There is so much more to a business plan than the right template or format. A template is nothing more than an outline but together by those who understand what is needed in a business plan and they provide the headings and few sentences on each section. It is actually the content itself that is most important along with understanding what the bank, grant provider, or investor is looking for in a business plan. Many entrepreneurs are able to articulate the overall premise of their business to you when asked, but many have a problem when asked to put pen to paper and provide the detail that is needed in a business plan.
A business is so much more than just an idea and selling a product or service and many times all of the pieces of the business have not be thought through completely and this is uncovered if a business plan is done correctly. In many cases, this has to do with the business owner being great at certain aspects of their business, but not always having the expertise in others that could be just as important. An entrepreneur that is a sales/marketing expert may know how to market and sell a product but may not understand the operational side of the business and what is required to retain an existing customer, as their focus is new customers. An entrepreneur who is an engineer has expertise in the product he/she developed, but may not have a clear understanding of what it will take to market and sell the product. The saying build it and they will come is not true. The ultimate key to success is building the right team with the expertise required across the board, as one individual cannot be an expert at all aspects of their business.
The same is true when putting together a business plan. Your banker or investor is looking at the overall picture of your business and whether you have the right pieces in place to warrant loaning money or investing in your business. What many businesses do not understand is that a poorly written or articulated business plan can itself cause you to be turned down. Most businesses do not understand the importance of their business plan until this happens. This is not to say that if you do not have a viable business overall and have a well written plan, you will get money. Everything has to make sense. For example: If you say you have 2 sales reps and the sales cycle is 6 months with an average sale being forty thousand and you say you are going to make revenues of a half of million in your first year – it is easy for anyone ready to see this is not possible.
I have found that is sometimes a lack of understanding of what the bank or an investor is looking for in your business plan that causes the greatest confusion. In general, they want to see that you have a grasp and a handle on all of the component areas of your business and your financials make sense. They need to feel comfortable that you have the background and experience in your business area, and this is particularly the case in start-ups. They want to see that you have staffed or plan to staff appropriately for areas where you lack expertise. They usually want to see that you have invested in your own business and some grants and loans from the government require matching of funds. They need to know that your business and/or you personally have good credit. They want to see a plan that provides a complete assessment of your business in the following areas: Financial, Human Resources/Management, Sales, Marketing, and Operations. If you are a technology or manufacturing company, you will probably need to break out Engineering & Manufacturing separately.
Usually when a business is told they need a business plan, they begin their search on line for the “free” template. The question that you need to ask yourself is whether the one you found is relevant to your particular business and whether that template covers all the relevant information needed for your business as most are very general. Are you able to fill in all of the sections thoroughly about your business? The marketing section will cover market size, target market, SWOT analysis, Online Plan, Branding and the list goes on. Making up a mission and vision statement for a plan on the fly is not the way to go just to fill in the blank. Do you understand and are you able to articulate all of those areas about your business to show the growth you are predicting in your financials? The financial side will want details on your forecasts, gross margins, assets, costing and such over the next 3-5 years. If you are a start-up business and do not have existing financials with a run-rate, are you able to give a fair financial assessment of this? The financials you provide need to make sense and be able to show when you will return a profit for your particular business, not the imaginary company in the template.
If you are asking an lender or investor to give you five hundred thousand dollars, are you going to decide to write your first business plan utilizing a free template without understanding whether it is complete or suitable for your business. Once you are turned down, you are now done and because even though you know your business you were not able to articulate what was required to the lender or investor. You can go to another lender or investor, but now your credit rating is going to suffer and the question to ask yourself is how cost effective was scrimping on your business plan.
A business plan is the “cookbook” for your business to follow in order to achieve success and if you look at it this way versus a quick document to get financing – you will have a great chance of success. If you spend the time creating a plan for your business to follow for the next 3-5 years, and modify as your business changes or you try different tactics and determine new paths, you have a guide to follow. Though a living breathing document, it truly is not much work involved and probably only needs to be looked at a couple times a year.
If you are not sure what information you need or what you might not know about your business today to provide someone who is going assess your business, then consider spending a few dollars to do it right the first time and increase your chances of success. This is not only true with an investor or lender, but also long term in running and growing your business. If you uncover a couple holes now and fix them now before applying for future financing, think how much more cost effective that would be. The key is not to wait to do a business plan when you are under the gun and are doing it just for financing.
