as existing customers. So, in most cases, companies raise angel funding first, achieve traction, and then raise funding from venture capital firms.
Conclusion. A Final Thought
You will submit your business plan if you seek funding from banks, angel investors or venture capital firms. If the recipient denies your request for funding, solicit their feedback as to why. If you constantly hear the same reply, modify your strategy and/or business plan to adhere to the wants of these investors.
A compelling business plan can help you raise the growth capital you need and put you on the right track to building a highly successful company. Whether you’re a startup or an established company, create or revisit your business plan today.