Your cart is currently empty!
5 proven elements for a great business plan
Posted by:
|
On:
|
Discover these 5 proven elements for a great business plan
Starting a business? You need a plan!
Whether you’re starting a new business or launching a new product, you need a great business plan. In this blog, you’ll learn about the 5 proven elements for preparing a great business plan: Vision, Marketing, Finance, Operations and Risk. Preparing a comprehensive business that includes these essential tools that will help you succeed. Before you start, checkout The Story.
The Story… A Great Business Plan
Years ago, I met with a couple of university graduate students to talk about financing their startup business. They had recently won a very prestigious entrepreneurship competition, so naturally they were very proud of their accomplishment. These were really bright and intelligent people who were ambitious and hard working. I was really impressed by their “investor’s pitch” where they outlined the business idea, explained how their product worked and why people needed this product. Their product was new and unique in the marketplace, and I understood why they thought consumers needed this product but I was not convinced that the market would pay for their product. They were asking for a $1 million loan, so naturally, I wanted to understand the market size, adoption rate and sales projections and capital structure. In short, they were asking for a loan, but their business plan did not support the repayment without additional equity injected to cover operating costs.
The issue…
The issue really boiled down to equity versus loan. The product was so new, it was difficult to see how they would pay back the loan because their business would be burning through capital before they ever developed positive cash flow. Think Amazon, which lost $3 billion over its first ten years in business or Tesla, which raised $19 billion in capital from 2010-2018 and had $9 billion of negative cash flow. They were asking for a loan but in reality, they needed an equity partner.
The purpose of a business plan is not to justify the idea, product or service. The purpose of the business plan is to determine the viability of the idea, product or service. Too often, entrepreneurs fall in love with their idea and aren’t realistic about how to launch their business. The idea may be great, but the question is does the entrepreneur understand the barriers to entry and does he/she have the ability and tools to execute their plan? Capital is always a factor when launching a business, whether it is a mom and pop ice-cream parlor or an ecommerce site. The business plan should identify the strengths, weaknesses, opportunities and threats (SWOT). If the weaknesses and threats out weigh the strengths and opportunities, the entrepreneur needs to add real compensating factors which can be used to strengthen the business. The key to planning your business is to be realistic. Don’t let unbridled enthusiasm push you into launching your business when you really aren’t prepared for success.
Starting a Business? Down load the SMART START Guide!
Hey, want to learn more about starting a business? Click below to receive your free copy of the five-part series: “Smart Start – The Essential Guide to Starting a Business”.
This 5-part guide is absolutely FREE.
The 5 Proven Elements Every Great Business Plan Should Include
1) A Clear and Compelling Vision makes a great business plan come to life!
Why do I need a business plan?
Your business plan should instantly answer: What do you do, and why does it matter? Too often people start a business without answering some basic questions, which if addressed up front will help them be successful and avoid disaster. When doing your research, you may get some assumptions wrong, but the process of planning your business will help you identify risks, opportunities, and your strengths and weaknesses. Your business plan is a tool that should be used throughout the life cycle of your business. Think of it as a living document that you can amend and change as your business evolves.
2) A Deep Understanding of the Market is essential for a great business plan.
Answer the who, what when, where and how about the market.
Know your target customers, competitors and industry trends. Back your claims with real data. Show why your business will win customers over existing alternatives. A good business plan should help you evaluate the viability of starting your business, and understand steps you need to take to affect the greatest possible success. You should enter into the process with an open mind and open to change. When you start this process with an idea, it may morph into something wonderful or not. Understanding your market and keeping an open mind will help you identify the best course for your business.
3) A great business plan must include a Realistic Financial Roadmap.
The financial analysis should tell a compelling story
Planning for success is not an accident. You need to ask the hard questions now before you’ve committed yourself, your family and your fortune to a half baked idea. Include detailed, honest projections – revenue forecasts, expense estimates, break-even analysis and cash flow projections. Most importantly, ensure your funding request matches what it will actually take to become sustainable. The SBA website has excellent resources to help you build your financial plan.
4) A Scalable Operational Plan helps you in the future
Your business plan is a document that will change and adapt
Explain how you will operate the business. This section should include an organization chart and identify and define specific roles for each employee. Who is the management team? What is their experience? How many employees will you have? When will you be open for business? How do you deliver your product? Lay out the how — your supply chain, production, staffing, and technology. Show that your business can grow without breaking under its own weight.
Thinking of starting a business?
Download the Smart Start Guide and get started today!
5) Put the final touch on your great business plan with a Thoughtful Risk and Contingency Strategy.
Your plan is an internal risk management tool
You should try to identify risk and mitigate it with your business planning. Address the what-ifs: delayed launches, supplier issues, slower adoption. Having a backup plan shows foresight, which builds investor and lender confidence. Utilizing tools like a SWOT Analysis will help you to identify blind spots so that you aren’t surprised when sales don’t materialize as anticipated.
A Great Business Plan… The Rest of the Story (continued from top)
The young entrepreneurs had a compelling story, albeit they needed more capital in order to open their services on a national scale. After my initial meeting with them, I did a deep dive into their business plan. The entrepreneur’s vision was to sell a service that made it easier for businesses to incorporate online in any state. Their market analysis identified that people were using similar services on a state by state basis. Their analysis showed that people preferred using an online incorporation service and were readily adopting it where available. The business plan was great, because it included realistic financial projections that included a best case, worst case and probable analysis. Not only that, they’re their operations plan was scalable, it identified growth benchmarks and plans for each benchmark. Lastly, their business plan identified risks and contingency strategies. We agreed to meet again and discussed scaling the business so that their cash flow would meet operational expenses while they were growing and looking for an equity partner.
The bank came back with a counter offer to finance their business based on scaling it and managing their line of credit through a loan agreement that included cash flow benchmarks. Initially, the line of credit was $250,000 and had a mandatory resting period within 12 months, meaning that the line of credit had to be paid down to zero for at least 30 days during the twelve month cycle. The entrepreneurs worked hard and they had invested everything they owned into this business. They ran lean and clean while they built the business and sought equity investors. Over the next couple of years, the business grew exponentially as did the line of credit and amount of equity investment. The entrepreneurs used and updated their business plan on an annual basis. Ultimately, I believe their great business plan helped them earn millions and eventually led them to exit with a huge bonus, selling the company for $25 million.
Start Your Business Today!
Thinking about starting a business? Download SMART START The Essential Guide to Business Planning and get the tools you need to help you plan your business! IT’S FREE, No cost, no obligation.
This 5-part resource guide will help you kickstart your business plan. Here is what you get in the SMART START Guide:
- Part 1: Conducting Market research and Competitive Analysis
- Part 2: Preparing Financial Projections
- Part 3: Understanding Legal Business Structure and Opening Business Accounts
- Part 4: Building Your Business Plan
- Part 5: Understanding Funding Options for Small Business
By following this guide, you’ll gain the tools to make informed decisions, improve your chances of success, and build a thriving business. Don’t wait, get it NOW
© First Street Processing. Save Money, Save Time, Grow Your Business – FSP: In-store, Online, Mobile.