Also, before you just pay a writer to have your business plan professionally written, ask yourself whether you are sure you have all the information to give them or might you want to have someone work with you as a business advisor to help ensure you have what you need before anyone begins writing a plan. If you have a current business plan, you might want to get an assessment especially if your business has changed since it was first written or you are considering applying for financing and want to make sure everything is covered.
I recently saw a statement on a question/answer board from a consultant outlining why so many start-up businesses fail and have to admit I was not surprised by what was said. An example given was an internet business that failed because they did not have the funding to support the pull marketing that is required for the business. What was listed was the symptom of why the business failed, but not the reason of actually why. Another example was a technology company that the “reason” for failure was attributed to not being able to afford the development for all the features that their customers wanted. Having come from the high-tech industry – that excuse just does not hold water – as that is development/product management 101. Unfortunately this is not unusual as many entrepreneurs try to analyze and figure out why their business failed and not the business down the street and do not want to admit that the failure was due to improper business planning and financing on their part.
The real reason the most businesses fail usually has nothing to do with the excuse that is decided after they go out of business. They are documenting the “excuse” for the failure in most cases to justify why they were not successful when there are businesses offering similar products and services that are flourishing.
If we step back, the main reason that start-ups and small businesses fail is lack of a well thought out business plan that takes into account all of the parts of the business along with what is required from a financial point of view to grow and sustain a working business. The great thing about entrepreneurs is that they are fearless and willing to take risk, but why take on risk when you do not have to. I am not saying that every business that has a sound business plan and proper financing will not fail. There are always factors that business owners cannot foresee like a downturn in the economy where their products and services may be the first ones that people put on hold to buy, or a particular market can take a dive like the telecom market did a few years back. It is hard for anyone to foresee or survive this type of occurrence. But the businesses who say they failed because they had bad sales reps, lack of funding for marketing, the right management team, or many of the other reasons that could be avoided by proper business planning and financing are just creating excuses. These situations would have been accounted for in a business plan and in risk management.
Early on, business owners who have an idea and do not have a background in running a business or have self-financing may have to give up a portion of their business to get the right financing and management support for their business. An idea is only as good as the plan and the ability of the people around you to execute on your plan. It is also important to know that anyone providing financing whether a bank, government grant, private investor, or other financial options such as angels and venture capital will expect to see that you have invested in your business yourself and have a stake in the success. Unless you have experience in Finance, Human Resources, Sales, Marketing, Operations and in many cases Development, you are going to need others to help you make your business successful. If there are those that are willing to provide sweat equity up front to help you get going, you need to make sure to reward them for the efforts they provided you and not be greedy. I watch the Dragon’s Den and Shark Tank and chuckle when an entrepreneur asks seasoned business people with experience and contacts for millions of dollars in financing for a business that has not made revenue for a low stake. The question to ask yourself is whether the decision now to be hard headed is going to hinder your success in the future. Your idea is worth nothing if you cannot execute a plan. I would rather have 20% of 100M dollars versus 100% of nothing.
If you are down the road with your company and you do not have a business plan and you are in need of financing – you do not have to throw up your hands and shut the door – it is not too late to push the restart button before you get to that point. Almost all of the excuses you would have if you let the business close can truly be resolved and a plan put in place of how to address them one by one – it is not futile – but you have to be patient.
The internet company that did not have enough money for spending on marketing to get the pull they needed could turn things around and get the financing they need if they have a solid business plan and the business makes sense. The high technology company that cannot afford to do the development for the “features” their customer needs to learn how to manage their development and product management and set up a pricing model that can support the development with release management. The part that may be missing and the owners may not have realized was the business was not a viable one from the start because due diligence was not done up front and proper financing was not obtained to support their business plan.
If you are a business owner and you are having a struggle and are wondering if you should throw in the towel – before you do – consider pushing the restart button. Look at having a business plan developed taking into account the past and what needs to be done to move forward and look at all of your financing options. There are grants, loans for small business from the different financial institutions, and alternate funding from investors you might know or angels and venture capitalists. In some cases, you may need more than just the financing and require the expertise of those who have a background in your industry and have the contacts to get you back on your feet. You may have to give up a stake in your business to find success, but you will still benefit in the long run from this decision. The key is to act before you have to throw in the towel and create an excuse like the ones above that you know in your own mind and heart could have been resolved if you developed a plan and had the financing and expertise to make the business successful.
Be the one in ten businesses that will succeed, not one of the nine that end up failing.
RK Fischer & Associates