In each new business project, achieving profitability is associated with the control of the financing needs and resources of the business as well as the expenses incurred. This task of analysis and planning will not only help us to mark a strategic path for the company, but also will provide key information for collaborating agents such as investors to place their trust in us. But what draws most attention to a potential investor? What elements are especially critical in our business plan?
The business plan is an essential tool for many startups in order to defend their viability in different scenarios. Although the success of a project is not always guaranteed by virtue of the quality of its business plan, especially in projects of radical or disruptive innovation, it always provides information of great value and interest to the entrepreneur. On the one hand, it serves as a guide for the implementation of the business project in question; and on the other hand, it is an irreplaceable communication tool for all members of the entrepreneurial team.
What should be communicated in a Business Plan content?
• The objectives pursued in launching entrepreneurship
• The way in which this implementation is intended to be undertaken
• The necessary resources
• The reasons why drafters understand that their initiative is likely to succeed, a business viability plan.
Defining the plan in writing guarantees that it is an unique plan, although its content will evolve throughout the preparation process and even after.
What information does a Business plan provide?
The Business Plan serves as a basic informational document for any agent interested in participating in the project, and especially for any investor. In turn, for the entrepreneur, it works as a methodology on how to present a business project. Your information will respond to the following viabilities:
• Technical viability: Some companies live by selling ideas, but ideas often have to be turned into products or services before being offered to the public. Can we turn the idea into something the company can sell?
• Comercia viability: The company must be able to manufacture a product that it can sell. What attributes should we give to the final product so that the potential consumer buys it? What is the Business Plan?
• Economic viability: Entrepreneurship must be able to generate more economic resources than it consumes (if it is not possible in the first instance, within a reasonable period of time). If both, the time period in which the revenue stream will compensate the initial disbursements and the final balance, are reasonable, the business will have economic viability. What is the sales plan?
• Financial viability: The start-up of the company will entail significant initial disbursements, to which future contributions will have to be added. New companies need time to turn what was a prototype into a salable product, or to make themselves known to potential customers. Are there sufficient financial resources to cover these disbursements?
How to design step-by-step a Business Plan
Although drafting a Business Plan is an iterative creation, where variations occur and contents are added as a result of apprenticeship learning, a basic guide can be pointed out:
1. Presentation or executive summary: Introduce the Plan, focusing especially on what the company will offer and to whom. An attractive wording is essential to capture the attention of the investor and other agents.
2. Marketing plan: It details and justifies the reasons why the initiative is understood to be commercially viable. This section describes the market to which the product is directed, its scope or the strategy that is following the competition, among other topics.
3. Operations plan: It focuses on the physical and human resources that we will need to manufacture the product or offer the service.
4. Economic-financial plan: It shows the list of initial disbursements, periodic expenditures, income estimates and other data demonstrating economic viability, as well as all estimates of required financial resources.
5. Legal aspects: It describes the legal form that the new company will adopt and why. It can also refer to other relevant aspects such as the ways of protecting intellectual property (patents, trademarks, etc.).
6. Attachments: Additional information such as promoters' CVs and any specific details that expand what is quoted in other sections of the document.
Once explained how to make a Business Plan, below are some keys to boost your interest in the face of investing agents.
10 keys to win an investor over with your Business Plan
1st. Within the Executive Summary, the entrepreneur must be able to explore and expose the suitability of his project to the maximum. It is necessary to contribute much more than a mere exposition of physical or functional attributes. We speak for example of issues such as difficulty of use, level of security, customer profile for which the product would be more useful, etc.
2nd. It is important to be concise in the introduction and focus efforts on targeting the profitability of the initiative, rather than dedicate space to explain its origin or context.
3rd. Study in depth the requirements or motivations of our target audiences. Not always a functional improvement is likely to get more sales. You have to know all the factors that condition the purchase of our product or service in your sector. As a result of this work, the startup will be able to identify and present interesting market segments.
4th. Conduct an in-depth study of the competition by analyzing its offer based on the utility attributes valued by the current or potential market. It is important to reflect all the alternatives, however distant their technologies or strategies are from ours. This will help to interpret the pertinence of the product according to the needs of the client.
5th. Delimit very well the market to attend. As a result, you can find out which market segmentation criteria are relevant to what we offer. They can be geographic or related to the needs of the client. For example, if our offer were to lower a certain component, it would be necessary to study for which potential customer this reduction is relevant and for which it is not.
6th. Collect very well documented estimates of the number of potential customer segments. In what segments are we most attractive? Which are best served by our competitors? In which we compete on equal terms? This information is valuable in directing efforts.
7th. Following a broad strategy that seeks to satisfy the more customers is not usually the best idea. Each segment will require certain adaptations in the product. The ideal is to adopt a strategy that evolves and adapts according to the progress of the plan and its revisions.
8th. Define the product positioning that best identifies us. It is necessary to move away from the broad position that defends 'everything for all', since it ends up associating with the 'nothing for nobody' in the minds of the clients.
9th. Establish a communication policy that defines very well all those strategies and necessary resources to connect with potential clients.
10th. Collect in the Economic-Financial Plan the three types of possible and certain estimates, as well as certain estimates:
A) Initial expenses or investments
B) The periodic expenses that will have to be assumed regardless of what we sell
C) Variable expenses, which will be proportional to the sales achieved. This is the case of the purchase of raw material, commissions to commercial staff, etc.
In relation to the estimates, the deployment of scenarios should be associated to the element that introduces the uncertainty, and not to a parameter such as the sales that are a consequence of this. However, we will be able to conquer a potential investor with a fundamental data for their interests like the profitability threshold; that is, the sales volume needed in a period to reach all expenses.
In summary, the Business Plan is useful for analyzing the technical, commercial, economic and financial viability of any entrepreneurial initiative. It is a guiding document for the implementation of a project, saving costs and optimizing deadlines. In turn, the Business Plan for entrepreneurs will serve as a communication and coordination tool among those involved at internal and external level, and will be improved through iterative reviews.
Do you want more details on this and other basic tools for 21st century entrepreneur? University of Valencia Science Park Foundation invites you to download for free our eBook ‘Herramientas clave para la consolidación y crecimiento de empresas innovadoras’.
Photo: Glenn Carstens-Peters on Unsplash