Understanding Business Plans – Your First Test As an Entrepreneur!

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Reading the Global Entrepreneurial Monitor’s (GEM) report 2013-14 one realizes the difficulty entrepreneurs face across the globe. Now in its fifteenth year, the report covers each region in the world encompassing 70 economies be they developing, semi-developed or developed (e.g. termed Factor- Driven; Efficiency-Driven and Innovation-driven in the report).

Over the fifteen years one GEM finding has repeated itself- the vast majority of nascent entrepreneurs (also known as early-stage entrepreneurs) globally – involved in setting up a business – fail. It means they never become owner-manager of a new business (up to 3.5 years old) or advance to become owner-manager of an established business, more than 3.5 years old (Source- Global Entrepreneurship Monitor (GEM) 2014 by Jose Ernesto Amoros, Niels Bosma and Global Entrepreneurship Research Association [GERA]).

A prospective business start-up should read and consider above fact carefully! Take it in and think about it seriously! Starting your business is no easy undertaking. Keeping your business can be even tougher!

Be as it may, starting and keeping a business starts with a plan. Long before you finally decide to spend your money starting a business or potentially more risky, borrow to start, you need to sit down and plan. If planning does not come naturally to you, you need to engage with those who had managed to start and keep a business; also engage with a small business consultant. Large business’ consultants will sell you unrealistic large business ideas at large cost, which will take you no-where!

Any business owner knows – often only after being in business for many years, making mistakes and often facing insolvency – the way your business is planned from the outset must be the right way. Thinking a poor plan will do the job you are wasting time and money immediately; or down the line. That is given you don’t go into a crisis mode immediately as a result of a bad plan!

The ‘right way a business plan is put together’ is based on fundamental aspects. Fundamentals on which business plans for small businesses are based, are complex, as a micro, small business or medium sized business in reality runs no differently from very large businesses.

In this article a number of key aspects are highlighted and explained as straight forward as possible. Now take a pad and pen and get started!

The first important aspect to deal with is the confusion around ‘what is a financial plan versus a business plan’?

Many prospective business owners and even those in business, often confuse a financial plan of a business with something to do with insurance or annual financial statements.

It is not either!

Then, what is a financial plan for your business?

The financial plan ties up all the other parts of the business which will be discussed in a moment from a money point of view.

In the case of a start-up business it will deal with how much it will cost to start; and, how you see yourself making money (financial projections). A going business will compare its financial plan with its financial results each end of a financial year.

Getting to a meaningful financial plan! This is where components of the overall business plan needs to be understood clearly. A financial plan tests the reality of all other parts and activities of the business. Each part and each activity costs money!

1. Business concept (idea)

A start-up should be able to write down on paper what he wants to do. No concept, no business! A vague formulation of ‘what I will be doing’ will be the first warning sign! Do your homework by accessing online and book information on your business idea and speaking to people. Test the views of family, friends and others in business.

Assuming that is done, put on your hat as strategist. A strategy by the way is a collection of all key decisions which you will take regarding your business!

2. Describe the business strategy of your business.

You need to be clear on how to you see the future, purpose of the business and a strong goal that will drive everything you are doing or will do in your business.

3. Describe your legal status as a company.

Your legal status will determine your standing with the courts in terms of relevant Acts you have to comply with), taxation authorities, banks, investment organisations and other stakeholders. Even small, it is important for you to have policies in place to ensure you run your business legitimately. Being a small business does not mean you are not subjected to the legal environment. Later when you are bigger and are making money as listed company you will be talking about corporate governance, risk and compliance structures and policies!

4. Describe the development cycle your business finds itself in.

Many start-up’s wants to run before they have even learned to crawl! Be very aware that any business, large or small, evolves along a business cycle. You will – very similar to the life cycle of us human beings – start (birth), grow, mature, decline and then later try to create a new life cycle by turning around your company. Right from the beginning do your homework on the challenges you will be facing at each of the cycles and what you will have to do to stay afloat. Always be prepared for eventualities.

5. Describe your company history (if you are an existing business).

Closely related to the development cycle of your business is perspective on the age of your business and its history, which leads to the next point.

6. Describe the successes and problems your company had experienced.

A good honest business owner knows exactly what the strengths, weaknesses, opportunities and threats (risks) of the business are. A business owner must know what his successes are and were, as well as past, current and foreseeable problems. If you are a start-up write down the anticipated successes and problems you think you might be facing. This will prepare you for probable events.

7. Describe your products or/and services.

Think carefully about what you sell (a product or services or both) or will be selling; and, describe what you sell in concise detail (yet thoroughly). You will later – as part of your marketing plan – provide full detailed information.

8. Describe your market.

This is a difficult part of your business plan. It tests your ability to carefully consider who you are going to sell your product or service to. Also where’s the market located.

9. Describe your customers/clients.

You need to understand the consumer behaviour of your customer (if in retail and manufacturing) or client, if in the service industry. They are driven by what ‘they need’ and ‘what they are interest in’, putting it in simple terms. You need to ‘get into their minds to get them to buy your product or service’.

10. Describe your competition.

Who is your competition, where are they located, what makes them a success? How big a success are they? You need to know a number of things about the competitor to decide whether to attack them, flank them or any other option.

Describing your market, customer (or clients) and competition, tests your ability to conduct market research and work with facts and figures in an analytical manner. You would need these abilities to survive as a business so you might as well be put to the test right away!

11. Describe your production/manufacturing/service delivery plan.

You need very detailed information illustrated with data, figures, flow charts, description of the equipment and other technology you will be using to deliver output (product/service). After all, a business exists to sell something or deliver a service of sorts at a fee!

12. Describe your marketing and sales plan.

Business and its marketing activities are about product, price, your marketing communication, a promotions plan and distribution. Hence a whole value chain of activities.

13. Describe the staff and management team.

You might have the right machines but someone needs to man them! If you are starting a people intensive business you would need for your business plan: Curriculum Vitae’s of the people who will be doing the work supported by systems and technology, company structure, job descriptions, salaries and your labour policy.

14. Draft a financial plan around the pieces of puzzle.

Finally! Financial plans. Your business plan ends with your financial plan comprising a balance sheet, income and – expenditure sheet and cash flow sheet! As mentioned earlier, the financial plan will cost each are very part of the business plan, which you will now after giving thought to each component understand better! Your financial plan will show a start-up how much was spend on opening the doors and how much it will cost to keep the doors open! It will tell them how much they will have to earn to firstly break even (when sales and expenses balances each other out). Year end the plan will be measured against financial results and the business-owner will know what his true position is. Hopefully the position is one where the business continues with the opportunity to expand and grow into something large.

You will work hard at drafting your first business plan, so be prepared. Your first business plan will not stay the same. Business plans are not static. As your business evolves along the business life cycle – as mentioned earlier – going from start to growth, to maturity and eventually decline (then met with turnaround action), business plans are adapted to synchronize with the times and the challenges small business faces!


Source by Marco Roodt

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