Writing a Business Plan – beyond the financials

I many times come across clients who need a Business Plan for various reasons, many times for bank financing or other funding applications.

I however rarely meet any business owner or manager who really understands the value of a good Business plan and that such Business Plan needs to be constantly updated. Business Planning is a vital business lifestyle approach.

Some even believe that the only important part of a business plan is the financial forecasts, with no background and explanation of the assumptions taken when building such forecasts.

Many times clients come to you when they hit a problem, normally cashflow related, when the actual source of the problem is that the business they are supposed to be running never had a business plan in the first place.

So why is a Business Plan important?

A Business Plan should be used to help achieve the following:-

(i) Run your company with a more cohesive vision and holistic strategy. This will help you focus your efforts. Without a business plan, you may shift your short-term strategies constantly without a view to your long-term milestones.

(ii) Understand your competition since when formulating the business plan it forces you to analise the competition.  

(iii) Better understand your customer. Why do they buy when they buy? Why don’t they when they don’t? An in-depth customer analysis is essential to an effective business plan and to a successful business.

(iv) Understand the assumptions that you have been running with in your head.  Every business plan is based on a number of assumptions. Writing the business plan helps to bring out previously “hidden” assumptions. By writing them down and assessing them, you can test them and analyze their validity.

(v) Assess the feasibility of your venture. How good is this opportunity? The business plan process involves researching your target market, as well as the competitive landscape, and serves as a feasibility study for the success of your venture. Thus, a Business Plan will help you reduce the risk of pursuing the wrong opportunity. Writing the business plan helps you assess the attractiveness of this particular opportunity, versus other opportunities.

(vi) To document your revenue model. How exactly will your business make money? This is a critical question to answer in writing, for yourself and your investors. Documenting the revenue model helps to address challenges and assumptions associated with the model.

(vii) To determine your financial needs. Does your business need to raise capital? How much? The business plan creation process helps you to determine exactly how much capital you need and what you will use it for.

(viii) Forces you to research and really know your market. What are the most important trends in your industry? What are the greatest threats to your industry? Is the market growing or shrinking? What is the size of the target market for your product/service? Creating the business plan will help you to gain a wider and deeper, understanding of your marketplace.

(ix) To position yourself in the market. Creating the business plan helps to define your company’s role in the marketplace. This definition allows you to describe the business and position yourself to customers, investors, and partners.

(x) To judge the success of your business. A formal business plan allows you to compare actual operational results versus the business plan itself.

(xi) To re-position your business to deal with changing conditions. For example, during difficult economic conditions, if your current sales and operational models aren’t working, you can rewrite your business plan to define, try, and validate new ideas and strategies.

(xii) To document your marketing plan. How are you going to reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to the growth of a business.

So beyond what the Bank needs to gain any new financing or what any other funding application needs, the business itself needs a solid Business Planning process which is updated frequently. Don’t start your Business Plan when it’s too late and you are firefighting to keep your business afloat.

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