In the first of a new feature series for Getting Started, Danusia Osiowy looks at why writing a business plan is key to the growth of a new business and what to do to stand out from the crowd.
In life, many of us like a good plan and the same can be said for business. But for many it remains a daunting prospect, as research from Barclays shows one-in-four businesses do not have a business plan. So what are the advantages of creating one? Why bother going to the trouble when other people seem to get by without one?
Jennifer O’Toole, senior partner at accountancy firm Thomas R. Dixon, says: “A business plan is like a flight path. It lets you know where you want to go, what you want to achieve, what you have to do in order to achieve your goals and probably, most importantly, what problems you can expect along the way.”
It seems being able to identify potential threats which could affect the business and to develop coping strategies in a proactive rather than in a reactive manner, is vital.
“It’s also a great way to share information about your business, to develop your thinking and test scenarios before you make any changes [like leaving your job or going it alone], and it gives you a way to measure how things go when you do start up.”
And if you are looking for finance, then a business plan can make a difference.
Judging by all the hoopla surrounding business plans, you would think the only things standing between a would-be entrepreneur and spectacular success are glossy coloured charts, a bundle of meticulous-looking spreadsheets, and a decade of month-by-month financial projections.
Nothing could be further from the truth, says William Salman, a professor at Harvard Business School, whose research focuses on the investment and financing decisions made in entrepreneurial ventures.
He says: “The more elaborately crafted the document, the more likely the venture is to, well, flop, for lack of a more euphemistic word. Most waste too much ink on numbers and devote too little to the information which really matters to intelligent investors.
“A new venture faces too many unknowns to predict revenues, let alone profits. Few correctly anticipate how much capital and time will be required to accomplish their objectives.
“Don’t misunderstand me: business plans should include some numbers. But those numbers should appear mainly in the form of a business model which shows the person has thought through the key drivers of the venture’s success or failure.”
There is a wealth of online material available if you are thinking of going it alone, including endless templates from the main banks providing detailed checklists, questionnaires and sample plans to help get you started.
But what no website, prototype or book can provide you with is the passion, creativity and vision you need in order to go ahead and write one. There are, however, common tips which keep appearing which too many people do not do, compromising their chance of success.
A business has three essential building blocks. Analysis (market, industry, competition) action plan (people, operation, sales and marketing) and projections (financials).
Be as concise as you possibly can and remove any filler language. Even if it sounds nice, fluff gets you nowhere and wastes space. Plus, no investors want to read a long business plan
Be prepared to name them and explain what makes you different from (and better than) each of them. Learn how to spot their weaknesses and use them to improve your own business plan
Everyone says they are conservative in their business plans, but most are not. Use examples to demonstrate you are conservative in your approach and projections
Being overly optimistic with time and resources is a common pitfall with start-up businesses. Being realistic is important. Assume things will take 15 per cent longer than you anticipate
Some investors want a hands-on role, some do not want to be involved in day-to-day activities. But all investors want to know when they can get their money back and at what rate of return
Creating a business plan is not about avoiding risk; it is about understanding and managing risk. A good business plan anticipates possible challenges, as well as possible good and bad scenario
The plan should reflect your personality. The reader should prefer to read it instead of watching paint dry. Make it flow like a conversation and look to reflect who you are
Even if you are the only person involved in your business, find someone who can objectively point out possible weaknesses as well as highlight areas of strength