Over the last two weeks, we have discussed ways in which you can prepare yourself and your business for investment. In this week’s article, as we touch on a very important tool – the Business Plan – we draw on the biblical wisdom of Luke 24:28, “For which one of you, when he wants to build a tower, does not first sit down and calculate the cost to see if he has enough to complete it?”.
The Business Plan is closely linked to the Strategic Plan, as both documents (at different levels), provide the roadmap for the attainment of the kind of success you define for yourself or your business (ie the vision).
For the serious leader, the question should not be WHETHER you write a business plan or not; but HOW you should write a business plan that will take your company where your strategy directs, in pursuit of the vision; and to WHAT USE the Business Plan should be put.
In summary, the business plan is a document with multiple audiences, including the board, management, financiers and investors, and it sums up all the questions you need to answer before you head into your factory, your production process, or the market for capital and human resources. According to Forbes, some of these questions include the following:
1. Company Analysis: what products and/or services do you offer now and/or what will you develop and offer in the future?
2. Industry Analysis: how big is your market and how are market conditions changing? What trends are affecting them?
3. Competitive Analysis: who are your competitors (or proxy institutions) and what are each of their key strengths and weaknesses? In what areas will you have or gain competitive advantage?
4. Customer Analysis: who are your target customers or key stakeholders? What are their demographic and/or psychographic profiles? What are their needs and expectations?
5. Marketing Plan: how will you communicate with or reach your stakeholder target customers? What promotional tactics and marketing channels will you use? How will you price your products and/or services?
6. Management Team: who constitutes your current team and what key hires must you make in order to exploit relevant opportunities?
7. Operations Plan: what products or services will you deliver? What methods or processes will you apply? what level of performance or productivity should be maintained?
8. Financial Plan: what resources are required in order to build your company? In what areas will these funds be invested? What are your projected revenues and profits over the next few years? What assets do you acquire?
A business plan is not just required to secure funding at the start-up phase, but is a vital aid to help you manage your business more effectively.
By understanding your business and the market a little better and planning how best to operate within this environment, you will be well placed to ensure your long-term success.
Most businesses must take critical investment decisions during the course of their lifetime.
Often, these opportunities cannot be funded by free cash flows alone, and the business must seek external funding.
However, despite the fact that the market for funding is highly competitive, all prospective lenders will require access to the company’s recent Income Statements/Profit and Loss Statements, along with an up-to-date business plan.
In essence the former helps investors understand the past, whereas the business plan helps give them a window on the future. When targeted to investors, your plan should clearly describe;
• Why they would be better off investing in your business, rather than leaving money in a bank account or investing in another business?
• What the Unique Selling Proposition (USP) for the business arising from the opportunity is?
• Why people will part with their cash to buy from your business as opposed to other alternatives?
A business plan helps a company assess future opportunities and commit to a particular course of action. By committing the plan to paper, all other options are effectively marginalised and the company is aligned to focus on key activities.
The plan assigns milestones to specific individuals and ultimately helps management to monitor progress.
Cash flow management becomes more vital when businesses pursue investment opportunities where there are significant cash out flows, in advance of the cash flows coming in.
These opportunities need to be assessed against any seasonal variations in the business and the timing of the flows.
A well-structured business plan will help you manage funding requirements in advance.
Therefore, “Prepare your work outside; get everything ready for yourself in the field, and after that build your house (Proverbs 24:27)”. . .