One prominent Nigerian entrepreneur caused a stir at a certain business conference for aspiring entrepreneurs where he was a guest speaker. At that conference, he told his mesmerized audience that he didn’t believe in writing a business plan.
One of his obviously confused wannabe entrepreneur in the audience stood up and asked…
“Sir, Did you mean that writing a business plan is not important any more?”
Some years back, everyone in that hall would have be alarmed at both the statement of our guest speaker and the question by that newbie.
No body would take you seriously if you were planning to start a business without writing a business plan, say ten years ago.
But things seems to be changing now. According to that guest speaker, he was able to raise USD5 million for his gaming business start up without writing a business plan? But what he didn’t tell his audience was that he prepared and presented an investor pitch deck to the would be investors.
Investor pitch has become popular because fund providers like Venture Capital and Private Equity Firms always ask for it. So it would seem that pitch decks are replacing business plans.
But it is not true. Pitch decks and business plans have their purposes and both are important depending on the user and purpose of the document.
Many are discouraged from writing a business plan because they think it’s too technical and requires a great deal of effort.
Writing a good pitch deck also takes a great deal of effort. As a matter of fact, everything that is in a business plan is also in an investor pitch deck. The difference is in the format of presentation.
Investor Pitch Deck
For the benefit of those readers who may not know, I shall briefly explain what investor pitch is here:
An investor pitch deck is usually a power point presentation that provides investors with a meaningful overview of your business. A typical pitch deck will cover points like your product, the market, business model, your team, financial analysis and monetization strategy.
The same issues that a business plan addresses. And the same amount of work, if not more. In a lot of cases both a pitch deck and a business plan are required.
Of course, there might be entrepreneurs who have succeeded without writing a business plan. It’s possible if the timing is right, and the entrepreneur has a great business skill and a good doze of luck. But the chances of failing are higher.
If I were that guest speaker, I wouldn’t make that blanket statement without qualifying it to let my audience understand the context I am coming from. This is important because writing a business plan is a very essential component in business planning and management processes.
So does it mean that without business plan, and entrepreneur will fail? No! However, planning your business startup in a systematic manner may mean the difference between success and failure.
Unfortunately many aspiring entrepreneurs or small and medium business owners don’t realize how important it is until they need to submit one as a condition for loans, grants or award of contracts,
But business plan is much more than what you write on an adhoc basis. It’s a very critical part of strategic planning.
This post explains why and how you should write a business plan.
What A Business Plan Is
It is a document which outlines the goals of your business and the steps that you need to take to achieve these goals. The benefit of writing a business plan is not in the document but in the knowledge that you gained about your business in the process of gathering information to write the plan.
Starting a business is a tedious process. It requires that you survey the market and have a prior understanding of of the challenges. Thus, it’s not just about how much you invested in your business. It is about how well you understand the challenges that may crop up in the process of running your business and how you should handle them.
A good business plan guides you all the way. It tells you how to structure your business, how much you really need, how to raise the money and how to grow your business and so on.
It also analyzed the feasibility of the business.
Importance of a Business Plan
Some of it have been identified in the previous paragraph. It is a road map that guides you through starting and managing your business.
Apart from that, it can help you get funding or bring in new business partners. It also helps you build confidence in your business and prepare you to approach investors. With your business plan, you are able to convince an investor that his money is secured. And also that he can reasonable returns for giving you his money.
How to Write A Business Plan
There is no right way or wrong way to write a business plan. Sit down, think deeply about all aspects of your business and write down the essential things.
Like how much you will need to start. How much you will need at a later date. How you will raise that money. What equipment or material you need. Where you will source them from, What you think may threaten your business and how you plan to overcome them, etc.
It doesn’t really matter how you write it! As long as it meets your need.
But if your business plan is going to be scrutinized by a third party say, someone develops interest in what you are doing and want to invest in your business, or you have a need to approach your bank for a loan or such other things; then , it does matter how you present it.
Such standard business plans follow a pattern. Here’s a guide to writing such business plans.
The essential components are:
- Executive Summary
- Business Description
- Market Analysis
- Organization and Management
- Product or Service Lines
- Financial Projection
- Funding Request
Now let’s take a brief look at each of these elements.
This is the first session of your business plan after the table of content, but it is actually the last to be written.
As the name implies, it gives a summary of the content of your plan. It should be about a page or two and should be comprehensive enough to summarize the essential points in the plan so that anyone reading is able to immediately understand what your business is all about and what you are looking for.
This is the beginning of your plan. Here, give an overview of what your business is all about and why you think it will be a success.
Highlight your mission statement here and give basic information about your product or service, business location, etc.
In this section, you give a detailed description of your business, stating the reasons why you think this type of business is needed at this time. State the problems or challenges the business has come to solve and how it will do that.
Identify the market, the consumers or companies your business will be serving.
If your company will be manufacturing a product, highlight the production process stating the equipment and technology to be deployed. Give accurate details so that whoever is reading will have an idea what is involved.
Your goal in this section is to show that there is a demand or market for the product or service your business will be offering. You will have to identify the competition, are there companies already offering this service, what are they doing right and what are they doing wrong. How do you intend to improve on what they are doing?
What are the gaps that your business is coming to fill and what portion of the target market do you think you can capture? These are some of the questions you must answer in this section.
Organization and Management
Here you give detail about how your company is organized or structured.
Is it a registered enterprise (one man business or sole proprietor)? Is it a partnership (limited or general) or is it an incorporated company (LLC)?
Also to be highlighted here is the management profile. Who will run the company and with who?
Include your organization chart to explain what you write in this section and to show how many people you will be working with you to run the company and what their individual roles are.
Product or Service Line
In this section describe in very great details the product you are going to produce or sell or the services you are going to offer. What is its life cycle?
Explain how it works, its users, its benefits and how it will help your customer.
This is where you do your cost analysis, capital and revenue expenditure estimates, profit and loss analysis and projected asset and liabilities positions.
You will use ratios to prove the profitability analysis and stress the investment case. Common ratios you will show irrespective of the type of business include: Returns On Investment (ROI), Gross Profit Margin, Net Profit Margin, Liquidity and current ratios, pay back, etc.
A five year analysis is preferred. It helps investors to form an opinion about the stability of the company. You will state how much you need to start the business here and how you intend to raise the money.
Your goal in this section is to tell your reader that the business is profitable and that investors should expect high returns on investment within a short period of time.
If you intend to approach third parties to invest in your business and for any kind of funding, this is where you state it.
State how much you will be needing, the type and funding structure, how the fund will be applied, for how long you will need and how you intend to repay.
Any supporting documents you want to showcase should be listed here. This will include CVs of key managers, list of equipment, invoices, organization chart (where it cannot be included in the main text), and licenses and permits you have and other such items.
your business plan is an important document. It is not intended to be discarded anytime soon. It is part of your strategic plan to which you make references from time to time to gauge if your business is running according to plan.
So take your time to write it. It doesn’t have to be a long document full of technical jargon or finance formula. But if you are preparing it for a third party use, then it must follow certain essential steps.
Where you cannot do it your self, outsource the writing to a professional. Even in that case, it is your document and you have to be fully involved in its development.