What Is The Purpose Of A Business Plan?
Why is it necessary to create a business plan? There are several reasons for this. Writing a business plan significantly improves your odds of success as an entrepreneur.
The following are just a few of the reasons why you should write a business plan.
1. Calculating startup costs.
2. Determining the minimum profit margin required.
3. Conducting an analysis of your competition’s success and failures (which you can capitalise on)
4. Well-defined roles for all employees.
5. Conducting market research and formulating a strategy.
6. Anticipating problems in advance of their occurrence.
7. Clearly defining your business’s objective and exit strategy.
8. Persuading investors to fund your venture
While some may scoff at the various components of a business plan, keep in mind that you are undertaking this endeavour to earn money, not simply to create a product or service. The majority of businesses fail as a result of unforeseen expenses — or circumstances — that they should have anticipated in advance.
To maximise your chances of success, complete your homework ahead of time; you’ll be way ahead of the majority of people.
Plan Your Work, Then Carry It Out
A business plan is not a static document; it will almost certainly evolve as your business grows. When you become stuck on an issue, refer to your business plan to remind yourself of your initial objectives and whether the situation has changed significantly enough that the plan should be revised.
When you write your plan, you are planning your work, but you cannot stop there. You must execute the plan and adhere to it in order to achieve your exit strategy or other business objectives.
The First Step Is To Define Your Product Or Service
The first step in writing a business plan is to define your product or service precisely. This is the message you will convey to a prospective customer.
What would you say to a prospective client about your product or service?
What would you say to them?
What is the relationship between your product or service and other businesses?
A single paragraph should be sufficient to describe your product or service, with supporting paragraphs following. When confronted with something novel or identical to a competitor, the majority of people attempt to evade this by claiming that “my product is simply too complex to describe.” That is nonsense.
Each product or service is definable. If your product or service is so novel that it cannot be defined, its chances of success are extremely slim.
Here are a few illustrations.
* Google was simply “a more effective search engine.””
* Apple was simply “a desk-top computer”; * Microsoft was “a mass-distributed operating system.”
* Amazon.com was originally described as a “mail-order bookstore with an online presence.”
Defining your product is not difficult. Implementing a long-term strategy for selling, distributing, and marketing your product has the greatest impact on whether your business succeeds.
The Second Step: Who Are Your Customers?
While defining your target market may be challenging if you believe your product can be used by anyone, it is possible. Simply putting “everyone on Earth” as a target market is impractical.
The question is not whether your product or service is usable by everyone; the question is who can afford and needs your product.
Defining your precise target market is critical to developing an effective marketing strategy. Without an understanding of your target market, you will cast your line into a vast ocean rather than a stocked pond.
Another aspect of this is determining whether your target market can afford and will purchase your product.
If your product is intended for boys aged 14-18 and costs $1,000, your market is likely to be quite small.
This is all part of the plan; do not be discouraged if your product or service does not make sense after conducting research. It is preferable to evaluate things now and abandon the project entirely than to accept money from investors and discover later that your business has no chance.
Step 3: Market Analysis
Who is your adversary? How are you going to contact your prospective customer or client? All of these are definitional questions.
Evaluate two or three competitors. Where do they succeed? Where does the majority of their revenue come from? What have they attempted and failed at? What do they lack that you intend to provide?
Analyzing the competitive landscape is critical for determining your likelihood of success. You may even discover additional areas where your product or service should focus in order to succeed.
How will you contact your customer? Is it going to be through catalogues? Advertise in the neighbourhood newspaper? What about word of mouth? What about direct sales?
Conduct an analysis of the costs associated with implementing a strategy for reaching out to your customer and client base.
If you’re selling a product, how much will it cost to get it on store shelves or to establish an e-commerce website?
How much does it cost to place advertisements?
Simply having a product or service and no one knowing about it is a surefire recipe for failure from the start.
Step 4: Capitalization And Financing
What are your startup costs?
You must determine all startup costs and the amount of capital required to maintain the business. If payroll is involved, you must account for payroll taxes in addition to salaries. You need to know how much you will pay in legal fees and for lawyer and accounting services when you incorporate.
If you provide a product, how much does it cost to manufacture and maintain an inventory?
This category includes letterheads, logos, business equipment, software, and business cards.
There is no hard and fast rule for how much capital you will require in the first few months. The majority of businesses underestimate their initial and ongoing monthly expenses.
How are you going to fulfil orders? If you’re sending something via mail, you’ll need to factor in packaging and shipping costs.
If you are stocking a store with your product, you must account for delivery charges and expenses.
After determining both ongoing monthly expenses and initial costs, you can determine how much initial capital you will require and where you intend to obtain it.
Will you seek funding from angel investors, venture capitalists, self-funding, or friends and family? Securing this financing may incur additional costs that you have not anticipated; be sure to include these costs as well.
Step 5: Implementation
You must define your business’s operations and the path your product or service will take from development to end user. If you are selling a product, you must define the entire flow.
Here are some questions for a product-based business.
How will the item be manufactured?
How is it going to be stored?
How is it going to be delivered?
How are customers going to place an order?
How are orders processed?
How will a customer be able to obtain a receipt?
When and where will fulfilment occur?
How will money be exchanged?
When is the customer going to receive their order?
Customer service will be handled in what manner?
The majority of the questions above have an equivalent for a service-based business.
These are critical questions that must be addressed. It demonstrates that you have considered how your business will operate in the future.
Step 6: Bringing Everything Together
After conducting an analysis of your product, customers, competition, market strategy, and financing, it’s time to compile your findings into a document known as a business plan.
The following is a brief overview of the information you should include in your business plan.
1. Protective Sheet
2. Purpose Statement
I. The First Section: Business Analysis
a. Business Description b. Marketing Strategy c. Competitive Environment d. Operational Flow e. Management and Personnel f. Exit Strategy g. Insurance Information
II. Section 2: Financial Data
a. Inventory of equipment, supplies, and assets b. Balance Sheet c. Break-even analysis d. Pro-forma Projections Include the following: i. A three-year summary ii. A detailed projection by month for the first year iii. A detailed quarterly projection for years two and three iv. Assumptions or how you arrived at your projections, e.
III. III. III. III. III. III. III. III. III. III. III. III. III
a. Three years’ worth of tax returns for all principals involved in the business b. Franchise contracts, proposed leases, and purchase agreements c. Any licences or legal documents required by the business d. Resumes for all principals involved in the business e. Letters of intent from suppliers and other service providers
Bear in mind that not all of these items must be included immediately. If you do not anticipate having proposed leases at the time you begin your plan, it can be added to your task list of things to do.
The most critical part is to get started on your business plan so that you can identify the tasks necessary to complete it.
Most investors will not lend you money without seeing a reasonably solid business plan, so if you’re not particularly adept at financial analysis, you’d better get to work learning how to project pro-forma cash flow and projections.
Once you’ve created a business plan, you’re well on your way to launching a successful venture!