Starting a new business can be a daunting task with many pitfalls along the way. Many new businesses fail within their first year of trading, while others struggle for 2 to 3 years before either giving up or breaking even. It’s certainly not for the faint of heart.
Starting a business can be one of the most rewarding endeavors you can undertake but to be successful in business it’s extremely important that you plan out your business model in fine detail.
Building a business from the ground up without having a solid business plan in place is a big mistake but having a business plan that is inaccurate or incomplete could hurt your fledgling business more than not having a business plan to begin with.
Fear not though, there are specific steps you can take while developing your business plan that will help you avoid the pitfalls that most businesses fall in to when first starting out.
A business plan won’t help you avoid every mistake there is to make but a well-structured business plan will certainly help you react and adjust to unforeseen and unpredictable situations more rapidly, while keeping in mind your ultimate business goals and objectives.
So here are my top 10 tips for writing a successful business plan.
Understand Your Business
Before you even begin to construct your business plan it’s extremely important that you completely understand your business idea, and in as much detail as possible.
If you don’t understand what your business is and what it offers then you won’t be able to sell your idea to potential investors, banks or indeed your customers.
This sounds like an obvious step in the process but it is one that is often overlooked by many new entrepreneurs.
Having an idea is simply not enough, you’re going to need to know exactly what products or services your business will offer, how you will sell these products or services to your customers or clients, how much you plan to charge and the location you plan to operate your business from.
This is exactly what the business planning process is for, to understand these details but it is a good idea to have a rough overview of what these are or may be before you begin planning.
Think about your idea over and over in your mind first before you begin to write down the details. Slowly build up a picture up of what it is your business does before you progress.
Research Your Market
It’s important that you fully understand your market before you even begin to write and structure your business plan.
You may find that there is far too much competition in the market for you to be able to compete, or perhaps there isn’t even a market at all.
You’ll need to understand your customers and their buying habits. How much disposable income do they have? What are their interests? What age range is appropriate?
Is your business seasonal? If so, what considerations will you make for times when business is slow and how will you manage these conditions?
You’ll need to know who your competitors are, and what they charge. What makes you different and unique? Keep this question in mind as you progress, as you will need it later in the process.
There are many things to consider during the market research phase and this is probably one of the most important steps, if not the most important step when developing your business model.
Understand the Numbers
If you’ve ever watched the TV series Dragons Den, then you’ll know that the one thing that the Dragons hate more than a lack of understanding of the market you’re trying get a slice of, is not knowing your numbers and figures.
The financials are very important. If you don’t have your numbers right then how do you know that you are going to make a profit, or purchase your stock at the correct price? Do you know the difference between Gross and Net profit? What taxes should you be paying? How much will be required for wages, utilities, office supplies, rent and stock.
You’re going to need to understand what is going to cost you money while operating and getting started, and offset these costs against your income. It’s so important that you get this stage correct. You’ll need to be as detailed as possible.
During this stage it’s important to be realistic too. Don’t over value your business.
When calculating potential profits, it’s important not to let emotions and excitement take over. Don’t fall in to the ‘This time next year Rodney’ trap. You may have the best business idea since sliced bread, and you may even be able to make millions in your first year but it’s important to be realistic. A good rule of thumb is to work on the lowest possible income values and work up. Start with a worst-case scenario and go from there.
Take a Wage
When constructing a new business plan a lot of entrepreneurs will often forgo taking a wage from the company in the hopes that this will help the business get off the ground during the initial stages without adding extra financial burdens. This is a mistake.
The fact is you and your family need to eat, pay the bills and enjoy some leisure time.
Not taking a wage will cause unneeded stress in your personal and professional life, and this is a key indicator to investors or banks that you’re not in a position to run your business properly.
You don’t have to take a ridiculous amount of money, just make sure you can cover what you need to cover. Taking a wage and making sure that it is factored in to your business costs will show interested parties that you are serious about what you are doing.
Understand Your Business Structure
Every business is structured and managed differently. It’s important that you understand how your business will be structured. What type of business will it be? A partnership, a limited company or are you a sole trader. Who will play the key roles in the business? Who’s responsible for sales? Who’s responsible for marketing? Will you have employees?
