To put it in the simplest possible terms – a business plan is a document, which details the purpose and objectives of your business enterprise, as well as the methods and strategies you’ll utilise to meet those objectives.
Why is a business plan important?
The importance of a detailed and realistic business plan for entrepreneurship cannot be overstated. Such a plan will give you an unequivocal definition of your business idea and premise. Moreover, it will serve to highlight potential opportunities, and conversely, issues, both of which you may not be aware of before you start working on the plan. Also, it serves as a sort of road map, helping you come up with a clear set of goals for your business and something to measure your success against.
Having a written business plan is also extremely useful for several other reasons – it can help you secure external funding for your business, whether from a business bank, venture capitalist or private angel investor; it can provide a potential business partner with detailed information about your venture; it can help you clarify what you are trying to achieve with your business and how you are going to achieve it; and it can help you set financial targets.
Who is a business plan for?
As you will soon realise, the potential pool of readers for your business plan contains a wide variety of interesting parties – from venture capitalists and bankers to prospective employees. But, while this is quite a diverse audience, at the end of the day – it’s not an infinite one. Each type of reader will act with their special interests in mind; something essential to take into account as you tackle the task of writing your business plan. Knowing the viewpoint from which anyone reading the business plan comes from will be of enormous help while fine-tuning the plan for a particular audience.
Taking this into account, we’ll have a look at the typical audiences who are most likely to read your business plan and what is most important to them, this includes:
- Angel investors
- Prospective business partners
- Strategic allies
- Venture capitalists
- Potential buyers (we’ve particularly focused on this group as its not often covered)
Writing for a specific reader
We’ve gone over several of these potential readers in more details below to give you insight into what they expect and how you can tailor your business plan to meet their expectations.
If you’re looking to take out a business loan to start your business you’re likely going to be speaking with a commercial bank. For such readers, it’s advisable to pay most attention to presenting the financials including cash-flow statements and balance sheets. Take care to present them in great detail and provide notes on any hypothetically confusing information or anomalies (make sure your projections are realistic).
Most high street banks provide business plan advice on their websites – so if you are applying to one of them for a loan, read their guidance first and make sure your business plan is written in a way which matches their outline.
There is a good chance that angel investors may not insist on you providing a fully formed business plan, but it’s often advantageous to have one with this type of investor (even given the low investment amount). Keep in mind that these are fewer formal investors than venture capitalists.
So, provide them with a less formal business plan. Here, you do not want to try and impress them with bulk, but with brevity. Angel investors that are more accustomed to following their gut might not be thrilled with a lengthy read of your 100-page business plan.
If you were considering becoming a partner in someone’s business enterprise, what are some of the things you would want to know? You would probably be interested in your volume of responsibilities, the ownership percentage, and the authority of your position.
Naturally, anyone else who is thinking of becoming your partner will think about the very same issues. So, any plan that you’re presenting to a possible business partner should contain a comprehensive look at the ownership structure, while also definitively spelling out the matters of accountability and control.
Wanting to sell your company may seem to contradict the commercial viability of your business which you have tirelessly evidenced in the plan. However, businesses are sold for a variety of reasons. Prospective buyers will want to know exactly what your reasons are.
Be transparent in your motives. It may be that you’ve hit the age for retirement. Maybe you have your eyes set on bigger projects, or perhaps you just want rid of the pressures of owning an enterprise. However, if there are flaws in the business, bring them to light. This is not as senseless as it seems. It may be that your buyer has the funds, skills or resources to enable growth where you couldn’t. Be clear on why you think it is worth investing in your business and how you believe they could profit from the idea in ways you can’t. If you conceal your motivation for selling, buyers will only assume that you’re attempting to jump from a sinking ship.
As you may have noticed, much of our business plan outline has been focused on the construction of a business plan to be used for funding pitches, attracting employees, or otherwise internal use. However, there is another instance of note where you would want to make a detailed business plan – and that is selling your company. – Merge or create into own section again
Generally, this might seem like something of an oxymoron. After all, the point of a business plan is to show the viability of your company; with a sale being the ultimate proof that that’s not the case. However, people sell companies for a variety of reasons, and the lack of commercial viability is just one of many. That’s why even such a situation demands the procurement of a proper business plan – one that will show your company in a realistic yet positive light.
Why you’re selling
If you’re selling your company, there’s one question that every buyer out there will ask you – and that’s why you’re doing it. After all, if there are some not readily apparent faults with a company, a buyer will want to know. But seeing as most serious business people will do their due diligence, hiding flaws in your business plan would erode trust without making a difference.
Thus, be transparent about what works in your business, and what doesn’t. You want to make sure that the potential buyer has a realistic lay of the land, so they’re able to make an accurate assessment of the company’s worth. Sure, you want to get as much money out of the deal as possible – but you still need to stay within the bounds of realism.
Explain the opportunity
For anyone to buy a company, they need two basic things – one is money, and the other is a visible opportunity. So, even though you no longer want to act in the capacity of the company’s owner, there are plenty of reasons why someone else might want to do it. Plus, your company doesn’t have to be falling for you to sell it; you may want to move to a different project without the constraints of ownership.
All of this needs to be made apparent to the potential buyer. You want them to see the value in this deal right away. With that in mind, make sure that you present the buyer with a clear road map of what a reasonable investment could change within your company, and get them a sizeable profit down the line.
Over the course of any given year, venture capitalists (professional investors) go over hundreds of business plans. Realistically speaking, a majority of plans will receive no more than a cursory glance from a VC before facing rejection; others might get a quick inspection. And even if your particular business plan ignites more interest, it may still only receive a couple of minutes of a VC’s attention.
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This fact is crucial to bear in mind because it highlights a vital trait of any good business plan – it makes a great impression quickly. The emphasis here is on a succinct, cogent summary of your basic business premise. Also, if your core management team boasts any impressive credentials, don’t be afraid of highlighting those. However – make sure it’s still to the point and concise. When VCs and similar investors are concerned, time is of the essence (often your plan will need to be summarised in a pitch deck and the full plan available on request).