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Business Plan Advice

Why Do I Need A Business Plan?

If properly generated, and appropriately used, the time spent on the development of a business plan is far outweighed by the potential benefits and considerable advantages.

Leana van der Merwe

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The vast majority of business owners develop a business plan because they are told to do so. The instruction will generally come from a bank, lawyer or business advisor; and once the much thought out plan has fulfilled its purpose, it is often left to decay in a bottom drawer next to those articles one always intends to read… one day.

The importance and advantages of a business plan are rarely recognised and the strategic relevance such documents can play in directing a business is very much undervalued.

A good business plan should be an honest and extraordinary document, specific to the business, that can be used as a living action plan.

If planned, approached and executed correctly, it can serve as a vehicle to success. In a business plan the definition of “success” is of course open to anything at all! Any time is the right time to prepare a business plan. It is most effective at the innovation stage of a business, but can be used throughout the life cycle of a business.

A business has different needs, risks, rewards, possibilities and challenges at each stage of the lifecycle; hence the business plan should accommodate all of these and be used as a dynamic document that should be regularly maintained, updated and developed.

Download: Free Business Plan Template Download

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Why do you need a business plan?

It’s always necessary to objectively evaluate your business – this is daunting to even the most profitable and successful of business owners.

Generating a business plan would assist to determine the feasibility of a business, or at innovation stage, a business idea. A business plan will give a new business the best possible chance of survival.

In most instances, financial institutions or investors will insist on seeing a business plan. Therefore, it becomes a requirement in order to secure external funding.

For the most part, the test of strength at this point is financial viability and, although that is certainly a major aspect of any business plan, it should also carefully detail goals and objectives for the business, as well as estimated growth rates and possible challenges in achieving the estimated growth rate.

A good business plan should direct the business and facilitate action through quantitatively measurable criteria, where possible.

Key employees can be measured according to the outcomes and achievements in terms of the business plan in order to ensure movement and to ensure that the strategic vision of the business is being achieved. It should turn thinking into doing.

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How do I draft a business plan?

The first step is identifying what is to be achieved through the creation of a business plan.

It could be for any number of reasons, such as: to facilitate growth, evaluate and/or value the business, to identify a possible acquisition, to initiate a restructure, or even as part of an exit strategy. Often, as a business plan grows and develops, the strategic direction needs to be reassessed.

Therefore the initial plans should not be cast in stone. The business plan should become a tool, so where possible, big picture simplicity is key.

The second step is to decide on how the financial aspects of the business plan will be handled and what significant areas should be involved.

The third step is to stretch into the non-financial aspects of the business. It can be quite challenging to decide which non-financial aspects should have their own business plan within the overall business plan.

The fourth step is deciding which persons should be involved in which areas. From the very beginning, it is vital to include key employees in order to ensure that the specific individuals who will be making the action items happen, are involved and part of moving the business forward.

Related: Business Plan Examples to Get You Going

Where possible, meetings should be open to all employees on a voluntary basis in order to ensure that people who are interested in the future of the business, as well as their own futures within the business, can also contribute and feel like they are included in deciding on certain strategic initiatives.

Opening up the invitation for employees to volunteer as active participants in the process should assist in creating higher levels of commitment to the direction and ultimate goals of the business.

Lastly, once there is a framework of the above steps, it must be decided what timeframe will be used in order to measure the actions and outcomes identified as the business plan comes to life.

Finding the correct balance in the timing of the business plan is vital. If the timing is too fast, it creates undue pressure on employees and in some cases on finances. If the timing is too slow, the momentum is lost.

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Content of a business plan

The executive summary should be the starting point for the development of a business plan.

The executive summary should focus on the reasons for preparing a business plan and contain detail on the background of the business in order to lay out the foundation for the starting point.

The current corporate structure will be an important aspect to consider in the executive summary, as it will have severe consequences in the future for new product development, significant growth, succession planning, exit strategies and the like.

Key products and market ownership percentage should be researched and documented in order to identify strengths and opportunities or threats to the business.

Planned future product development and their possible impact on the business should also be included in this analysis, as should major successes and disappointments.

The management team, the board of directors, the owners or shareholders and senior managers should be identified with details as to their involvement in the generation and facilitation of the business plan.

Begin with a rough draft to identify a few key action points that will be instrumental in achieving the plan as initially defined in the executive summary.

As the business plan evolves the executive summary should be assessed to ensure that the strategic goals the business should be heading towards are still viable; and whether the action points are really going to facilitate the planned outcome.

Related: Keep it Simple: How to Write a One Page Business Plan

The marketing plan section of a business plan should evaluate products currently available on the market, the pricing and demand for such products the distribution and positioning of such products and the brand awareness.

