Writing a business plan is essential however a frequent mistake people make is to concentrate more on the format and less on the content, which is far more important. There are many useful books available and whilst the planning templates offered are helpful they should be viewed as a starting point and not necessarily followed rigidly. The business plan is an important document to evaluate the probability of success and projected profitability. It is not simply an exercise to fill in the blanks under the appropriate headings or fabricate figures to satisfy a bank manager or creditor. A business plan doesn’t have to be 50 pages long – a 5-page plan might be all you need. It is imperative that you realise that it is the act of planning, the process that sees you fully engaging in the future feasibility and detail of your business idea, that is important rather than the plan itself.
When I think back to when I was writing my first business plan it was often a daunting task and I can remember feeling everything from excitement to boredom. Regardless of how it makes you feel however, the business plan should be written well, kept up to date and remain at hand so that it can be referred to regularly. It’s good practice to review your business plan at the end of every month along with the actual financial statements to see how the business is tracking.
Many business owners find themselves writing a business plan only when some external party requests it. They may be applying for a loan at the bank, trying to convince someone to invest or providing detailed information to a potential supplier. The plan is written as a selling tool of some sort and is often only ever written because of this external requirement. Consequently its fundamental flaw is that it is often written in an overly optimistic manner and operating from such a plan can put added stress on you and your business. Nobody is going to plan to run a business into the ground but it is important that a plan contain a significant slice of reality for it to be useful to the owner.
If you are planning to invest your own money or attract investors to your business, it is important that everything in your plan can be verified. In particular, the curve shown in your financial projections should be sensible. I remember years ago speaking to a potential investor not long after I had written my business plan. He took one look at my profit projections and said, ‘These figures start from zero and rise every month!’ to which I proudly and naively answered, ‘Yes!’ He told me that in his many years investing in young companies he had never seen a business that didn’t lose money in the start-up phase for a period of months or even years. My assumption in writing my plan was that I would sell enough from day one to cover all of my costs.
This was of course far from correct and needless to say, my conversations with this potential investor amounted to nothing. But the experience allowed me to learn a valuable lesson about planning. I learned to put more effort into the content of the plan, ensuring it was an accurate, realistic and verifiable document and worry less about making sure that my plan had a paragraph matching every heading from a template or book.
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