Business Plan
More and more often one can hear that the era of business plans is over, especially in innovative ventures and startups. Some people say that they are a fortune teller and are unsuitable for today’s times. Right? Definitely not. A business plan is still an essential element in effective company building.
The essence of a business plan
A modern business plan is primarily a well described financial model showing the business potential of your ideas and how you intend to implement them. It contains both a numerical summary of how much cash you want to generate and how much you want to spend, as well as a justification of what these figures are based on.
In short, the business plan will show you what you want to offer your customers, who they are, how many they are, why they will take advantage of your offer rather than your competitors, who intends to do so and how, and what are the risk factors that could lead to failure.
The business plan will show your vision and how you intend to turn your concept or start-up into a business.
Why a business plan?
First, it is a starting point. It allows you to gather thoughts and data whether an idea has a chance and potential to generate profit. Of course, this is best verified by the market.
However, it is often enough to have a market insight in order not to waste time and money creating something that has no potential to bring profit. It is important that entering the market with a new product or service is the so-called educated guess, and not a blind eye action.
Secondly, it allows you to manage your business as it represents a common vision of your managers and shareholders about your business. The business plan requires planning the necessary expenses to achieve the assumed and realistic (although ambitious) goals.
This makes it possible to determine the demand for cash, the number of people needed to work, etc. Another important point is to check whether the actions taken translate into the intended results and modify the action strategy.
Thirdly, having a financial model allows for analyses of “what would happen if” – that is, considering different scenarios. For example, will the idea still have business potential if it turns out that the cost of the client is 100% higher than you assumed? These analyses are needed by you and your investors alike.
And ultimately, having a business plan and financial model is essential when looking for external financing, especially for venture capital funds. It allows you to assess both the potential of a business project and the ability of the originators to implement it.
Elements of a business plan
Before we present you with a list of elements that a business plan should contain, we would like to share some general, almost philosophical remarks with you. The business plan has to be concise, but if possible short. Secondly, the business plan must be both visionary and firmly embedded in reality. Therefore, only relevant information must be written in a clear, consistent and logical way.
Below are the main points with a brief explanation:
1. SUMMARY
You could risk saying that this is a key part of the business plan. If it is written incomprehensibly, it will discourage you from getting to know the details of your business.
2. DESCRIPTION OF THE COMPANY AND THE TEAM
This section should provide basic information on: the form of business, the history of public and private funding acquisition, as well as the ownership structure. It is very important to describe the management team – their competences, experience and responsibilities.
3. DESCRIPTION OF THE PRODUCT/SERVICE
The description should include what your business is about, what customers’ needs are satisfied, what are the substitutes. It should also describe further development opportunities and the stage at which the solution is currently being developed. It is also worth giving without unnecessary details, which technologies and production methods you use.
4. MARKET
The description of the market is a representation of the environment in which you will operate: whether the market exists at all and people are aware of the need you want to satisfy or just need to create it, what the competition is, who your customer is, how they make decisions, how sensitive they are to price, etc. Other factors to analyse are entry barriers and legal requirements.
5. MARKETING
This point is an explanation of how you want to win customers, why this way and how much it will cost.
6. BUSINESS MODEL
In this section you should discuss how you will earn money and what costs you will incur to do business. You can use the Business Model Canvas or Lean Canvas to better illustrate your business. Some of the information you will need to do this will already have been gathered by preparing the previous points.
7. TIME OF ACTION and MILITARY STORAGE
A schedule is nothing but a plan when you want to achieve your next goals and how much time you need for the next phases.
8. FINANCIAL PLAN
A financial plan is actually an expression of the idea of creating business in numbers. Remember, forecasts aren’t “sucked out of your finger” numbers. They must be supported by knowledge of the market you want to operate in. The three most important items to forecast are income, costs and investment expenditures. You also have to take into account possible financing tranches. With this information you are able to check whether your business will earn money.
At this point it is also worthwhile to do a scenario analysis and prepare a financial plan with different assumptions about the amount of each item.
Correct expectations and plan changes (business)
It is often argued that it is not worth making a business plan because predictions do not work anyway. They don’t have to. It is not the numbers that are the most important, but the justifications. What is important is how you are going to achieve your planned revenues and what costs you have to incur.
But if you show that you are basing your prediction on a deep understanding of the market, competition and customer needs, that is another matter.
In order to fulfill its function as a signpost, a business plan must be dynamic. Along with subsequent stages of your business development and subsequent iterations in product or service development, it should be modified. This allows you to see how changes need to be made and how they will affect further business development.