Included in the marketing plan should be the possible development of future products and viability of such products. The business plan should contain a detailed layout of what is being sold, where it will be sold, how much of it is expected to be sold, and who is going to buy it.

The operational plan should specify the physical day to day running requirements of the business. In a service and manufacturing entity, employees are the single most important operational factor.

Management structures and a detailed organogram should therefore be created. In order to generate the management structures and organogram, every employee should have a job description, remuneration information must be available and the productive capacity of employees should be calculated to ensure maximum productivity.

In a manufacturing environment, capital expenditure requirements would be a focal point, together with product input needed, facility requirements and possibly warehousing and manufacturing facilities.

If variable cost is included in the business plan, the adoption of a cost allocation model is critical to ensure the correct gross profit and net profit percentage analysis can be done on all products’ profitability.

This will ensure profitable products are developed and promoted and that non profitable products are either further developed and promoted; or are ceased altogether. Information System Technology needs will be determined.

Identification of operational systems may be needed, as well as the support programs and the analysis between in house development and off the shelf purchasing.

Security and protection settings are one of the bigger risks in the operational plan and should receive adequate attention in order to mitigate risk.

Where relevant, a training plan should be set out to make sure employees will be updated with the latest developments and technology pertaining to the products of the business. Such training will result in a technological advantage in a rapidly developing and changing technological climate.

Each and every business has different financial needs during different stages of the business life cycle. During the innovation stage the business will need cash to start the business and maintain it for at least a year or longer.

If there is insufficient funding for this period, the business will fail before it has properly had a chance to get started.

Resource: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

During the growth phase, a cash flow forecast should be maintained and the capital requirements of the business must be considered. The source of financing must be set out in the business plan during the different stages.

As funding can come from a number of sources such as family, friends, financial institutions and investors; it is important to detail where the funding came from as well as the terms, obligations and costs of the different funding options.

Financial forecasts in the form of a Cash Flow Statement, Statement of Financial Position and Statement of Comprehensive Income for future periods should be prepared and included in the business plan. These should be based on projected sales and capital requirements and further product development and market establishment.

Risk, in various forms and ranges of significance, should be assessed throughout the business plan. The impact of the identified risks should be incorporated in every area of the business plan and controls must be implemented to mitigate such risks, where possible.

The business plan should be well drafted, dynamic, realistic, specific and measurable. It should clarify the mission and vision of the business; it will also facilitate growth, development of products, identification and mitigation of risks and many other factors that can benefit the business. Communication and involvement are key to receiving commitment from key employees and vital to ensuring that the strategic direction of the business is maintained.

Leana van der Merwe is a Audit Partner at RSM South Africa. Following her Bachelor of Accounting Degree, Leana joined RSM under a Training Contract after which she qualified as a Chartered Accountant. In September 2011 she was appointed partner to the firm while continuing to build on her extensive experience in the audit of retail, manufacturing, not for profit, property investment and construction companies.

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Business Plan Advice

Writing a Business Plan May Not Be Your Idea Of Fun, But It Forces You To Build These 4 Crucial Habits

These key habits will allow you to grow a stronger, more profitable business.

Dave Lavinsky

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The average entrepreneur reacts to the term “business plan” with distaste, seeing it as a necessary evil when starting a business or seeking funding.

While the process of documenting your plan might not be enjoyable, the results you can get from it can be, as numerous studies have shown a direct correlation between a written business plan and a company’s success. Equally as important, creating your business plan forces you to build many good habits.

Goal setting

Your business plan forces you to set goals. You need to forecast what your sales will be this quarter, this year and in five years.

Related: The 3-Step Approach For Testing Out Your Business Idea

Creating goals is the first step to achieving them. And when you create them in your business plan, you are forced to support them. Specifically, you must explain how you will achieve those goals. Who must you hire? What type of marketing promotions must you implement? While you may not ultimately follow all the strategies outlined in your plan, you will assess multiple options and determine the best path to follow.

Goal setting clearly yields superior results than entrepreneurs who “fly by the seat of their pants.” Getting in the habit of setting annual, quarterly and monthly goals will help your business grow.

Focus

The biggest fault of most entrepreneurs is that they lack focus. They start down one path, learn of a new idea and then pursue that new path. This is rarely a strategy for success. Rather, it typically results in multiple “partially built bridges.” Importantly, 100 partially built bridges are worth nothing, while one fully built bridge could be all your business needs to be successful.

Your business plan forces you to focus. It does this most specifically in the “Milestones” section. In this section of your plan, you should document what your milestones are by month for the next three months and by quarter for the following four quarters.

Once you have these milestones documented, you’ll gain the habit of judging all new ideas with regards to whether they’ll more effectively allow you to attain your milestones. If they will, then pursue them. If not, table them so they don’t distract you.

