Business Plans and Why They Are Important

[Paul Carcone]

When you approach potential investors for finance for your company, it is imperative that you give each potential investor complete peace of mind that you have a carefully considered and realistic view of your company and its expected future performance.

A Business Plan is the springboard for the successful incorporation and growth of any new business, particularly when the company shows the potential for rapid growth. A sound business plan is therefore an essential tool for the investor to evaluate the risk associated of his or her initial investment.

The business plan document must at least look professionally prepared and immediately allay the concerns of your potential investor and you should review it with a critical eye and try to second guess where your investors’ concerns may be and clearly mitigate against them. Remember that banks and, even more so, private investors, are risking their hard earned capital by investing in your venture in the hope of long term returns that are worth many times their original investment.

An investor ready business plan demonstrates to the potential investor that you are an expert in your industry and that you have a clear mission. An entrepreneur addresses these needs by preparing a comprehensive and detailed view of his/hers business objectives and goals.

Some important sections that address different concerns of the investors are discussed below:

Management. Investors are mainly concerned with good management as much, if not more so, than just profitable ideas. It is very important that you express your knowledge, passion and dedication to your business to the full. The competence of your management team, along with their experience levels and commitment levels, are also factors that investors research before making their investment decisions.

Customers. It is important to communicate to the investors that you understand the needs and requirements of your customers and to make your marketing strategy crystal clear within your business plan.

Product/Service Description. A complete description of the product and/or the services offered by you should be outlined in full. It is of paramount importance to include a description of the overall market for your product and/or service along with demographic details for your expected customer base. The investors need to know the reach and the kind of customers your product/service is catering to.

Marketing Plan. A successful marketing plan will visibly demonstrate your sustainable competitive advantage to your investors. In this section, you should include a definitive description of your customers, market size, characteristics, growth prospects, trends and sales potential per product/service category. This is where the pricing strategies are outlined and how they can directly influence the growth potential of each product/service. It is also crucial to include the future growth, market share and trend influences.

A full business plan may run to up to 100 pages for a significant venture and even most banks will expect a document of approaching 20 pages before they are likely to commit any significant level of funding to your project. Don’t be afraid to seek advice, or professional advice.

[gabriel]

Sound advice, Paul.

I've been reading a couple of books this week that marry in with that. Apparently, any kind of planning is worth the time and effort. According to The Mind Gym, even if we are simply planning for ourselves and not an entire business, you can save an hour a day by spending 10 minutes planning.

In Go It Alone by Geoff Burch, there was some advice of a different kind. If you take your business plan along to your bank and don't receive the funding you expected, ask yourself why. After all, lenders are pretty free and easy with their money even if they don't see you as a sure-fire success. But if they are hesitant about letting you get your mitts on the money, maybe they have good reason to be.

[Paul Carcone]

It's always worth remembering when writing a business plan that YOU are the one who knows most about your business.

Of coure, it is possible to have a plan drawn up by a freelancer on Guru.com or eLance, but anyone who tells you that they can do it without some serious involvement from you is someone who has no clue what they are doing and you should not touch them with someone else's barge pole!

[happywriter]

Depending on the business, one can too involved in making the plan and not energetic enough about the business.
In a small start-up business it is essential to remain flexible - which might mean altering the business plan on a frequent basis. Keeping the business plan to the essential costs, turnover, and profits is a good idea - with the imputs that are necessary to keep within the limits.

[Iain]

The question is, do business plans ever go the way you expect them to?

[happywriter]

I have never heard of that happening yet, but is it is a way of figuring out where things went wrong in most cases.
Few business plans work out 100%, making them in the first place is a prime goal in many cases - it brings home the financial and practical realisations that are necessary.