The first step to starting your own business is to form a compelling plan which is going to convince yourself, potential investors and any stakeholders that your idea is going to work. When you start out as a sole trader, or as a small limited company using your own finance, your business plan may only cover a couple of pages. But as you grow, or as you start looking for outside investment your business plan will need to become a refined master plan which is going to convince an outsider that your business is going to give them a return on their investment.
What will your business plan contain?
In its bare essentials, a business plan will provide an outline of your business, the market you will enter and how you are going to make a profit. Some investors will look at the intricate finer points of your business plan to really get to the crux of your strategy, whereas others may simply want to analyse the numbers so you have to aim to cater for all types.
Your first step will be to do your research and keep asking yourself the difficult questions an investor might ask you. Once you are wholly confident and reassured there are no gaping holes in your idea, you can begin to strategise and formulate your plan to make your idea a reality.
Where Do I Start?
Summarise your plan into an Elevator Pitch
This is the first part of your business plan, but importantly something you should write at the very end. Your elevator pitch is a concise, 60 second statement which aims to inform your audience about your business and sell them the premise that it is going to work and become a success. Some investors will only listen to your Elevator Pitch before deciding to look at your business plan so this needs to be an engaging, compelling and intriguing speech which is going to leave anyones imagination sparking into overdrive.
Outline the background
For some investors, it is both interesting and important how you came up with your idea. When you go to a potential investor with a business proposal and you don’t have any experience in the particular market, they will straight away ask, “why should I invest in you?”. An investor will look to see experience in your particular market, whether that is from yourself or a business partner. Talk about your previous jobs, your experience, transferable skills and qualifications and if you are starting with a team behind you, outline their backgrounds and experience as well. Investors will look to see a strong team of people starting a project, and will likely favour that over a “one-man-band”.
Talk through your research
Your market research is an integral part of your plan which will help form all the assumptions you will make about the success of your proposed venture. Time spent researching your opportunity is invaluable and quality research will help reduce the chances of failure. Only 44% of businesses survive in the first 5 years so it is vital you undertake both qualitative and quantitative research to inform and justify your decisions.
Your business plan also needs to take both primary and secondary research into consideration; a mix of both will provide more of a balance and give you a qualified set of data to produce your predictions and plans on.
Showing a clear understanding of your target demographic will also reassure investors that you won’t waste money in marketing spend, especially with the demographic targeting options available with modern advertising solutions such as adwords, social media etc.
Explain your product/service
The key thing to remember is to keep it simple. Sometimes, over-eagerness to impress can leave yourself confusing your potential investor and putting them off your entire business plan. Some individuals say they will only invest if they understand the concept, its functions and what you’re trying to achieve.
Be open about any inhibitors
One thing which is going to impress anyone reading your business plan is if you know and can explain any legislation that can provide a barrier to any aspect of your business idea. For example, if you need to get permission from the council or from another local organisation – being open and upfront is going to be looked upon better than attempting to conceal inhibitors from any stakeholder.
You may also have to protect your idea with a patent or trademark to protect your intellectual property, an idea which is easily copied or replicated is going to put off anyone who is interested in investing.
Talk about your competitors
Be open about the strengths of your competitors and outline what you are up against. This is a good time to refer back to your USP and underline why potential customers will either leave or ignore your competitors and choose you instead.
You can also use your competitor research as a basis for your own projections and forecasts. Taking into account their performance over the last year/ last 5 years can give you an indicator of what the future may hold for the industry, based on where they sit in the market.
Cost analysis is going to be a key area where investors are going to enter the “make or break” zone of the investment decision. Your ability to budget and understand the true costs involved are going to be integral in convincing your potential investor that they should trust you with their money.
The key areas you need to address are:
- Start-up costs
- Depreciation of assets
- Trade credit agreements
- Loan repayments
- Cash-flow projections
- Break-Even margin
- Profit margin of sales
- 1 year, 3 Year and 5 year projections
Any investor is going to want to see a clear understanding that you can manage finances, manage your cash-flow and be realistic about your earnings and benefits. For example, how much are you going to invest in staff or marketing, and what return on investment do you expect to receive from it?
For some investors, the figures you produce are the only factors they will take into account when deciding to give you a loan. If you business plan sets out as a low-investment, low-risk proposition, an investor won’t be likely to trawl through 30 pages about the concept, they will think about whether or not your idea is viable and what are the figures to back it up.
Risk Assessment and What-If Scenarios
When you draw up your business plan, you will inevitably look to sell the best-case scenario where your idea goes on to become a massive success. However, not every startup will be as viral as Snapchat and any seasoned business individual will recognise that a startup will have its ups and downs. A clear understanding of risk and what-if scenarios will reassure any investor that you are prepared to tackle the issues that arise and that you have the realistic mindset that will allow you to make clear and level-headed decisions.
An investor may look to see consideration of different strategies, and an assessment of risk/return over each one so you demonstrate certainty in the direction you plan to take.
See more on the gov.uk website: https://www.gov.uk/write-business-plan