Figuring out your unique qualities

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I tell entrepreneurs to start their business plans with two succinct messages. The first is a clear definition of your business. That is, what it is that you do. This is important since if readers can’t clearly understand what kind of business you’re in, they’ll stop reading.

The next key message is to explain why you are uniquely qualified to succeed. The answer to this question varies. For instance, maybe your management team has incredible experience. Or you have patented intellectual property. Or you have unique relationships with customers or partners that your competitors don’t. Or market trends have shifted and now require an approach upon which only your company can execute.

Related: The Business Plan Is Dead

If your company is not uniquely qualified to succeed, then at the first sign of your success, you will have lots of competitors and nothing to keep customers from flocking to them.

That’s why in creating your business plan it’s not only critical to think about why you are already uniquely qualified to succeed, but what can you do in the future to cement that position. For instance, should you seek patent protection? Would hiring this person allow you to gain an unfair advantage? And so on.

This is an important habit to form. You should always be thinking about why your company is unique and how to make it more unique, particularly if competitors are gaining on you.

Getting others excited to join you

A great business plan doesn’t only document your goals, milestones, action plans and unique qualifications, but it gets the reader excited. The comparison I tend to use here is between an automobile’s brochure and owner’s manual.

While an owner’s manual tells you every key detail about a car’s features, it is boring and not something anyone reads for pleasure. Conversely, the car’s brochure has cool pictures and sells the car’s best features.

While your business plan needs detail, it should be more like the brochure then the owner’s manual. It should get readers excited. You get them excited not by giving them boring industry statistics, but giving them statistics that prove why your company will be successful. You get them excited by showing how your management team has unique qualifications. And how your past successes make you likely to achieve future success.

When your business plan gets others excited, you can use it to raise funding, and gain customers, partners, board members and virtually anything else you need.

This is yet another important habit to form. You should constantly be getting others excited about your business, as this can prompt your long-term growth.

So, next time you sit down to work on your business plan, realise that in doing so you’re building key habits that will allow you to grow a stronger, more profitable business.

Related: Apps To Help You Write A Business Plan


Download your free business plan template here

business-plan-template-300x350Free Business Plan Template Download

This article was originally posted here on Entrepreneur.com.

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Business Plan Advice

The 3-Step Approach For Testing Out Your Business Idea

Here’s how to learn the most from your potential customers and get honest feedback.

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Let’s say you wake up one day and decide the world needs a better mop, and you’re just the person to make it. Before setting out, you interview prospective customers. “Are you looking for a better mop?” you ask someone. The person searches his memory for all the times he’s wrestled with a mop or hated the smell of it, and he ignores the fact that most days he doesn’t care about his mop and can’t even remember the last time he used it.

The hits, not the misses, fill his mind. “Yes,” he tells you. “I am looking for a better mop.” You’re thrilled to hear that and go off to design it. Eight months later, with $20,000 of R&D money invested, you come back and ask him to buy it. “Nah,” he says. “I’ve already got a mop.”

What happened there? First, something psychologists call “confirmation bias.” It’s the tendency to look for information that confirms your beliefs and ignore what doesn’t. And second, “positive test strategy,” when we consciously or unconsciously ask questions that generate answers supporting our beliefs.

These phenomena working in tandem make us feel more reassured, self-confident and driven, but they also create traps for entrepreneurs and prevent us from getting good, honest feedback from our customers.

Related: The 10 Best New-Age Business Ideas You Haven’t Heard About Yet

Fortunately, they can be overcome. Here’s a three-step approach.

1Replace assumptions with hypotheses

ab-testing

Make a list of all the assumptions you have about your customers – their price points, pain points and preferences. Now reframe them all as hypotheses. For instance, if your assumption is that customers want more options to customize your product, your hypothesis is that if you offer more customization, revenues will increase.

If you think customers will buy more of your product at a lower price point, your hypothesis is that if you lower the price, customers will buy more product more frequently.

And if you think investing more in social media will improve customer loyalty, your hypothesis is that by spending a portion of every day responding to customer comments online, you will drive up your retention rate.

2Test the hypotheses

This might be through interviews, surveys or A/B testing.

For that customisation hypothesis, you could create an A/B test on your website: Some customers will see customisation as an option, and some won’t. Do the customised offerings sell better?

For the price hypothesis, set up exit interviews with 20 customers who didn’t buy your product. (Email programs can be set to ping people who go through a sales sequence without buying.)

Was price their chief reason for bailing? And finally, for your social media hypothesis, track each customer who was engaged on social media to see if they buy more frequently than the average customer.

Related: 10 Business Ideas Ready To Launch!

