Writing your first ever business plan
It’s the traditional foundation stone of a new enterprise, but the humble business plan has undergone a bit of an image change in recent years. Some even claim that start-ups don’t need to bother with one.
In an interesting debate played out on US site Inc recently, entrepreneur Will Hsu claimed start-ups should jot some ideas onto a whiteboard and get out there into the marketplace and start selling and then adjust accordingly.
“The biggest risk in starting a company is the so-called ‘product market fit risk’ – it is the risk that the target customer will not purchase or use your product at the price you have decided to charge,” he said.
“An entrepreneur's time and energy should be put into solving that problem by talking to as many customers as possible and continuing to iterate the end product and the pricing.
Time spent on writing a 40-page business plan would be better spent talking, selling, and understanding customers and their needs.”
Countering this, law firm partner David McShea pointed out: “Many business ideas sound great – until you really stop and think about them.”
“Writing a business plan may actually convince you to dispense with or change your original business concept and create a better, stronger business concept instead. It is much cheaper to do this on paper than with a payroll.”
It’s an interesting debate that may convince you to go out all guns blazing without a plan, which has its merits.
Can you afford to go business plan-free?
But even if you have a particularly nimble, fast-moving start-up, it’s worth putting together a basic business plan, to satisfy the legion of investors, bank managers and partners that will demand to see one before they back an untested start-up.
Put simply, Australia isn’t quite ready for an army of business plan-free ventures. This may well change, but until then, you need to get a basic business plan up and running.
So how do you go about writing your first plan? Business mentor Dr Colin Benjamin says that you should think about your plan in the same way that a chef thinks about their next menu.
“It has to have all the ingredients that the customers want and have what’s necessary to make the restaurant succeed as a business,” he says.
“A good business plan is first and foremost a guide to doing what has to be done to make your venture work, then it is an aide to getting the support of others, but ultimately it is the path to the core job of any business – creating new customers and rewarding the investors.”
“The right size is not a question of the number of pages or an excess of detail but how easy it is for the reviewer to see that you have been through a thorough planning process.”
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Benjamin picks out eight essential elements that have to be covered off in a business plan:
- An introduction to the product or service provider
- Details of the management team and structure
- A statement of the vision, mission and objectives
- A step-by-step guide to goal achievements
- A competitive analysis that shows where you fit
- A feasibility study that summarises cashflows
- A simplified marketing plan and troubleshooting
- Investment opportunities and guidelines
This needs to be a live document. Test your assumptions and update your plan. Ask friends and family what they think and take on their input. And don’t feel you need to cover off every aspect of your business.
“As with the restaurant menu, you need to offer enough to tempt the investor but ensure that the relationship with the operator is the key rather than the ingredients or how the whole thing is put together,” says Benjamin.
“Leave the details to an appendix or a supplementary report that addresses specific questions that may be raised by potential business partners, including business licenses, names of bankers and accountants, solicitors, publication details.”
Don’t succumb to hyperbole about your business. Stick to the facts and keep your predictions on the conservative side. In terms of the kind of questions you should be answering in your plan, here’s a great list.
Don’t do it alone
A business plan shouldn’t be the solo effort of an inwardly-looking business builder. As you put together your business plan, get as much input as possible.
Plenty of this help and advice can be free. Trade shows, Business Enterprise Centres and bank managers can all help you on your way.
The federal government also has a set of free business plan templates to get you started. You can find them here.
It’s also worth utilising your accountant and mentor to help you with your plan. These people will help keep your feet on the ground and challenge your assumptions. Don’t overlook them.
Many start-ups only think of writing a business plan when they are asked for one by their bank manager, potential investor or mentor. Don’t be one of these businesses.
As much as you think you are too busy to write a business plan, you really aren’t. The busier you get, the more you need a business plan. And the lack of a business plan means you will just get busier still.
Also, business planning takes time. If you aim to raise money in six months, get cracking now. Your business shouldn’t be driven blind – if you haven’t put together a road map for your start-up, do it now.