Introduction to business planning
Let me start by stating that I am writing this definitive, big-picture guide about how I believe you should approach the writing of your business plan from the standpoint of me being an entrepreneur, businessman, and investor.
I have been in your shoes as a start-up entrepreneur, a business, and looking to raise further capital and as an investor, I have reviewed many business plans that range from exceptional, to those that demonstrate that they should not be in the world of business.
You have taken the first step in your entrepreneurial or business career — you have an idea, but you have to now take it to the next level and get some cash to make that idea a reality…or you need some more cash to supplement what you have already plowed into your dreams.
It doesn’t matter and I want to help by giving you my input to help you achieve that success.
The first thing I want to get across to you before I even talk about how to write the ultimate business plan is that you must adopt the right mindset.
I am not talking here about simply having focus and setting aside time where you can concentrate without distractions, both of which are essential of course but getting into the mindset that the document you are about to write, is probably going to be the most valuable document you will ever write and that each word and page is crafted out of pure gold.
Many plans fall into the “cookie-cutter,” mold and are written out of necessity and most lack two vital components:
- A sense of pride
- And pure passion
Your plan will be read by all sorts of people who are involved in the decision-making process to give you funding or not, but at least as it stands today, they will be human, and each and every human has the same feelings and emotions.
I have written so many business plans in my career and mostly for financial institutions, but I have written for the private investment community also — even the most stoic financier will inwardly feel the emotion!
Yes, there are established formats for business planning and they should be followed as it is best to “speak the language” of the people you are trying to raise money from.
Put yourself out of business!
I want you also, to put yourselves into the minds of the people who are reading the plan — before, during, and after you have written it.
Be ultra-critical and take another one of the “Franklin maxims” – – try to “put yourself out of business.”
Yes, you read it correctly — I want you to actually set up in competition with yourself to try to do the exact opposite of what you are trying to do.
This is how you really test your ideas…and grow them.
It’s easy to write a business plan and especially with all of the advice and templates out there to do it, but writing the right plan, that will appeal to the hearts of the investors, just as much as the wallets are critical.
And it is going to transfer to the one group of people that the plan is ultimately for anyway: The target customers.
I am going to outline the steps to construct the ultimate business plan and I will walk you through each step, but I cannot get into your mind, or can I feel your passion, so that part of the process will have to be down to you.
Get into the mindset that this document you are about to write, is probably going to be the most valuable document you will ever write and that each word and page you write is crafted out of pure gold!
Related:
Growth Mindset: How To Develop A Powerful Mind
Business planning — Deep market research
Please note the word “deep.”
This is the most critical aspect of how to begin the business planning process and so many people simply do not spend enough time on this stage which is a shame, because ultimately they are reducing their chances of success, so don’t be one of them!
You do not want to scratch the surface because ultimately you will not have the right intelligence to deal effectively with your customers, but here, we are talking about the plan that will get you to those customers in the first place, so they go hand-in-hand.
The more time you spend on this phase, the better and you must do it justice. I know so many entrepreneurs who do the minimum and I am not just talking about the business plan here, I am talking about their entire business offering.
I always tell people not to “sell to themselves.”
Think about that statement for a moment and ask yourself a question — are you your best customer because you believe what you are saying and dare I say it…your own hype?
Or are you selling your product and/or services in relation to your deep understanding of your customers?
I meet so many people who are in the former category and it is hard to explain to them…in fact, it is near impossible. And I should know because I was one of them!
I “sold to myself” many times over in my career and it was only when a very sharp ex Creative Director of a well-known international advertising agency, who I was fortunate enough to be able to work with explained to me what I am telling you right now!
Get into an investment “frame of mind” when you research your business plan
It is now time to switch tracks and think like an investor and forget your business plan for the moment.
Just imagine you have been given a pot of money to invest in a random business sector that you know nothing about and you have to take an investment position.
What are the steps that you would take before handing over the cash?
I can tell you from bitter experience that you will give far more attention to investing in another business, company, or whatever than you will give to the thoughts of those who you are trying to get to invest in you!
I’m not trying to give you a hard time here, just to point out human nature as we are not the best species when it comes down to thinking about the other person’s point of view.
I, however, want you to be successful in your capital raise and I want you to leave no stone unturned during the process.
Let’s get to it:
- Start with the global economic analysis for your sector — here you are looking at the global economic “dominator,” the US economy. Don’t believe that your tiny ballet school in a remote part of the world will not be affected by the US economy, because if the US has an economic downturn, then the rest of the world will suffer. There are some great resources out there to look at the global economy such as this one here, which is simple to understand and gives you the basic idea.
- Now you need to get industry-specific — let’s now take a look at say the retail industry and go a stage further. You could now look at this site — this article from businesswire.com goes a little deeper.