3Ask better questions

If you do surveys or interviews, be careful not to ask leading questions. If you ask a customer, “Was price a large part of your decision not to buy?” they are more likely to say yes. Price is always a factor, but it’s not always the factor.

To get at the factor, let your customer fill in the blank. Ask, “What was the biggest factor in your decision not to buy?” Then she might answer, “The delivery window was too long.” Now you know where to put your effort.

When you let your customers lead you to the truth, it will allow you to set aside your own flawed assumptions and answer their needs better. That way, they’re happier, and you’re not stuck with a warehouse full of unwanted mops.

This article was originally posted here on Entrepreneur.com.

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The Business Plan Is Dead

We are living through the most disruptive period in our history.

Matt Brown

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We are living through the most disruptive period in our history. One only needs to consider companies like AirBNB, uBer, WhatsApp and Tesla to understand how quickly established companies can become disrupted by new entrants into the market.

The reality is that if your company is going to survive in today’s digitally enabled economy, your company needs to adapt to a plethora of new market pressures, increasing disruptive competition and a customer which is becoming increasingly harder to reach.

The New (Current) Reality

No business is immune. The reality is that the world is moving off a linear trajectory and onto an exponential one. Take the advertising industry for example, since the 1970’s it has been enjoying a steady linear growth but then, in the early 2000’s digitisation and connected networks suddenly exploded the number of distribution channels for traditional advertising networks.

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Related: Why You Should Scrap Writing That Business Plan And Become a Lean Start-Up

There are three key drivers of the evolution of media.

  1. Consumer pull: Consumers, and particularly Generation C, are already fully adapted to the digital environment
  2. Technology push: Digital technology continues to penetrate all aspects of our lives. We are after all living in the fourth industrial revolution. Tech has never been more affordable, but the capabilities of our technology (take cloud computing for example). Has exponentially increased.
  3. Economic benefits: The economic benefits to be captured through digitisation are real. The freelancing market in the UK contributed GBP 109 billion to the UK’s GDP last year, that is more than the entire automotive industry combined. The ability to scale at a fraction of the cost has seen a wave of capital being poured into new digitisation technologies, and the public markets reward early movers with unprecedented valuations.

The Business Plan Is Dead

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Business plans are often cited as the first thing an entrepreneur should write for a start-up, but no business plan has ever survived the realities of the market.

I recently interviewed Craig Mullett, the President of the Branison group about this exact fact. Craig has invested in hundreds of start-ups and went so far as saying: “If a start-up has more than one tab on the spreadsheet for its planned commercial model it’s way too much.”

The current business environment is changing so rapidly that even established businesses are suffering from ever increasing changing market and as a result these dynamics are putting proven business models under increasing pressure and duress.

This manifests in things like declining revenues, loss of market share and increasingly, exposure to new disruptive competitors that are not constrained by organisational inertia and arthritic corporate structures.

A startup is well positioned to take advantage of this for several reasons, but by the time a business plan has been written for a market that market in most cases has changed to such a degree that the assumptions and strategy defined in the business plan has already become irrelevant.

Related: 6 Questions Your Business Plan Must Answer

Why Start-ups Need a Business Case

The highly-regarded entrepreneur Brad Feld has this to say:

Today, it’s clear to me that business plans for start-up companies are a historical artifact that represented the best approach at the time to define a business for potential investors. In the past decade, we’ve shifted from a “tell me about it” approach (the business plan) to a “show me” approach (the Lean Startup). Rather than write long exhaustive documents, entrepreneurs can rapidly prototype their product and get immediate user and market feedback.

Agility and the adoption of lean product development methods has all but replaced the need for a 30-page business plan. From an investors perspective, the key requirement of a business case is to table a view on a potential market opportunity at a product level.

Ideally, a problem or opportunity that is sizable and lucrative and based on that problem/opportunity it needs to define and demonstrate how a single action and strategy will solve that problem.

The business case should also predict cash flow results and the non-financial impacts that follow from the action and the execution of the strategy. A business case, unlocks the ability of an entrepreneur to get to market quickly and to disrupt the speed and frequency at which value is created.

The StratLab For Start-ups

With the business plan being past its prime, Digital Kungfu has developed a unique methodology that incorporates the best of aspects of a business plans while speeding up the process for a startup to disrupt a traditional market.

Our process, forced entrepreneurs to think through critical assumptions and strategic drivers about their business and helps them to the key strategic elements necessary to achieve success.

The StratLab workshop helps entrepreneurs gain a basic understanding of what they are getting into before the rubber hits the road and empowers them with a new process of thinking and new way to articulate the value that a start-up will create in any market.

The business environment is constantly changing. The start-ups that will succeed are the ones who have a clear strategy that is designed to make them #1 in their market and which positions them for exponential growth in the future.

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