As more and more people are setting up side hustles or starting their own full-time businesses, the value of a business plan has come under scrutiny in recent years. Some experts argue that unless you need funding, writing a business plan is a waste of time, especially if you have an agile business.
However, this view ignores a crucial benefit of a business plan that applies regardless of the size or type of business you run: it forces you to add substance to your plan to change the world. From describing your target market to identifying competitors and determining your break-even point, it helps you to determine whether your idea is viable before you take on debt or quit your day job.
A business plan is a road map to success. It gives you something to work towards and to refer back to when times are tough (which all entrepreneurs know will happen sooner rather than later). Here are 10 steps to guide you when writing a business plan.
1. Know your business
This may seem obvious, but many entrepreneurs only have a vague idea of what they want their business to be when starting out. What problem will you be solving and what makes your solution unique? How will you go about bringing your product or service to the market in practical terms?
The purpose of a business plan is to prove that your solution is a worthwhile investment. This is true in terms of financial investment by funders, but also when recruiting employees and even convincing yourself of the value of your business. If you do not know your proposed solution inside out, you will not be able to sell your idea to anyone.
Do not worry if you do not have all the answers when starting to write your business plan. The structure of a business plan is such that you will be prompted to think about certain aspects as you go along. When done properly, you will have a thorough understanding of your business upon completion.
2. Know yourself
When writing your business plan, remember that you are the biggest driver of your business. Your personal circumstances and strengths and weaknesses will directly determine your output. No two people are the same, and therefore no two businesses will be exactly the same, even when they are in the same field.
Say you have two accountants with exactly the same expertise and intended target market, but the one is a single mom and the other has no kids. The time these two people can realistically spend on their business differs, and therefore their output and success curve will differ.
Write a business plan for YOU, not for the average business in your field. If you are not a social media boffin and will need to outsource this function, your business plan should reflect that, regardless of what your competitors are doing. It is pointless to have a solid business plan that someone else can execute but not you.
3. Decide on a legal structure for your business
If you wish to apply for funding, you will have to register your business as a company. This is because a company creates a separation between your business and personal finances. Funders want to know that the money they lend your business is safe from your personal creditors.
However, if you do not need funding, seriously consider operating the business as a sole proprietor or partnership. The Companies Act places compliance requirements on all companies, regardless of their size.
Companies have to submit annual returns to CIPC, file numerous tax returns with SARS and pay UIF, even if the only salary paid is your own. To comply with all these requirements, your accounting will have to be more comprehensive if you operate as a company. The tax liability is also different for companies as opposed to sole proprietors and partnerships.
It is therefore likely that you will need expert assistance both in drawing up your financial statements for the business plan and once the business is up and running. Be clear on the legal structure of your business and its implications from the outset to avoid unnecessary complications.
4. Write for your audience
There are two potential audiences for a business plan: funders and management. Funders are generally more interested in seeing numbers that show how they will be repaid. Management will be looking at the day-to-day operational aspects of how the product / service will be marketed and sold.
Both versions should have the same sections, and whatever changes you make should be minimal. You do not want to write two completely different documents. However, in the management version, annual financial projections instead of monthly ones should suffice and you may wish to add more detail to the marketing and sales sections.
Whoever you write for, steer clear of technical language. You will alienate your audience if you use terminology they do not understand. Always use simple language and get to the point as soon as possible.
5. Do lots of research
A business plan is not intended to be creative or to leave things unsaid. You have to know exactly who your target market and competitors are and what it will cost to sell your product or service. The more essential facts and figures you have, the more convincing you will be (provided that they are relevant). Potential funders will not be assured that you will be a fastidious business partner if you do not even take the time to write a thorough business plan.
Do not make claims that you cannot back up with figures and do not include figures you cannot explain or do not understand. In this age of misinformation, it is essential to check that your sources are reputable.
If you write your own business plan, also spend some time researching the general requirements and structure. Funders will be looking for specific types of information – be sure to include everything.
Doing research is important even if you ask professional business plan writers for assistance. Most such companies will require you to complete a questionnaire about your business so there really is no way to avoid thorough research.