- Now you have to go specific to get to the UK, for example — drill down further and look here, just to give you an example.
To build the overall picture, you need to have a past, present, and future view of the economy as well as your industry.
I can hear you all scream that you are not economic analysts so why bother?
Well, you need to be able to form an opinion and stand behind it — you are not just doing research for the sake of research, you have a purpose remember?
Investors back the qualities of research, innovation, and desire…but they also note the “opinion factor.”
When I review business plans, for example, I look firstly at the proposal itself and it doesn’t matter what format it takes.
I am looking for say, how much effort that has been put in…because that is a “given” and if that is not apparent, the plan is dismissed there and then. I am looking for that “edge,” that extra sense of effort that you can only “feel.” It’s the “something else” factor that you hear when you listen to an outstanding singer for example or when you simply look at someone that has pure talent.
You cannot put your finger on it, you feel it and it is all about the person(s) being able to stand behind what they have to say, to be able to have an opinion and back that opinion.
Anyone can gain and analyze that information, but few are prepared to take that information, form an opinion and stand by it and back themselves.
Fit your idea into the business planning research you have just done
This is an emotional part…trust me.
Just by doing the above will test your emotions — “is it the right idea,” “should I change it” and a host of other thoughts and feelings that will cast self-doubt.
If you don’t have these thoughts, then you should worry — over-confidence is a killer!
If you have followed my drift, then you will have probably put yourself into uncharted territory — you will be out of your comfort zone if this is new to you. Now I would like you to take a look at your ideas and really “push out the boat,” so to speak, and see where they fit in the market, and if they don’t, tweak them.
You are now going to “launch” your idea into the market — at least for now and this is where you have to bridge that gap between the idea you have come up with, against the reality that the initial market research has come up with.
Now think like a customer who is going to review that business plan
You have done the basic work and have built the foundations and now you have to “get out of yourself” for a moment and jump into the shoes of your potential customers.
This is very similar to thinking like an investor, only you are looking to go deeper and as an investor, you are looking for a financial return…but when you start to think like a customer, you will be going a step further — you will be investing in the company as a supplier and also looking at the impact the investment will have on your own customers.
The whole process is about taking your ideas and pulling them to pieces to see what will break, long before you take in any financial investment and this may well save you a small fortune, as well as a lot of heartaches.
Financials
Now we come to the serious part, but if you have prepared yourself well in line with the above, you will be more than capable of holding your own when it comes down to the basic viability of your business from an idea, sales, and marketing perspective, so now we come to the numbers.
The biggest mistake I see here is overconfidence — many startups are extremely bullish when it comes down to forecasting sales and not conservative enough when you get to the expenditure side of things.
It’s about making sure your forecasting is accurate (because with investment, you will be tied to the numbers) and also that you have enough expenditure controls to run the business, without strangling it.
I see two main start-up companies — those who are raising fortunes to spend fortunes, with the hope of huge financial success, and those who are so bootstrapped that they do not have enough finance to operate the business.
There is also the issue of how much money the founders are putting into the business and in relation to how much they wish to borrow.
All of these factors come into play when you are trying to produce the financials for your business plan and to keep things very simple focus on the following big-picture headings:
- Make sure you are conservative with your sales forecasts — it’s better to produce a lower, more achievable target that still allows you to operate the business from a cash flow perspective than it is to forecast huge numbers that may see you miss targets in the short to middle term, which will negatively impact cash flow.
- Control your expenses — don’t invest or incur any expenditure that is not to the direct benefit to the customer. Make sure your salaries are fair and in line with both the market and the fact that you are a start-up (if the case) and more importantly, don’t strangle the business when it comes down to operating it.
- Make sure you allow for the repayment of investor loans and as obvious as this seems, you would be amazed as to how many start-ups don’t.
- Make sure you fully understand the impact of any borrowings or investor requirements — you don’t want any surprises such as having your home on the line if the business fails and check the small print. When it comes down to accepting any investment and from any source, it is essential that you seek specialist legal advice.
- Make sure you look at any government and small business grants that are available and many entrepreneurs, including myself, have omitted this stage.
- Get a financial expert and a seasoned entrepreneur to check your workings and make sure you listen to their advice…they will have seen and done it all before.
I could write forever on the matter of financials and I have raised money personally from a variety of sources — I would have certainly done things differently if I were doing it all over again, and for me, it was all about not having the right understanding as to what I was signing up to, plus naivety
Don’t make my mistakes!!
I will stress it once again — get specialist help and it will involve some investment, but it will be a small price to pay in the long run and it may well save you a fortune.
Technology
In today’s tech-dominated world, it is easy to get caught out when it comes down to having the latest software and systems in an attempt to gain greater efficiency and save cash…but it can be a false economy.
