Everyone loves to hear entrepreneurial success stories and to imagine the eureka moment that will change their world, but the bite-size versions told in the press and at networking events rarely mention the extensive planning, testing and adjustment that goes into building a business.
We spoke to Enterprise Nation, a network of small businesses and business advisers, about the reasons why you should write a business plan, what it should include and how to use a business plan once you’ve got it. Here’s what we learned:
Writing a business plan is the first, and best, opportunity to get ideas out of your head and on to the page. It’s important to put your excitement aside as you write; passion is vital to the success of a start-up, but you need to establish whether that great idea can actually become a success before investing your time and money (and before you ask anyone else to).
Ask yourself why you are starting this business; do you want a better work-life balance? Are you trying to change the world? Protect the environment? Shake up a longstanding industry sector? Whatever your motivation, writing it down will help you to focus as well as provide a definitive stance that’ll help take on major decisions moving forward.
There’s no one to report to when you start your own business. While this freedom is a huge part of the appeal for most entrepreneurs, the lack of accountability can cause difficulties – that’s where your business plan comes in. A business plan allows you to sense-check your own decisions, define goals and set targets that you can measure yourself against.
Both banks and private investors will ask to see a business plan before considering you for funding. You need to show you have a solid plan, can justify intended spending and know exactly what needs to be done in order to succeed. Writing everything down will allow you to present your ideas with precision and clarity, and arm you with the confidence to share your vision with other people.
At the very least, a business plan must include 5 key things;
An introduction to your idea, outlining what you plan to do and how you’ll do it. In this section, you should talk about the problem your business solves and the key differentiators that set you apart from the competition (your USP or ‘unfair advantage’).
Research the market you’ll be working in; industry size, customer segments, customer needs, key trends, competitor activity, materials and service suppliers, regulations etc.
How do you plan to reach your customers? Think about website design, SEO, PPC advertising, social media (paid and organic), PR, email marketing, direct mail, content marketing, industry events, print and digital advertising, strategic partnerships, sponsorship opportunities and/or influencers. Decide the channels most suited to your audience, product and budget, and focus your attention there.
Think about the people you will need to make your start-up a success – employees and freelance contractors, outside agencies (marketing, design etc.), lenders, investors, mentors and any friends/business contacts who can help you along the way.
It is essential that you provide a detailed cash flow forecast, showing the money you’ll need to spend at the outset (start-up costs), what you expect to earn from customers, and the ongoing overheads for the business (running costs) like employees, physical storefront and/or office space, storage, computers and phones, software, machinery, materials, R&D, metrology and inspection, logistics, marketing and advertising. This will show both the initial viability, and ongoing sustainability of your business idea.
There’s a number of options to choose from when deciding the right format for your business plan, and it’s likely you will end up needing more than one. For example, the business plan you use internally will be much shorter than one to share with investors, lenders and other external parties.
To begin with, you will need to make some assumptions (like sales and costs, which may change when you go from theory to practice). You can expect to include the 5 key points we outlined above but, depending on who the plan is for and how far along you are in building your business, the level of detail will vary.
It’s important to think about the format, and select the most suitable style(s) for your business needs;
Your initial business plan will help you to understand the viability of your idea. It’s likely this will become the plan you share internally but, for now, this is all about making sense of your vision.
There’s no point forming your business, or starting a plan to recruit your first hire before you know whether you can make your dream a reality, so start with the 5 points outlined above (executive summary, industry/marketing mapping, basic marketing strategy, people planning and finances). Once you have considered these, you should have a realistic view of the feasibility of your business – and more insight into the areas that will need work before you can begin.
If you intend to share this document, you will need to ensure it looks the part. Presentation will enhance credibility so make sure your plan is formatted well, looks professional and the information is displayed in a clear and concise way. Add logos or other branding (if you have these at this stage) and consider creating a cover page to give it a really professional look.
You might wish to include additional information like the founders’ CVs and relevant life experience if this will lend further credibility to your idea when sharing the document. If so, include these in your appendix.
Alexander Osterwalder invented the Business Model Canvas as a strategic management template for developing new business models (and documenting existing ones). The template consists of 9 blocks which form a visual chart;
Using the template, you can create and test your ideas, and make alterations based on these tests before launching your business. It’s a safe way to examine your ideas and a good place for any start-up to begin their business plan.
Designed to be as actionable as possible for lean start-ups, the Lean Canvas model, created by Ash Maurya, is an adaptation of the Business Model Canvas. Problem-focussed, this business planning method asks entrepreneurs to first establish the customer problems they intend to solve, and outline how their idea will achieve this.
Boxes for information seen as outside-in on the original Business Model Canvas (things like Activities and Resources that help investors and advisors to understand how the business will operate) are replaced by those highlighting high-risk areas the start-up needs to focus on.
This is meant to challenge your own assumptions and offer a snapshot of your idea – It’s a single-page document, not an in-depth plan.
Various lenders and investors (like the Prince’s Trust and Start Up Loans) have their own templates which they will expect you to complete. Before approaching any organisation for a start-up loan, research their requirements and be prepared to modify your business plan to suit their expectations.
It is almost certain that a lender will require significantly more detail than you will have needed for your initial business plan, particularly in respect of your cash flow forecast.
In short, no. A business plan will not ensure your success, but it will help you to establish your business goals and test your assumptions – critical to the success of any business. Beyond that, a well-researched business plan will show potential investors and partners that you are serious about your business, understand the risks and have carefully considered your growth strategy.
Think of your business plan as a living document; one that will change and grow over time. As we mentioned previously, you will likely need to create more than one version of your business plan depending on each audience and their needs. You will also need to keep your plan up to date and make adjustments as your business progresses.
Set reminders for yourself to ensure you return to your plan at regular intervals, and be prepared to make changes. Updating your business plan regularly will help you to stay focused on your goals, adapt where necessary and improve performance predictions.
Enterprise Nation is a network of small businesses and business advisers helping thousands of people achieve their goals. Whether you’re starting or growing a business, we have the resources, expertise, and connections to help you get it right.
Give us a call on 0203 871 2922, or visit our website www.enterprisenation.com
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12 Feb 2024
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