Personal Finance

Improve business plan skills to increase your firm’s profitability

Businessplam

Business plans can be a critical driver of growth. Business Plan is to a new business what a stethoscope is to a doctor. It quickly tells you the pulse of your new business idea and whether it is headed for success or failure.

Studies have established that firms that write business plans and use them to manage their business grow 30 percent faster than thosethat do not.

Existing businesses use them to reinforce strategy, establish performance metrics and manage goals. A business plan can also be used to track results and plan resources.

Business plans help companies identify their objectives and remain on track. They can also help them start and manage themselves, and grow after they are up and running. They also act as a means to get people to work with and invest in the business.

Other benefits include a chance to test the product or service and the opportunity to think through an idea before sinking too much money into it.

For existing businesses, a robust business planning process can be a competitive advantage that drives faster growth and greater innovation.

Business plans in existing businesses are dynamic tools that are used to track growth and spot potential problems before they derail the business.

However, the sad truth is that most organisations start working on projects on gut feelings and without preparing a single business plan. No wonder at times disaster strikes and we all look surprised and wonder when the rain started beating us!

Many business people think of business plans only when starting a new business or applying for business loans. But truth be said, every company needs a business plan. However, writing a business plan does not guarantee your success.

You extract maximum value from your business plan when you use it as an ongoing management tool. When you are running a business, you are learning new things every day.

You get to know what your customers like, what they do not like, which marketing tactics work, and which ones do not. Your business plan should be a reflection of those learnings to guide your future strategy.

Therefore, yourbusiness plan must be constantly revisited and revised to reflect current conditions and the new information that you have collected as you run your business.

An excellent business plan is the starting point to achieving breakthrough performance and results.

There are critical preliminary issues to address before one starts preparing a business plan. You need to think about who the audience is and what the goals of your plan are.

Plans that will never leave the office and are used exclusively for internal strategic planning and management purposes might use more casual language and might not have much visual appeal.

On the other hand, a plan that is destined for the desk of a top executive will have a high degree of polish and will focus on the high growth aspects of the business and the experienced team that is going to deliver stunning results.

Investors invest in people who will implement the good ideas, so it is critical to include biographies of key management team members and how their background and experience is going to help grow the company.

A business plan should be concise so the reader will want to get to the end. A business plan should be simple, short, and easy to read. All of the information should fit into a 15 to 20 page document.

If there are crucial elements of the business plan that take up a lot of space, they should be referenced in the main plan and included as appendices.

What sets your business plan apart is having four key things that must be well defined, outlined and comprehensively laid out in the plan namely, a compelling executive summary, financial model, risk mitigation milestones and why you are uniquely qualified to succeed.

Executive summary

This is your business’s calling card and is your first chance to make a first impression. It needs to be succinct and hit the key highlights of the plan. Many potential investors will never make it beyond the executive summary, so it needs to be compelling and intriguing.

The executive summary should provide a quick overview of the problem your business solves, the business’s target market, key financial highlights, and a summary of the management team. Keep the executive summary short with a flow to hook the reader to continue reading.

Financial Model

The financial model enables a business to project how much money is needed to run operations and growth and when the money will be needed. It lays out projected sales, costs, expenses, and timing of payments, personnel plan, profit and loss statement, cash flow statement and abalance sheet.

In developing the financial model and projections, and especially when one is looking for an investor, there is every temptation to include a very rosy picture of good sales and lean costs.

However, this will most likely place you in a coalition course with your investors. Business plan developers should maintain financial prudence and remain realistic and alive to the fact that the first few years will not be very comfortable. They must remember that costs have the tendency to be higher than anticipated and sales lower than expected.

Therefore, the plan should strive to draw a clear picture of the costs and draw backs that come with each important decision and keep realistic revenue forecast.

You will be doing the right thing if you factored above scenario in your model and if the result is still positive then you are staring at a very good business with excellent prospects.

Risk mitigation milestones

Most startup businesses and projects fail because they fail to factor the risks that might humper the successful implementation of an otherwise well thought out plan.

This could either be production strategy that did not factor competitive pressure, or a marketing strategy with a weak route to market or dysfunctional channel approach.

Look critically at all the things that could go wrong. Do not muzzle them in fear of scaring potential partners. Be truthful and realistic and your partners and financiers will respect you the more.

It is rather embarrassing if your partners start pocking holes into your plan by specifying risks that the business will definitely be exposed to, but which you failed to identify and prepare respective mitigations for.

Unique value proposition

To succeed a business must be able to leverage on its unique strengths that will enable it take maximum advantage of the opportunities the environment presents.

In this case, the business plan is focused on explaining what the new company is going to do differently and better, how it is going to accomplish its goals, and most importantly, why the management team are the right people to deliver the strategy.

Use a SWOT model to analyze the strengths and opportunities that the business can easily take advantage of. Highlight these as the key success factors and develop unique value proposition that create unique competitive advantage for the company.