Although it may appear to be accepted wisdom that proper business planning positively affects business performance, a recent survey shows that two-thirds of small business owners run their businesses on gut instinct alone. There are several reasons for the failure of small business owners to plan, ranging from being "too busy" to feeling like they are doing fine without it. However, when I have engaged with actual and prospective customers on this topic, we invariably end up at the fact that writing an effective business plan is an overwhelming task and they are not sure where to start and what to do.
The lack of clarity in how to proceed combined with the fact that business owners and prospective entrepreneurs are invariably busy people means that the majority of business owners never meaningfully engage in the planning process. Fewer still complete a written business plan, except for those facing a pressing "business planning event" such as a loan application, presentation to an investor or a visa application which forces planning activities to become a priority.
Whilst many may consider the writing of a business plan a burden, we believe that creating a business plan for your small business is an opportunity to gain more control over your business, obtain a competitive edge and achieve your business goals. Virtually no other business activity has the power to propel your business as far forward as developing and implementing a robust business plan. Perhaps surprisingly, I am a huge advocate of business owners writing their own business plans, especially if you are writing it principally for your own benefit. As I have covered in another article, there are a few specific times when delegating the writing of the plan makes sense but no responsible business owner should completely delegate the planning process.
For those business owners and prospective entrepreneurs that are convinced that a business plan is a necessary tool but are wondering, "where do I start"?, I offer the following guidance in the hope that it will prove useful. The business planning process entails five fundamental steps. These are:
1. Laying Out Your Basic Business Concept
2. Gathering Data on the Feasibility and Specifics of your Project
3. Focusing and Refining the Concept, Based Upon the Data you Compile
4. Outlining the Specifics of your Business
5. Putting the Plan into Compelling Form
I will endeavour to outline each of these five steps in detail in this article.
The first step in the business planning process is to outline your basic business concept. With an existing business, it may be tempting to just skip this step but any attempt to improve future performance must first examine the underlying assumptions beneath your current efforts.
Typically, entrepreneurs get their inspiration from one or more of the following four sources: personal work experience, education or training, hobbies, talents, and personal interests or from the recognition of an unanswered need or market opportunity. Occasionally, the impetus may come from the experience of family and friends. The best business opportunities are normally found at the intersection of preparation and opportunity.
It is important to carefully evaluate your business idea before blindly committing the huge amount of time, energy and money that it will require to bring the basic business concept to life. Successful businesses typically incorporate at least one of the following elements:
Generally speaking, the more of these areas in which your company is strong, the better off it will be. If your company offers none of the above, you need to ask yourself how your business will be truly competitive.
With accurate information at your fingertips, you will be making better informed and thus better business decisions as well as be able to make a more persuasive presentation of your plans to a loan officer, potential equity investor or an adjudicating officer for your visa application. These "gatekeepers" of the finance or visa that you are seeking will use your business plan as the means to judge whether or not you have the requisite knowledge and exercise the due diligence necessary to successfully run your business so it is important to take the time to do your homework. If you are new to an industry, you will need to allow more time for this part of the business planning process so that you can truly educate yourself on the key issues of the industry as a whole rather than focus narrowly on finding the specific details that relate to your particular company.
With the internet, it is comparatively easy to get a great deal of information although more likely than not some of the critical data you will need is proprietary and only available behind a paywall if it is available at all. Do not try to be exhaustive in your research efforts. Stay focused on answering the key questions about your industry and business. At the same time, your research must be thorough enough to give you confidence that the answers you have seen during the data gathering process is accurate and from reliable sources.
The best way to start the research process is by stating the assumption which leads you to think your business idea is likely to be successful. For example, if your business is an online fragrance retailer that specialises in selling imported fragrances from the Middle East to UK customers, the statement might be, "There is substantial untapped demand in the UK for fragrances from the Middle East and most of these customers would be happy to buy from an online retailer rather than a physical store".
The next step would be to draw up a list of questions that follow on from and challenge that statement. In the example we are following, you might ask:
This list is, of course, illustrative and non-exhaustive. As you start to look for the answers to the questions that initially occurred to you, new questions that you had not previously considered will come to your attention and these will need to be added to the list and answered as well. Once you have found answers to all of the questions you have, it is time to use the information you have gathered to refine the basic business concept you outlined in the first step.
Once you complete your initial research efforts, but before you lay out the specific components of your plan, re-examine your basic business concept. Using the data you have gathered, check to see if your idea, as originally laid out in the basic outline, needs to be modified or refocused.
The business planning process is a learning process, so it is entirely appropriate for you to adapt your business in response to expanded understanding and new perspectives of the industry and the business opportunity in front of you. This point in the process is the time to ask yourself some hard questions such as:
You will invariably need to alter some part of your initial business concept in the light of these data-driven questions. Once you have made the alterations to the basic business concept, you are then ready to write a detailed business plan
Once you have gathered sufficient information to make informed decisions and have refined your basic business concept in the light of that information, the next step is to begin to actually write your business plan. The specific content of the plan will be determined by the intended use of the document and the specific people that will read it. However, there are some broad principles that we have outlined in other articles that you can use to guide you in selecting which sections to include and in which order you should approach them.
Developing a business plan is much more a business project than a writing assignment. Both the process of writing the document and the document produced can positively impact the success of your business. Unless you have a specific planning project to which you need to allocate time, the day to day issues of running your business or the rigors of your existing job if you are a prospective entrepreneur, often prevent you from thinking through the kind of issues you'll examine whilst outlining the specifics of your business in your business plan. The business planning process gives you a rare opportunity to significantly enhance your knowledge of how your company, market and industry work.
Once you have got everything down on paper for the first draft of your business plan, the final step will be to re-read and edit the document with a view to make it as persuasive and compelling as possible. This is especially important if the document is meant for the eyes of a loan officer or bank manager.
Experienced business plan readers generally spend the first five minutes reviewing the document in the following order.
These three sections must spark enough interest and inspire sufficient confidence to make the reader invest the additional time reading any other sections of the business plan. In other words, it doesn't matter if you have done a remarkable job of describing your world-beating product or service in the operational section of the document if you have done a poor job of the executive summary and financials as there is little to no chance that those sections will be read.
Funding sources are skimming these three sections looking for the answers to the following questions which are fundamental to the viability of an investment or loan.
Most readers of your business plan will give you about five minutes in which time they want to find the answers to these fundamental questions. If this seems harsh after all the time and effort you have put into the business planning process, please remember that even a moderately active angel investor probably reviews at least 5 business plans per week, whilst a medium to large scale Venture Capital or private equity company will analyse up to 1,000 business plans per year. A loan underwriter may be reviewing as many as 50 loan applications at any given time. They neither have the time nor inclination to wade through an impenetrable Very often, the person who will read the business plan will read many business plans in one often in one sitting so it is critical that your business plan is easy to read and compelling.
For me, the difference between the original basic business concept and the final iteration of the business plan is one of the clearest demonstrations of the value of the planning process. The basic business concept always undergoes some revision but is often completely different at the end of the business planning process. The process of writing a plan always refines and polishes the business idea at the heart of the plan and if there were no other reasons to write a business plan other than this it would be a very worthwhile exercise. Having owned several small businesses myself, I'm a firm believer in making my biggest mistakes on paper. They are a lot less costly that way.
As we mentioned earlier in this article, we are staunch advocates for business owners writing their own business plans but we are here for you if you want us to cast an expert eye over your own attempts to create a business plan or to take the strain of writing or updating a document that meets the expectations of its intended audience, whether that is a potential investor, bank underwriter or visa official. Feel free to contact us for a free, no-obligation consultation.