These are all important factors to consider and get nailed down. Knowing who is responsible for doing what will make life a lot easier.
It’s also very important to know how shares in the business will be divided if you’re a partnership. Have any of the partners or you invested capital in the business and if so how will this be accounted for?
Stand Out from the Competition
If you’re entering an already established market sector it’s important to show how you will stand out from the competition. How will your product or service be unique or different from the offerings of your competitors?
Perhaps you can offer a lower price, or a better quality product. If you’re providing a service perhaps you can achieve the same results as your competitors but with a faster turnaround or a more streamlined process.
You’re going to need a great unique selling point (USP) in order to differentiate your business offering from that of your competition.
Understand Your Product
You’ll need to fully understand what it is you offer in terms of products or services, and you’re going to need to communicate your offerings in a way that attracts potential investors and customers.
Remember, you’re not selling features; you’re selling solutions or benefits. Once you have a clear grasp of the details of your products or services, sell them on the solutions they provide to customer problems, and not on the features they have.
What problems exist that your product or service solves? Have you hit upon a common problem that exists but one that currently has no good solution? If so, does your product or service solve this problem? Sell the benefits not the features.
Features are attributes of a product or service. For example, if you’re selling mp3 players, saying that an mp3 player has 16gb memory capacity is a feature. It gives the customer an idea of the products specifications but doesn’t tell them the benefits of that specific feature. If you tell them that this will allow them to store 100,000 songs, that feature now has a clear benefit and the customer will know that they will be able to carry their whole CD collection in their pocket while on the move.
Know the Purpose
What is the purpose of your business plan? Who are the intended audience?
If you’re looking to gain funding for your startup, then you will need to tailor the plan towards investors or banks.
If you’re going down the investor route, it’s important to understand that they will have different interests when compared to banks. Banks will want to know the same information in terms of your profit and loss details but their overriding concern will be whether you will be able to keep up repayments on any loan you get, while investors will be interested in the longevity of your business model and how fast they can expect a return on their investment.
If you’re not in the market for funding, perhaps you’re pitching your business at retail outlets that you want to stock your products.
The key point here is that you should tailor each iteration of your business plan to the audience you’re engaging with at that time.
That said it’s important to have a complete and comprehensive business plan that covers everything too.
Grow and Set Goals
A business plan isn’t a one-time exercise that you use for the purposes of gaining funding or achieving a specific goal. A business plan is an important internal business document that should grow and change as your business does.
Keep your business plan up to date with everything that is going on with your business, this will help you plan for the future and you will always have a comprehensive, structured document that will help guide you as you progress.
It’s also important to set realistic goals and objectives for your business to achieve. Spread these over a 3 to 5 year period and be realistic in your expectations. This helps map out a clear direction and focus for the business.
Working towards goals and objectives, helps you structure your business activities in a more focused manner. If you always have your next goal in mind you’ll always be thinking of the steps required and the best approaches to getting to that goal, constantly pushing your business forward.
You don’t always have to achieve your goals but simply having them in place will help you to focus your efforts and the efforts of your employees.
A Killer Executive Summary
If you’ve ever written a business plan before or used any sort of business planning software, you’ll probably already know what an executive summary is. For those of you that don’t, an executive summary is an overview and summary of your entire business, detailing in short all the aspects of your business idea. It’s an important part of your business plan and should be shown first in the completed document.
Most business planning tools show the executive summary first in the process though, and new entrepreneurs often get stuck at this stage and for good reason.
If you try to write your executive summary before you have completed the rest of the process, you won’t understand all the necessary components in order to write a killer executive summary. So leave this part of your business plan until last. Come back to it later. If you do you’ll have a greater understanding of your entire business model and you will be able to write an executive summary that will impress the socks off of any investor.
Remember, you’re going to need to grab the attention of banks or investors quickly. Most, investors have very little time to go through every opportunity that lands on their desk, and having an excellent executive summary that grabs the attention of potential investors quickly is key to securing funding.