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
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.
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.
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.
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.
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.
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.
The Future Of The Business Plan
When things get rocky, what will keep you on point and on mission? What can you refer to, ensuring you aren’t straying from your original vision? The right business plan can go a long way.
Business plans are a lot like maps and GPSes. If the organisational journey is proceeding smoothly, you may believe you don’t need one. Indeed, there’s a school of thought — backed by certain research — that says starting out with a formal plan is no predictor of success and it’s better to get out there and test your concept in a real-world environment.
These naysayers argue that most business plans are theoretical, unrealistic and go out the window the first time the entrepreneur encounters an unforeseen hurdle.
Refer to the original vision
But the pro-business plan lobby argues that, when market conditions unexpectedly change and you’re thrown into disarray, it’s important to refer to the original vision and belief system that you started out with. These will help to keep you grounded and avoid going off at tangents every time you hit an obstacle.
A plan also helps to prioritise your daily activities. Without it, everything becomes urgent and the resulting chaos will destroy your work/life balance and leave you feeling overwhelmed. If you are more than a one-person operation, a business plan enables company teams to align their activities to the overall vision and to work congruently to achieve the same goals.
William B. Gartner, an entrepreneurship professor at Clemson University in the US, believes business plans are essential. After analysing data from a survey of more than 800 people starting businesses, he found that writing a plan greatly increased the chances of actually going into business.
“You’re two-and-a-half times more likely to get into business,” he observes. “That’s powerful.”
Alyssa Gregory, an entrepreneur and writer for the likes of Forbes and the New York Times, says the process of putting together a business plan can help with new ideas, different approaches and fresh perspectives.
“An effective business plan is a flexible, growing and dynamic tool that can help you think creatively and come up with new solutions for some of your toughest business challenges,” she says.
Related: Business Plan Format Guide
Keep the plan simple
However, the thinking around the required depth and complexity of a business plan has changed. A decade or two ago, management gurus advocated elaborate 40-page plans with detailed sections covering objectives, mission, organisational structure, target market, customer behaviour, competitive advantage, marketing strategy, sales forecasts and financial projections.
These days, unless you’re seeking outside investors or looking for a bank loan that requires a detailed risk analysis, the move is towards shorter and simpler documents of no more than a page. The reasons for this change are many. A lengthy document is likely to be unread — particularly by younger-generation employees with short attention spans. Even if it is read, it’s unlikely to be remembered in detail because of its complexity.
So, opt for a one-page business plan that’s easily digestible and lists only the important things like mission, vision, etc. Cut the fluff and keep the essence. If you’ve spent time preparing a longer plan, that’s okay. Turn the key elements that will keep you focused on your goals and the bigger picture into short bullet points that will become your go-to business plan for regular use.
What should be in your one-pager? South Africa-based digital marketing and content strategist, Casandra Visser, suggests:
- Vision – What are you building
- Mission Statement – What you do, what your product/service is and who your customers are
- Objectives – Your business goals for the next week, month or year
- Strategies – How you plan to achieve your objectives
- Action Plan – Steps you will take to action your strategies, including dates/deadlines.
Finally, remember that your plan is a living, breathing document that needs to be meaningful in a constantly changing business environment. So, break up your annual plan into quarterly plans that take into account micro and macro changes in your specific operating environment.
Keep it relevant, keep it simple — and your business plan will be an invaluable asset in navigating your business journey.
Questions To Consider While Testing The Success Rate Of Your Business Plan
Here are four ways to test your plan’s success rate or you may instead take these as questions to validate your business idea’s credibility.
So you’re finally ready to craft your business ideas out of your head and wondering if the plans you have made are worth hitting the success road or not. Well, this is something that stands as a matter of concern for every budding entrepreneur. Also, checking the viability of your business plan is necessary. For this reason, the online evaluations are turning out to be handy.
Creating tests online to assess your business plan has become a norm these days. You may find several testing tools with ready-to-use quizzes/tests to help entrepreneurs in interpreting results for developing a successful business plan. So before you take the plunge and give your business a shoot, here are four ways to test your plan’s success rate or you may instead take these as questions to validate your business idea’s credibility.
Answer these 4 Questions to test your business plan’s success:
1. Did you assess your target audience/market?
A crucial element of a successful business plan is making an appropriate market analysis and identifying your target customers.
- Whom are you selling your product/service to?
- What are their demands and requirements?
- How big is the market you shall step in?
- What can you do to launch your business in the market?
An open interaction with your target audience in the form of social media polls, surveys, etc., can help you find answers to the above questions. If your business plan includes all of these necessities, then you have successfully crossed the first milestone.
Related: Business Plan Format Guide
2. Have you made a check of your funding?
What do you need to kick-start your business? Idea, passion, and more importantly ‘MONEY.’ Your business plan should help you identify potential funding sources for your start-up. These sources may include spending your savings, taking loans or sometimes a combination of both. Studies by the University of Oregon say that businesses with a proper plan are more likely to get funded. Therefore, consider making an effective business plan to enhance the chances of getting funds.
3. Did you roll your eyes on the competition in the market?
Analysing your competitors and making a note of their strategies is something that will help you nurture your business. This doesn’t mean that you spend all of your time and energy in eyeing the competition. You need to gather all the tricks implemented by successful entrepreneurs and keep an eye on the factors that lead to failed startups. If your business plan structures key points you take from the competitive market around you, then you have bagged the next milestone in this journey.
