Over
the past seven years, I have been involved in preparing business plans for
clients across different industries ranging from Building & Construction,
Agriculture, Media & Entertainment, Renewable Energy, Fashion and Education
amongst others.
While
I have grown to understand that there
are some, probably more critical fundamentals than a business plan, including
an understanding of the customer needs/wants,
the company’s value proposition, the business case and the business, I find that a business plan remains
a minimum requirement for any entrepreneur, business or organization seeking to
attract high level support, from investors, grantors and technical partners,
among others.
A
few days ago, I got a referral to a client who is interested in developing a
business plan for His business initiative. Like many of my clients, they had
significant knowledge, skill and/or experience in the relevant business
industry. He needed my help in articulating and communicating the business
idea to His key customer and investor
audiences.
Unlike
most of my previous clients however, He wondered how the business plan could be
made to appear more credible, as it related to who prepared it- in this case,
me.
In
response to His query over the phone, I gave Him a simple answer to His
question which may be summarized thus:
- · Business planning is not a profession or professional endeavor like Accountant, Auditor, Builder or Lawyer (which I am)
- · Increasingly, everyone and anyone, who seeks to launch and/or attract investment for their business, is expected to be able to prepare a business plan.
- · The credibility of a business plan is in the research behind the business plan and the PLAN of the BUSINESS itself.
The
more I thought about this though, I realized that while this concern was new in
my experience, it was very likely a question many business owners were asking,
even if they were not articulating.
I
knew that my answer, while sufficient for my client, might not be for some
others. Thus, even after our early morning conversation, I asked myself the
question again; “What makes a Business Plan Credible?” Below are answers some
of the answers I arrived at:
i.
Business Feasibility: A properly conducted feasibility is the
official claim of credibility for any business venture that is still ventured upon after the conduct of an objective feasibility study.
ii.
Business Model: A good Business plan should
be a detailed interpretation of the
Business Model; this covers the
building blocks of the business including, customers, value proposition, key resources, key
partners, sales channels, customer relationships, operational costs and revenue streams.
iii.
Business Market: A credible business plan shows an
understanding of the market i.e. what is the size of the marker? Where are the
opportunities? What are the challenges? What are the growth prospects? The
answers to these market questions are
critical to demonstrating credibility.
iv.
Business Team: the most experienced
venture capitalists invest in the team of people who are responsible for
implementing the Business idea. It’s great to have a business visionary with a
great idea and personality, but it’s even more critical to have a strong start up/ development team; i.e what is their level of knowledge, skill and
experience? What is their passion for the Business/industry? In this phase, it
is critical to highlight the relevant achievements of the team.
v.
Business Competition: Strategy is mainly relevant
because of the existence of competition. Competition also includes substitute
products; e.g Water as a substitute product for Coca Cola or and Public
Transport as a Substitute for private cars; A credible business plan highlights
a sound understanding of the Competition and how to gain competitive advantage
over them; either through your business
concentration, business costs reductions or my personal favorite, business differentiation.
vi.
Business Risk: The risk analysis section of
a Business plan, while often neglected, is one of the most critical components
of the Business plan. It demonstrates that the Business owner is not overly but
cautiously optimistic, is dealing with the plan realistically and would be
better prepared to deal with challenges that may arise.
vii.
Business Assumptions: Assumptions are the bedrock
and basis of interpretation for your business plan. According to
personalmba.com “Critical Assumptions are facts or characteristics that must be true in the real
world for your offering to be successful.” While assumptions apply to all
the components of a Business plan; they are usually applied more to the financials.
They usually cover things such as market size, market growth rate, interest
rates, tax rates, depreciation e.t.c We can talk more about these later, but
for now, as much as is possible, make your assumptions dependent on real
market/industry research.
viii.
Business Financials: This is the core of the
business as it relates to potential investors. It should at the very minimum
capture the Balance Sheet (for existing businesses), Start-up
requirements (Budget), Cashflow Analysis and Break-even analysis.
So,
assuming you have, like my client, asked the question “How do I prepare a
credible business plan?” do the above answers answer your question?
Please
share your thoughts.
Photo Credits: Alexander Stein for pixabay.com
