Business Plans are they necessary?

A Business Plan takes time to write, so is it really worth it?

The short answer is yes, however there are business plans and there are business plans. Looking at the national statistics, 80% of all start-ups fail within the first year (!) but the good news is that 80% of all businesses that get good advice and plan effectively are still trading and doing well after five.

Types of plans

Before you start to write your business plan, first decide what type of plan you need. The following aren’t the only 3 formats you can use but they should help to get you thinking about content, format, purpose and audience.

Prospectus

If the business is going to approach an investor then focus on the investment, the return on investment and the number of years it will take to repay. Where appropriate, include options to convert the loan investment to equity at a future date. Always define the terms and conditions.

Operational

The Operational business plan focuses more on how the service or product will get to market, the various sales channels, the advertising the business will do, the type of customer base, administration issues, required resources and the likely profits or losses that will be generated.

Cash Flow

The Cash Flow plan leans towards a lender and shows when the business will have money and how it intends to repay its loan commitment. Lenders are not investors and are less concerned with how the business will operate, more concerned to see that the business can repay debt.

In practice, most plans will include elements from all of the above so balance the bias to meet the needs of the audience. It is important to write for your audience as this is who will be using the plan. A combination of the Operational and Cash Flow business plan is very useful for the business to follow.

How to write one

There is no set formula for writing a business plan but broadly speaking you will need some words (Executive Summary) to explain how the business will operate and some numbers (Cash Flow and Profit & Loss) to show how the money side of things will work. The golden rule is to never unrealistically ‘flex’ the plan, say, just to get money from a bank or investor; this often only serves to set the business up for failure.

Suggestions

  • Talk to successful business people
  • Read every good business book you can
  • Use a template to get started
  • Use a professional where you need to
  • Continually question the feasibility
  • Keep it short, keep it simple

Our advice

Remember that business plans aren’t only for start-ups. A good plan for a business start-up will help achieve success, but likewise a plan for an established business will help to improve performance. And you don’t have to write much, a few sides of A4 is usually enough; then just pin it up on the fridge and make it happen.

Categories: Business-Advice