Guest blog by Govchain
A business plan is a document that explains what your business is all about.
It sets out what the business is planning to do, how it’s going to do it, and over what sort of timeline it’s planning to do it over. A good business plan helps give the business direction and serves as a reference guide to make sure you have a laser focus on the most important goals of the company. So, what makes a good business plan?
The more detailed you make your business plan, the more encompassing your mission will be, making it clear how the business will be run. But, pro tip: don’t get distracted by unnecessary details, a good business plan focuses on the core of the business – how it’s going to generate money. Stick to the point and plan everything around that.
Longer and more formal business plans start with an Executive Summary. This is a brief summary of the entire business plan – the trick here is to make it as comprehensive, yet concise, as possible. For a busy investor your Executive Summary might be the deciding factor in whether they go on to read your full business plan or not, so make it count.
Next is an Introduction to your company. This is exactly what it sounds like – an introduction to who you are, your history, how you came up with the idea for the business, what work you’ve done so far, your location, and your management.
After that comes the Company Summary. This is structured in four parts:
Vision: This describes the change that the company is looking to make and how that will impact the community it serves and the world. It’s usually a high-level aspirational statement.
Mission: This explains why the company exists and what its central goals are – spreading its products and/or services. You can include who the major customers will be, but keep it short and sweet.
Objectives: These are measurable outcomes that your company wants to achieve through the business. Include estimated growth figures like how much you plan on growing every year, how many sales a month you plan on making etc.
Values: These are your ethics, your core beliefs about how the company is run, and how you want to operate in the world. Examples are integrity, consistency, and spreading positive change. Vision and Values tend to stay the same over the life of a company, but Objectives can change as the business grows over time, which may influence your Mission.
After Company Summary comes the Production/Service Overview. Here you describe in detail how the company makes its products or how the service will be carried out, being very clear with what goes into the processes. Following this is another section on Products and Services where you list all the various things your business might produce, including waste products and/or added services.
To show how you fit into the relevant market, include an Industry Overview. In this section, you describe what other role-players in the industry are doing, what the total market size is, and, if applicable, how much of that total you are planning to take over. If your business covers more than one industry, be sure to show this.
A section on Research and Development is a good place to show how you are planning to improve your products and/or services, and how you plan to offer a better experience for your customers than that of your competitors. Here you can also talk about things you would like to look into in the future as your business grows.
Now for the big one – your Financial Plan. This, after the Executive Summary, is the second thing a busy investor will look at, so make sure you do it properly. A full Financial Plan typically includes:
- Assumptions made about the business and markets,
- Options for financing the business, e.g. loans, direct investment or grants,
- If applicable, a Facility Cost where you lay out all expenses needed to build or fit out the premises. A general rule of thumb is that building ends up costing double what you expect, so budget for this,
- A Unit Cost Analysis – working out each and every cost that goes into making the product or service that you will be selling to figure out how much you will be charging. This is calculated by adding fixed cost ‘overheads’ (like rent for premises, salaries of employees, water and electricity, etc) to the variable cost of inputs needed to produce each unit, and then dividing it by the total number of units you will be able to produce given those costs. Be thorough here and think about all the costs, everything from insurance to staples,
- A detailed 3-Year Cash Flow Plan, showing that you will always have cash available, even if you are operating at a loss at the beginning, and
- A 5-Year Profit/Loss Plan, showing how you will grow and start building capital. Be sure to include the breakeven point. This is the important day when all costs of setting up the business will be repaid and from where you will start making a continuous profit.
Pro Tip: Balance being optimistic, realistic, and prudent when doing your costing – rather ask for a bit more investment and make sure that the business always has cash instead of having to ask for more later.
A final section to include is one detailing your Risk Management. All companies and businesses face risks, and it’s important to consider how you will stay safe. This includes things like insurance, staffing plans, legal matters, and other strategies to make sure things run smoothly.
It’s important, to be honest and realistic in this document. Exaggerating or underplaying certain things will come out eventually, which will lead to some uncomfortable meetings and explanations. That being said, also think about who you are going to give the document to, and consider what they want to see. You can cater the business plan to a specific investor so long as your document is still accurate and truthful. Depending on what you want to achieve, perhaps let an accountant or someone with experience in the business have a look through the plan and financials before giving it to investors.
Remember that most investors look at the bottom line; they want to see that your business is, or is going to be, profitable. Include any Purchase Orders, Letters of Intent of other contracts as annexures to the business plan. Some investors might be looking to add different types of value to their investment portfolios, such as environmental responsibility and corporate social responsibility – if your business falls into one of those areas, be sure to point it out to them.
Even if you aren’t looking for investors, a good business plan helps bring structure to your company and the objectives within. It also helps to speak to people around you when writing your business plan, to test ideas against them. They may think about things in a way you hadn’t thought of before, which will help to further refine your ideas. Finally, remember to update the business plan as things move along so that it always remains the working manual your company can use to be successful at business!
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