The Strange Thing About Business Plans Is…

In my world of financing, nobody reads business plans. No one has time.

So why do you hear the term thrown around so often?

Because by writing one, the founder gains clarity by getting granular about every aspect of their business.

The full business plan (BP) is essential for the founder, not the outside world.

What do investors read then?

I recently answered some questions by a business owner looking to create a full business plan. He’s part of a community of entrepreneurs I belong to (more on that in future emails). Here are some of my answers…

• Should I use a pre-designed template of any description?
  I don’t believe it’s hard to find templates, either in hardcopy or online these days, but ultimately you have a unique company. You need to know what’s important for you and which sections demand the most detail. If you’re creating a geographical or business unit expansion, this can be a separate document but should refer back to your original BP. Similarly with a new detailed marketing strategy. The detail gets put into the appendix; the summary goes into the appropriate section of the plan.
• What topics should I cover?
  Once again, the topics you should cover will be unique to your industry and your company. I would not take a one-size fits all approach.I would keep it short and to the point. In my opinion, once you start thinking through the financials your topics will present themselves. That is, market size, competition, your target customer, pricing strategy, margin analysis, product segmentation, risk analysis, etc. More general topics include governance, values, history and structure of the company, legal considerations, etc. Although more a business school term many people like seeing a SWOT analysis. (Strengths, Weaknesses, Opportunities, Threats) – personally I think this type analysis is useless, unless you’ve never thought about it.
• How long should I allow for me to write it?
  As long as it takes for you to be confident that you fully understand your business and can confidently project numbers 3 years out. It is critical you have well reasoned assumptions. If someone drills you on your plan (think Dragon’s Den/Shark Tank) and they can poke massive holes in it then you need to keep working on it.
• How detailed do the financials need to be? How far into the future should I try to forecast?
  5 years for a mature company. 3 years for a start-up as a general guideline. The one thing to know is that your projections for a start-up will be wrong. Every investor knows this .The important thing is that you have clear assumptions – you will be scrutinized in painful detail as the investor looks for gaping holes in your thinking.I would be as detailed as possible with your numbers so you understand the drivers of your business. Also include a scenario analysis: worst case / average / best case.
• Should my marketing plan be separate from my business plan?
  I’ve seen marketing plans in business plans. However, you don’t want the main body of the BP to be too long. Since, your revenue growth is driven by your sales funnel, which is driven by your marketing strategy you should have a very detailed marketing plan in the appendix. Put an executive summary of the marketing plan into the main body of the BP.The key point is that a BP should be for you and be a guiding document in the weeks, months and years ahead. It helps you to set goals and objectives and make decisions about new opportunities. It will help you to say ‘no’ to things that could otherwise take you away from staying focused on your main objectives.Regularly go back and retest your assumptions. This is a flexible document that should incorporate the newest information.