Sometimes it is better to work with the bare minimum and focus more on maintaining the “human touch” when it comes down to working with your customers.
I see so many businesses that are “tech-heavy” and really who are investing in technology purely for the sake of doing so.
Take a look at this article — “Technology For Small Business Owners”, where I go deeper into the subject.
Remember — invest in what will make a positive difference to your customers and leave the fancy gadgets and unnecessary tech alone.
Risk management
It’s an area that many people shy away from and understandable, as you don’t want to put off investors before you start, so why would you want to highlight the negatives in anything?
Quite simply because your investors will have already done so and while they are aware that everything in business comes with a risk, they want to make sure that you are aware of the same.
There is a great acronym that has been around for ages in the business planning world…SWOT.
It stands for:
Strengths.
Weaknesses.
Opportunities.
Threats.
When you perform a SWOT analysis correctly, you are showing an understanding of the strengths and weaknesses of the business and it is a stage you should take very seriously.
I want to point out that while it is good to surround yourself with a veil of positivity, you can sometimes lose touch with reality.
Business is like life…things go wrong and it is just the way things happen — you want to embrace both the positive aspects of business and life, with the negative, and they are both required to ensure a balance.
Don’t be fearful of pointing out the negative aspects of your business plan and investors will thank you for it, plus it will keep your own perspective balanced.
The executive summary
This is the key to your entire plan and you must ensure that it is well thought out and if you have done the work I have recommended so far, you will have all the material you need to produce a killer executive summary.
Investors will look at your executive summary first and think of it like a PR campaign, that is looking to hook the reader and leaving them wanting more.
Take a look at this article from Inc.com, to get some ideas.
The executive summary as I said, must hook the reader from the first paragraph and then you build the story, explaining exactly what the business does, in laymans terms, why you are starting the business, what makes your business different from the competition and a brief outline of the investment required, plus how you intend to use it.
But remember…it is a summary!
Presenting your business plan
Now we come to the crunch — you have to put all of the hard work and effort into action and I have seen some fantastic business plans that have been totally misrepresented and mediocre ones that have flown through the first round of scrutiny and ended up getting funded.
You have to understand the mentality of the investor and what they are looking for and here are some of my thoughts:
- The ideal presentation from an investment point of view is when you have a well-thought-out business plan, that clearly addresses risk, has a strong leadership team, where the founders have a significant interest in the business, backed by their own cash and there is a clear exit strategy which may be in the form of a trade sale/flotation, or there are clear plans for the investors to recoup their initial investment, plus a good return for their money.
- Next, you have the above situation, but where certain parts are missing — the leadership team may not be the best, the founders are not able to put in enough cash because of credit/other problems…etc.
- You don’t need me to explain the other situations as we work down the list of possibilities.
How to present
It is vital that you spend plenty of time rehearsing your pitch to make sure that you do not end up wasting any time.
Time is money and you must remember that your investors will be judging you not only as to how you present yourselves to them but also your potential customers.
They will be vigilant on how you conduct yourself, so make sure you dress appropriately for your industry, and even if you are having a remote presentation, make sure you take care of the background surroundings and that your camera and mike are working OK.
At the end of the day there are 3 key questions that sit in the back of the investor’s minds and in no particular order:
- How much cash do you want?
- What’s in it for the investors?
- Do you know your industry, the market including the risks?
When you are structuring your presentation, you need to keep it as short and sweet as possible, but you must include the detail and this is where it can get tricky.
Too many presentations are long-winded and simply don’t get to the point — the first slide should answer the 3 questions and the rest of the deck should provide backup material.
Use the executive summary to structure your plan and make sure you don’t ramble on — it’s all about getting to the point and maximizing the time you have…be succinct and you must try to anticipate the objections and/or questions you may receive, so be prepared!
Remember, you are selling not only your business but yourself and your co-founders if you have any, so you must try to master the basics of salesmanship if you are truly serious about raising money for your business.
Related:
Sales training: The ultimate guide to help you become a key influencer.
Conclusion
Raising money to start a business is like anything else worth having in life — it’s not easy and even with the most unique of ideas.
But you have to remember that investors are extremely keen to invest because the traditional means of getting rich through stock market investments and receiving interest on your cash are offering fairly low returns and non-existent ones of you are talking about getting interest on your hard-earned cash.
So there is a huge appetite out there to invest and there is no reason why it should not be in your company.
The best piece of advice I can give you and it is central to everything that I talk about in the world of business coaching, it to make sure you do your research…do the homework.
The more time you invest in obtaining the right knowledge, the more dividends it will repay you.
If you need any help with structuring your business plan or fine-tuning it, then please get in touch with m
neiljcfranklin@gmail.com
Neil Franklin
Business Planning Entrepreneurship Start-up tips
Last modified: May 17, 2021