6. Be realistic
In the same way that everyone thinks their children are the cutest, smartest and fastest on the playground, everyone thinks their business idea is the best the world has seen. You have to face up to the fact that this is usually not the case.
No matter how brilliant your product or service, not everyone is a potential client. Your numbers should reflect this. We tend to overestimate our income and underestimate our expenses. It will inspire more confidence if you offer funders a lower profit that is realistic rather than a rosy fantasy. Look at your numbers critically and ask someone you trust for input.
Remember to be specific. This ties in with knowing yourself. What is realistic for one business might not be realistic for another. This is YOUR business plan. Your whole premise is that your business is unique in whatever solution it offers. The business plan should reflect this.
7. Do not waffle
More is not better. While traditional business plans were 20-50 pages in length, it is now better to aim for 15-25 pages. The longer your business plan, the less likely it is to be read in full and with attention.
Do not write for the sake of writing. Instead of spending your time to say more, find a way to say it more succinctly.
8. Have a clear layout
Business plans usually have a standard layout. Try to stick to this as potential funders will expect all of these sections. Broadly speaking, the layout is as follows:
- Executive summary
This is the first section, though it is best to write it after completing all the other sections. The executive summary is the elevator pitch of your business plan. Not more than one or two pages long, it is a short summary of the other sections. A weak executive summary might discourage potential funders from reading the rest of your plan, so make sure you write a thoughtful, clear pitch that invites further reading.
- Company description
Give a snapshot of where the company currently is. Include the vision, mission, location, legal structure, founders, et cetera. This section can be trimmed for internal use.
- Market analysis
This is one of the most important sections and arguably the one that will require the most research. You need to have a very clear (and realistic!) idea of the target market, trends and competitors. What are your competitors’ strengths and weaknesses and how do these affect your position in the market? Do you really know your customer as well as you think you do? As the market and how you approach it will determine the success of your business, you need to revisit this section regularly even after completing the business plan.
- Organisational structure
Provide more information about key personnel and their experience. If you are the only person in the business, give more information about why you are uniquely qualified to drive the operation successfully.
- Products / services
Put your products or services centre stage. What makes them different? Why will customers come to you instead of going to competitors? Do you have a patent or trademark? Give all the information you would give to a potential customer to convince them to buy your product / service.
- Marketing and sales
Not even the best product or service will sell itself, at least not initially. Here you should provide details about where and how you will be marketing your product / service and what the sales process will look like. As with the market analysis, you should continuously review your marketing and sales strategies to make sure they remain effective.
- Financial statements
Include a five year projection of your profit and loss, financial position, cash flow and break-even analysis as well the current statement of financial position in case of an already operational business. If you are seeking funding, provide a monthly breakdown for the first two years and quarterly and annual statements from then onwards. Remember to state explicitly how much funding you require.
You might wish to include further information in this section, for example the CV of founders and key team members, existing contracts, licensing agreements and additional research.
9. Get help if you need it
Competition for funding is tough. If you are writing a business plan with the intention of getting funding, consider getting professional help. While there are many free templates available and enough research on Google to guide you on your way, it might be better to ask for help. Weigh up the cost of paying a professional to write your business plan and the potential payoff. This is a road map for your business’s future. Do not settle for a second-rate plan to your destination.
10. Be ready to ditch the plan
A business plan is a living document. Once you have completed it, you should continuously measure the business’s performance against it. You have set yourself and your team certain goals when drawing up the business plan. Are you meeting them? If not, why? What should be done to improve execution?
Remember that the best laid plans of mice and men often go awry. If you find yourself on a new course and the original plan is no longer applicable, adapt it or bin it altogether. Do not be so attached to your business plan that you pass up on other opportunities that might cross your path.
A business plan is vital to organising your thoughts and ideas. This is true regardless of whether or not you want to apply for funding. Make the effort of mapping out where you want your business to go. It might seem like a daunting task, but you are sure to reap the rewards.
I understand money and the power of choice it brings. I have at various times had the privilege of choice and seen my options dwindle with my bank account. I believe your money story impacts not only your financial decisions, but all other aspects of your daily life. When I am not helping women attain financial freedom, you will find me reading, hiking or having red wine.