What a business plan really is

(Please read this article if you require a business plan for a government application, a start up or business growth.)

“Writing a business plan forces you into disciplined thinking, if you do an intellectually honest job. An idea may sound great, but when you put down all the details and numbers, it may fall apart.”

[The above is a saying from venture capitalist, Eugene Kleiner, a pioneer of Silicon Valley. His firm invested in more than 300 information technology and biotech firms, including many major successes, such as Amazon.com, AOL, Google, Intuit, Lotus Development, Macromedia, Netscape and Sun Microsystems.]

The true value of a business plan

At ACRA~BizPlan, a major portion of enquiries we received about our business plan service is for fulfilling an immediate external need such as to secure a large client, franchise or for submission to obtain a government grant, LTA commercial space, accreditation, tender, or to launch a start-up, etc.

But the primary purpose of a business plan is not for external parties but for the business itself. This is why it is called a “business plan” – a document that shows management’s plan to grow the business and how it intends to do that – and whether the plan is sound. It is also used for management control.

An authentic business plan can be regarded as a trade secret. It contains your enterprise’ most valuable information for success – whatever this may be. Such information can be shared only with strategic stakeholders, such as investors and top level executives.

This type of information is the target of competitive intelligence operators.

Perhaps what you need is just a Business Profile rather than a business plan? A business plan can be “customised” for external purposes by leaving out “sensitive” information. If you require a “business plan” for a submission to obtain a license or secure a tender, then the original business plan document can be a scaled down into a business profile document by leaving out sensitive information. This can still be called a “business plan” as far as the submission is concerned. Most of the time, this is what you need for submission to government agencies (unless grant or partnership is involved, in which case you may be required to go into details and let sensitive information out) and such a plan will be much easier to write and cost much less).

An authentic business plan will also identify the risk in the enterprise’s forward journey and the measures it will take to counter these risks.

So, the real value of an authentic business plan is not only to demonstrate growth but also in mitigating business risk for all stakeholders (also see our Feasibility Study).

Without a properly written business plan, no stakeholder will know where the business is heading and the risks that are involved in the journey.

What a business plan is not

A business plan cannot be put on paper without first thinking through all the challenges the business will face, and how it intends to solve them and come out profitably. This requires a lengthy process of asking questions and finding solutions before one can sit down and write anything of any value.

So, in business planning, there is a need to cover all pertinent areas (whether you are a start-up or an existing business) and answer all the key questions. And the document must be easily understood by internal and external (selective) stakeholders.

In addition, there must be a balance between breath and depth of coverage otherwise you will distract your reader from the plan’s main purpose – to explain, rationalise and persuade. The key to this is clarity and brevity in writing.

There might be a tendency for some writers to get buried in unnecessary details, jargon and the latest catch-phrases, and perhaps unknowingly treating the project as an academic exercise without addressing all the real-life business challenges. This will not only have little value in the pitch but can actually backfire because experienced investors will easily see through the “smoke”.

So, while graphs, charts, nice-looking graphics and good English can help bring your business idea to life, demonstrating understanding of the challenges in the business and market environment and showing clearly how you intend to solve them will be more relevant to your reader.

What makes a really good business plan?

You are in business because there is a market. You need to get the hard facts, which are irrefutable, to make this claim. There really is no way out of this.

Investors and all strategic stakeholders look for evidence that will lead to growth and long-term viability. So, every business must show growth with its customers. Either you know your market or you don’t. Hence, market research is the basis of all business planning. Without it, your plan is as hollow as a drum – despite the fact that an empty drum can still sound really good.

Knowing your market is your first step towards a good strategy – a good story. And a good story has an attractive outcome. This is exactly what strategic stakeholders look for, such as key business partners and investors.

Here are some of the more important criteria for a good business plan:

  • – Demonstrate clever strategic thinking, implementation logic and positive financial outcome that are backed by facts; based on a sound business vision; and clearly written.
  • – Relevance to the environment the business is operating within. In other words, it must be “localized” in terms of an in-depth understanding of local forces that are impacted by global forces.
  • – A written document that you, the owner of the business, is confident with. You must be able to see how the pieces of your business are glued together to support growth and be able to answer detailed questions about them.
  • – Easily understood by all potential readers – not only by sophisticated investors but strategic partners and important internal stakeholders as well.
  • – Implementable by you for managing the business. It is your compass (or dashboard) for directing your ship to its destination.

So, no matter what you hear, simply adapting from a business plan “template” will not come even close to addressing any of these important criteria discussed so far. Do not succumb to quick-fix peddlers. There really is no short cut unless it is a school presentation!

What makes a set of financials attractive?

The other crucial component of the plan is its cash flow projection. This has far-reaching implications on the management of working capital and balanced sheet ratios and, as a consequence, the viability of the enterprise.

Therefore, it is totally necessary that you have a good grasp of the inter-relationships between financial statements and sales forecast. This will enable you to understand the impact when your readers suggest you make certain changes. You will also appreciate the importance of a realistic forecast.

You also need to demonstrate that expansion can be undertaken realistically as shown in your plan. The time frames for different funding phases and the exact amount of funding required for each phase must be determined by realistic financials and ratios.

Shrewd investors know all these too well and will be on the lookout to see if you understand how to manage cash flow and a bunch of financial ratios.

If an investor is really interested in your proposition, he will want to see detailed financials, and if you have your financials by your side, you will be able to convince him there and then.

How many pages is right?

The extent of a business plan is not determined by the size of the organisation (although this can be the case) but by the market segments the organisation intends to operate in. The more segments, the more the complexity of its marketing, operations, man power, organisation and financial figures.

Therefore, the number of pages of the plan will have to multiply. There is no convention. For investors, a 20-page plan with a few pages on financials may surfeit in terms of making an initial evaluation of the potential of the business.

But for management control, a 50-page document that includes detailed monthly financial forecast is more likely. With a detailed plan, backed by research, you will be able to answer questions immediately when posed to you. And this is essential if you are facing an investor. You do not want to say, “I will get back to you later. Let me do some research.”! This could mean missing the only opportunity you have.

Remember that if you haven’t got a business plan done up yet, you have no evidence to show that you are preparing to grow.

We can work with you to craft an authentic business plan that is (i) based on your vision (ii) attractive to your readers (iii) implementable – as a management control tool; and will become (iv) your compass towards growth.

But most importantly, we will explain to you every detail of the plan and give you confidence in selling your own idea to your readers.

So, as you head over to ACRA (www.acra.gov.sg), keep in mind what it means to start a business.

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