4. Have you made a marketing strategy?
Would you like your business to stay stagnated? Obviously not! How you market your product/service to reach your target audience must be included in your business plan. If your business plan gives you a clear picture of when and how you will advertise your product through social media, websites, etc., then you ultimately succeed in creating a full-fledged business plan.
The online test maker software these days has made it extremely convenient to create tests judging the success rate of a business plan. According to a recent study, businesses with an adequately devised plan tend to grow 30% faster. Looking at this number, we can precisely estimate the importance of having a full-proof business plan that includes all of the points as mentioned above. So don’t forget to test your plan before you take the huge leap.
Why Your Business Beliefs Are More Important Than Your Business Plan
Your business plan will change. Your business beliefs should lead you to long-term success.
Do not spend more time working on your business plan than you do actually working on your business. A business plan is important, and you should take the time to make one. Just know that your beliefs about business will have a much greater impact on your success than what you put on paper.
I know this because I’ve coached dozens of entrepreneurs and business owners from the very beginnings of their businesses. I’ve watched some of them grow their businesses all the way to six-, seven- and even eight-figure earnings, even when their initial idea looked shaky on paper.
I’ve watched others struggle for years before giving up, even though their ideas looked foolproof on paper.
The short explanation here is that what you put on paper for a business plan will never match reality. Never. As soon as you start selling to and working with real people, things change. There’s a certain amount of chaos. However, there is a way to harness that chaos and use it to build your empire, which is what I’m here to show you today.
Innovation is moving faster than ever before
In the next five to 10 years, most of the jobs that exist today will be replaced by AI. For entrepreneurs, that means your business operations will be cheaper and more reliable than ever before. However, it also means that your daily operations will look completely different than what they look like today.
Plus, many of these technologies will have unintended consequences. They’re going to create problems that we’ve never had to deal with before (such as high unemployment).
I don’t say any of that to scare you. In fact, I’m extremely optimistic about the future, and you should be, too. My point is that none of us can afford to get stuck on how we do business today.
If your idea of success is to find the next “hack” or “quick fix,” then you’re going to be sorely disappointed. Those hacks and quick fixes are going to become outdated almost as soon as they appear.
So, here’s what you need to do instead: Become obsessed with the principles of wealth and success, not just the delivery system. Study the entrepreneurs and the businesses you admire most and look for the principles that guided their decisions.
Focus on principles, not quick hacks
The most successful entrepreneurs on the planet are the ones that put in decades of hard work to build their empires. That means that they kept their businesses growing even in times of massive uncertainty, loss and change. How?
It comes back to their business beliefs, which is another way of saying principles. If your business beliefs are solid, you will quickly find a way to create new solutions when the old systems for doing business break down. For a great example of this, look at Ray Dalio. He’s been listed as one of the 100 wealthiest people in the world, and he even wrote a book called Principles.
He’s also the founder of the investment firm Bridgewater Associates, which has a fund called the Pure Alpha fund that only lost money three times in the last 20 years. Keep in mind, that includes the 2008 housing crisis, which was the worst economic downturn in recent history. When most people were suffering financial disaster, Dalio and others like him kept their empires growing.
Again, it goes back to beliefs, aka principles. One of Dalio’s core beliefs was that he could design an investment portfolio that would remain safe and keep growing under any economic season. Through years of researching and testing, he created the All Seasons portfolio and accomplished just that. And he accomplished that because he was looking for the principles that would keep his money growing over the long term instead of get-rich-quick tricks and hacks.
Another great example is Google. Google’s mission statement is “Organize the world’s information and make it universally accessible and useful.” That’s not a hack or a get-rich-quick scheme.
That’s a guiding belief in what’s possible. It’s a huge idea that serves the needs of people all over the world. That’s what has allowed Google to create billion-dollar solutions and rewrite how much of the world operates today.
Beliefs can make you mentally strong — or weak
Let’s bring this back down to a personal level. If you believe that you have the creativity, focus and discipline to solve any problem that comes up in your business, then that will come true. On the other hand, if you believe there’s no room left for your ideas, or that you’ll never be able to lead other people toward your vision, that will also come true.
With that in mind, let me offer you a set of beliefs that have helped me succeed in business. These are not beliefs I pulled out of thin air. These are beliefs I’ve seen in action with dozens of other successful entrepreneurs.
I’ve tested them out in my own life and found that they each helped my businesses grow faster. I encourage you to read these aloud to yourself until they become habits in your own thinking.
- Money is attracted to decisiveness, action-taking and speed.
- I can learn whatever new skills I need to succeed and keep my business on the cutting edge.
- I can earn the respect and cooperation of anyone whose help I need.
Now, you might be wondering if I’m preaching some kind of woo-woo, “law of attraction” stuff here. I’m not. If you read those beliefs again carefully, you’ll see that they emphasize taking action. They emphasize going above and beyond what most people are willing to do.
The whole point of this is to prime yourself to want to take these actions even when they are uncomfortable. You will do this because you believe that the rewards will come. No, the rewards will not come immediately. Yes, the reality will be a long and difficult road.
Related: The Power of Dominant Thought
That’s precisely why you need deeply held, empowering beliefs to push you forward even when your plan falls apart. Focus on developing your core beliefs, and you will have the power to overcome any challenge on the path to empire.
This article was originally posted here on Entrepreneur.com.