Why a business plan matters and how to get yours right
Recent research has found that around 80% of companies fail within their first year while another study shows that 1 in 4 small businesses do not have a business plan. It’s likely that these two facts are linked — proper planning, budgeting and forecasting are all an essential part of commercial success. How can you create a truly effective business plan and why is this important?
There are numerous reasons why a business plan will help you succeed and meet your goals. The most prominent include:
A projected pathway to achievement
What you can measure, you can improve. A business plan gives you direction and focus, allowing you to ensure that you are meeting your goals. After all, what would be the point of running your own business if you are working 60-70 hours and earning significantly less than you did in your last job role?
Unless you can prove to yourself with a business plan that this is an important step on the road to maximising profitability for your time, you may begin to view your enterprise in a negative light.
Gaining financial support from the banks
This is perhaps the most well-known of all benefits. No serious money lender will let you in the front door unless you have a business plan. You must have a clear indication of revenues, profits and costs and demonstrate the course of your business, to be granted financial support. A marketing plan may also help ensure that your application is treated positively.
Creating an evolving, efficient company
A business plan should not be an inflexible, static document. If you meet your goals ahead of target, what should you do next? By consistently updating your business plan you ensure that you’re setting realisable goals. When you begin to bring employees into your company, you can involve them in the plan, getting both their insight and buy-in to the future trajectory of your organisation.
What should I include in my business plan?
Remember that a business plan should be short and concise. There is nothing wrong with writing down all your ideas as notes in a first draft and editing down two or three times.
You want the most succinct summary of your aims and objectives. We would advise you to create the sections in the following order:
What difference is your business going to make to the wider world? Why are you starting a business? Think about the wider scope and the impact you intend to make on people’s lives.
For instance, you might want to make road safety equipment, but the larger mission you’re on is to save lives, reduce accidents and protect people’s loved ones from harm. Explore your motivations, think about your ultimate goal as a company and how you’d like to change the world for the better.
Now it’s time to examine your customer and create a tight definition of your buyer. Too many businesses want to serve everyone.
Customers are actually more attracted to a specific niche offer that’s related to them, rather than a one-size-fits-all approach. Once you have your customer’s profile, think of how you solve their particular problems. What is unique about your service and how you can prove you’re capable of meeting your promises?
How are you going to run the business? Most businesses fail because of a lack of sales. Consider the activities you’re going to perform in order to bring in new customers. Branding can also play an important role in letting your audience understand your offer.
Getting orders is only the start of the process. How are you going to ensure that you can deliver your goods or services on time and to the standards required? Could you use ISO 9001 certification to ensure you achieve a consistent level of service delivery?
Look at producers, different outsource providers and have a contingency plan in case processes don’t run as smoothly as expected. This can range from having a number of suppliers to building in extra time into production timeframes to allow for errors.
Your who’s who guide
People are an essential part of most operations. Although companies can start off as one-man-bands, these rarely reach the heights of multi-person organisations. Who is going to help you on your journey to business success? What support do you need to get maximise your time working in and on the business?
It could be that you use outsource support like virtual assistants or employ labourers on a piece-work basis. You need to consider contingency plans, contracts and payments when establishing how you’re going to work with others.
The cash flow and capital plan
Many people believe that the finance plan is all that matters when it comes to creating a business plan. Making sure your figures add up is a key stage in ensuring your business is watertight. But, it needs all the other parts to work properly to ensure that sales are being generated and work is completed. However, as a standard your plan should include the following:
- Sales forecast
- Employee wages and costs
- Profit and loss statement
- Cash flow forecasts
- Balance sheet
Some companies also like to include an exit strategy detailing how they intend to sell the business on to generate big money.
It’s not only smaller businesses that need a plan. UK SMEs are dropping cash, failing to pick up on 20% extra profit by not having a plan in place. Those that do have a strategy for the future proved to be consistently more profitable than their less structured counterparts.
Planning is an instrumental part of success – because after all, even if you manage to get lucky in business, without a plan you have no way of knowing where your success comes from or where it could take you.