For people who are in the very beginning stages of starting a business – whether it’s a small freelance business from home or a new business with an office and an initial pool of employees – a professional business plan is essential. It is a roadmap, an outline, a document that explains what your business is, what the goals of the business are, and exactly how those goals will be achieved. So the business plan is a document that defines your business as a whole. But what does such a detailed analysis of your business actually do for you?
A formal business plan is necessary to show all interested parties – banks, government offices, employees, investors, partners and yourself – that you are committed to building the business. Creating your plan forces you to find strategies to grow your business, think through existing methods, and critically examine structures.
The business plan should identify all milestones that are important to the long-term success of your business. To paraphrase Guy Kawasaki: A milestone is an event significant enough to tell your spouse about (without boring him or her to death). Would you tell your spouse at home that you revised the company brochure? Probably not. But you’d certainly share the news that you launched the new website or hit annual sales of a million.
Creating the business plan forces you to analyze the competition. All businesses have competition in the form of direct or indirect competitors and it is critical to understand the competitive advantages of your business. If you don’t currently have competitive advantages, this analysis will help you figure out what you need to do to gain them.
Why do they buy when they buy? Why don’t they when they don’t? A thorough customer analysis is essential to an effective business plan and to a successful business. By understanding your customers, you can not only develop better products and services for them, but also reach them more cost-effectively through advertising and targeted communications.
The process of actually writing the business plan helps bring previously “hidden” assumptions to the forefront. By writing them down and evaluating them, you can analyze them for validity. For example, you may have assumed that local retailers would carry your product. If this scenario did not occur, you can evaluate these outcomes in your business plan and better assess future risks.
How good is this opportunity? The business plan process involves researching your target market as well as the competitive landscape and serves as a feasibility study for the success of your venture. In some cases, the result of your planning will be to implement the venture unchanged. In other cases, the result will differ from your planning. Occasionally, it may even be necessary to bury a project and proceed with another idea that has a better chance of success.
How exactly will your business make money? This is an important question to answer in writing for yourself and your investors. Documenting your revenue model will help address challenges and assumptions related to funding your business. As you read your business plan, investors or entrepreneur friends may think of additional revenue streams that you can consider.
Will my business need to raise capital? If so, how much? One of the purposes of a business plan is to help you determine exactly how much capital you will need and what you will use it for. This process is essential to raising start-up capital and using your financial resources effectively. In addition, planning ahead gives you financial certainty for the future.
A formal business plan is the basis for funding proposals. The business plan answers investors’ questions such as: Is there a need for this product/service? What are the financial projections? What is the company’s exit strategy? Investors will usually want to meet you in person before they write you a check. These meetings will often include a request for a business plan to be submitted for review.
In addition to start-up capital, companies often need money during the growth and expansion phase. This is used, for example, to establish better accounting and management systems, introduce new products or services to existing markets, or expand the existing business to other markets and types of customers. With a constantly updated business plan, you have a much better chance of getting the money you need to keep working or expand. Investors and financiers always look at a borrower’s risk of default. Word of mouth is not enough to convince your lenders of your creditworthiness. Rather, let facts and figures speak for you by presenting a properly formulated business plan.
Making the wrong business decisions costs time and money. The business plan writing process helps minimize these opportunity costs. Evaluate and compare the attractiveness of a particular opportunity early in the writing process – this can save you from costly bad decisions.
What are the major trends in your industry? What are the biggest threats? Is the market growing or shrinking? How large is the target market for your product/service? In any case, creating the business plan will help you both gain a broader and deeper understanding of your market and use that knowledge to make informed decisions to ensure your entrepreneurial success.
A business plan is necessary to attract and retain top-notch employees and talent. The business plan convinces employees (and management) that your business idea is sound and that the company will achieve its strategic goals. Your employees will get a concrete idea of the business concept, which will motivate them to join. It is important to remember that as your business grows, it is your employees who will do most of the work, not necessarily you. Therefore, involve them in your plans and long-term plans and strengthen the team spirit.
The business plan is a roadmap with which you operate and which you can use as a guide in times of doubt. Without a business plan, you may constantly change your short-term strategies and quickly lose sight of your long-term milestones. You would never go on a long road trip without a map or Google Maps; think of your business plan as just that map to guide you to your destination.
A business plan is also welcome by potential business partners, because it shows whether a partnership or even a merger of the companies is worthwhile. Building partnerships often takes time and capital, and companies will be more willing to partner with your company if they have a detailed explanation of your business methods.
Creating the business plan helps define your company’s role in the marketplace. This definition allows you to succinctly describe the business and position the brand to customers, investors and partners. With the insight into the industry, competition, and customers that you gain during the business planning process, you can best determine how to position your brand.
A formal business plan allows you to compare the actual operating results of your actual business with the theoretically projected results. In this way, you can clearly see whether you have achieved your strategic, financial and operational goals (and why you have or have not done so).
Changes in the market can have serious consequences for a company. To make these effects more predictable, it pays to forecast potential fluctuations already in the business plan and to develop contingency strategies. If you are already in a crisis, for example because your current sales and operating models no longer work under the difficult economic conditions, you can also revise or even rewrite your business plan. Define and validate strategies in it that could help you out of the emergency situation.
How will you reach your customers? How will you retain them? What is your advertising budget? What price will you charge? A well-documented marketing plan is essential to growing a business. And the marketing strategies you use will evolve each year. Therefore, it is important to revise at least the marketing analysis and marketing planning portion of a business plan annually.
Your business plan also provides you with a roadmap for your staffing needs. It is not uncommon for companies to find themselves understaffed after completing their business plan. Such a shortfall is not dramatic, as long as it is identified in time, because it takes time to recruit and train good employees. Moreover, those who understand their company’s staffing needs and can forecast them well can expand smoothly.
Brainstorming, whiteboarding or creative impulse questions can help you see your business in a new light. You’ll come up with new ideas for marketing your product or service and running your business. Coming up with and implementing new ideas on a regular basis makes a serious difference between a business that is merely surviving and a business that is thriving. So having a business plan or talking to a professional business advisor not only helps new entrepreneurs enter a field of business, but maintains the momentum and relevance of an existing business.
If you need a professional business plan for your (future) business, in most cases you will get a grant from BAFA, the Federal Office of Economics and Export Control. Contact us – our experienced consultants will be happy to help you with your questions.