Writing out a detailed business plan and getting it funded properly is the key to making any successful business. Plan your business for the future, not just for tomorrow. Most entrepreneurs tend to look only at the rosy and optimistic picture without recognizing the problems that they will be faced and without factoring in a number of unplanned costs that will have to be incurred.
Remember that a Business Plan for a company is much more than a set of numbers. It will be your guiding document, your process to understand and establish where you are heading and where you have reached and will also provide you with the checks and balances in case, as an entrepreneur, you become too aggressive or too complacent.
The best business plans are those which an entrepreneur writes himself because this is when the true dreams of the entrepreneur are articulated. This is also when he/she realizes all that will go into building the business and achieving one’s dream.
Unless the entrepreneur is able to articulate his thoughts and put them down on paper and then translate these thoughts into a simple set of numbers, a startup company could be playing “Russian Roulette” not knowing which chamber the bullet is sitting in!
If an entrepreneur does not write out his own business plan but relies on someone else to put it together, as indeed I have seen some people do, the plan will have inaccuracies and will have been developed with a different perspective.
Assumptions and Numbers in your first business plan will go wrong once the actual operations of the company start because there could be many variables that are learnt on the job. However the first business plan will help in defining the parameters and help the entrepreneur to understand the areas where his understanding was incorrect or where his assumptions have changed.
The Environment your business will operate in
Start with a detailed scan of the environment. Unless you know the environment you will be operating in you could be shooting in the dark even though you may believe that you have the best idea in the World.
This will include understanding the size of the opportunity, the competitive landscape, the Government regulations and the key players in the business. You don’t want to be in a position where you have started your entrepreneurial journey and then suddenly realise that there are regulations that restrict you from doing some of the things that you have planned for.
The Business Plan Assumptions
While writing out your first business plan, it would be most important to write out the assumptions that you are making for the plan.
Some examples of the assumptions you would make could range from taking 250 working days in a year (factoring in a 5 day work week) for your revenues to assuming an inflation in prices linked to the inflation index and your own price increases to an increase in cost of human resources to your marketing costs.
A lucid articulation of the assumptions will help you and all your colleagues to understand your business plan at a later date and also understand and appreciate when the financial numbers are not falling in place as you had hoped.
The Financials of your Business Plan
Your business plan must have detailed sections on marketing, competition, people, technology, environment which will lead to a set of financials. You know what your business well and therefore it should be fairly simple to articulate your thoughts in each of these areas.
Most people assume that their business plan is a set of numbers. What they do not understand is that the numbers, or financials, is a result or an extract of the business plan. Once you have written out your assumptions, then translating these numbers using a spreadsheet is an easy task and can be done either by you or by any financial analyst.
Cash Flows of your Business
The result of the financials from your business plan is your cash flow. This will help you to understand how much money you will make and how much you may lose. As an entrepreneur, you would have invested your own hard earned money. It is therefore important for you to know where your money is being spent and how long it is likely to last before you will need to raise more money from other sources.
Funding is possibly the most difficult part of building a new company. Money is the backbone of building any business or enterprise. Without sufficient funding in place, it is not advisable to embark upon any entrepreneurial journey. How much is “sufficient” is a pure judgment call of the entrepreneur and depends on the business plan that you expect to achieve.
Plan for losses in your Business Plan
Every new business will lose new money. This has to be taken as a “given”. Making a planned loss is never a problem. Making an unplanned loss and then having to try and justify it is a huge problem.
It is important for every entrepreneur to understand that making money is not going to easy. Don’t believe for a second that revenues will instantly start coming in and customers will start flocking to your stores. The reality is far different, and you’ll fare much better if you understand this reality and plan for it beforehand rather than get surprised later.
It is better to plan for losses and state this in your business plan. When monthly reviews are held with the board of directors, it is always better to explain how you have over achieved your numbers rather than take high targets initially and start with explaining negative variances each month.
No one likes to lose money and yet it is a well-recognized fact that most new businesses will lose money. Some businesses will lose money for longer periods than others because of the nature of the business and retail businesses have very long gestation periods. There is nothing to be ashamed of if your business is losing money as long as you can see the light at the end of tunnel.
All businesses will burn money and it is necessary to have sufficient funds in the bank to meet the burn.
Finally, don’t worry if you make errors and are confronted with unplanned costs which will throw our entire cash planning out of gear. A well written out business plan will guide you back on course as you take stock on a regular basis with your management team.
The author is the founder Chairman of Guardian Pharmacies and the author of 5 best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office; An Eye for an Eye; The Buck Stops Here - Learnings of a #Startup Entrepreneur and The Buck Stops Here – My Journey from a Manager to an Entrepreneur.
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