Tips for Writing a Business Plan

Writing a business plan can seem a daunting challenge. However, this skill is a vital requirement for any entrepreneur or business seeking to increase their chances of survival. Here is a list of my top ten tips for writing that winning plan:

1. Write from the audience’s perspective

The starting point for any business plan should be the perspective of the audience. What is the purpose of the plan? Is it to secure funding? Is it to communicate the future plans for the company? The writer should tailor the plan for different audiences, as they will each have very specific requirements. For example, a potential investor will seek clear explanations detailing the proposed return on their investment and time frames for getting their money back.

2. Research the market thoroughly

The recent Dragons’ Den series on BBC 2 reiterated the importance prospective investors place on knowledge of the market and the need for entrepreneurs to thoroughly research their market. The entrepreneur should undertake market research and ensure that the plan includes reference to the market size, its predicted growth path and how they will gain access to this market. A plan for an Internet café will consider the local population, Internet penetration rates, predictions about whether it is likely to grow or decline, etc., concluding with a review of the competitive environment.

3. Understand the competition

An integral component to understanding any business environment is understanding the competition, both its nature and the bases for competition within the industry. Is it a particularly competitive environment, or one that lacks competition? How are the incumbents competing—is there a price leader evident? Finally, including a thorough understanding of the bases on which you intend to compete is vital; can you compete effectively with the existing players?

4. Attention to detail

Make the plan concise, but include enough detail to ensure the reader has sufficient information to make informed decisions. Given that the plan’s writer usually has a significant role to play in the running of the business, the plan should reflect a sense of professionalism, with no spelling mistakes, realistic assumptions, credible projections and accurate content. The writer should also consider the format of the plan, e.g., if a business plan presentation is required, a back-up PowerPoint presentation should be created.

5. Focus on the opportunity

If you are seeking investment in your business, it is important to clearly describe the investment opportunity. Why would the investor be better off investing in your business rather than leaving money in a bank account, shares, or investing in another business? What is the Unique Selling Proposition (USP) for the business? Why will people part with their cash to buy from you?

6. Ensure all key areas are covered in the plan

Undertake research on what a business plan should contain; one good place to find this is at Bplans . Include sections on the Company, Product/Service, Market, Competition, Management Team, Marketing, Operations and Financials. The plan should also take on board the readers’ various preferences for viewing data. While many plans are predominantly textual, the plan should include some simple colour charts and spreadsheets.

Business Planning Is Not Just for Startups

One of the greatest misconceptions about business planning is that a business plan is useful only for start-ups. While start-up companies are indeed one significant segment of business planners, business planning is being utilised by an increasing number of companies as a means to manage growth better, to ensure new ideas have been assessed for commercial viability, and to value a business on exit.

Secondly, the importance of the business planning process is often under-emphasized relative to the primary focus on the final output, the business plan. The very process of producing a business plan enables management to take a holistic view of their organization. It helps them give due consideration to the various factors that mesh together to create the opportunity they are seeking to explore, as well as the resources required and the key drivers needed for success. This article aims to justify a more expansive remit for the business plan, by highlighting a number of key areas where its application is of considerable benefit for all companies.

1. Intrapreneurship
Companies are increasingly encouraging employees to create new growth opportunities as competition intensifies in their core (mature) business lines. Mature invariably means competitive, so the focus on growth opportunities is via innovation and creativity, especially in emergent areas. The term intrapreneurship thus refers to “inside entrepreneurs”; where intrepreneurs personify the key characteristics of an entrepreneur, but do so within the company bounds.

Intrapreneurship is not new – 3i, a venture capital/equity investment company, has been one obvious practitioner for many years – and its application of intrapreneurship has helped to spawn a number of new products. Google, a company renowned for innovation, operates a 70 percent rule, whereby employees are expected to spend 70 percent of their time on the core business, 20 percent on related projects, and 10 percent on unrelated new business opportunities. While the generation of new ideas is paramount, ensuring their commercial viability is of critical concern, and writing a business plan is one key way to assess the merits of an innovative proposal in a more rigorous fashion. The plan can thus be produced for an internal opportunity as if it were a stand-alone entity, with the author being required to detail both the opportunity and the resource implications of pursuing it.

2. Managing performance
A business plan can also be used as a management tool to assess ‘actual results’ against ‘planned results’. Using these figures in conjunction with an assessment of year-on-year performance can ensure that managers reflect on performance not just based on the previous year’s achievements, but also in relation to the original planned figures. This enables managers to analyse deviations from plan so as to understand what figures are materially different from the planned ones and what drivers shaped the disparities. It also helps to shift the focus away from solely historic comparisons –instead the manager is tasked with planning for the year ahead and hence there is an agreed goal up front and greater transparency on a month by month basis when ‘actuals’ can be compared with ‘planned’.

Such analysis helps to enhance a manager’s understanding of the changes that have impacted recent performance. If planned results and actual results are considered on a monthly basis, this analysis may also help the manager take remedial action in a more urgent time frame.

3. Planning strategically
The process of business planning is, in and of itself, a worthwhile pursuit as it forces the authors to remove themselves from the day-to-day tactical/responsive mode in which many managers operate. The planning process forces any manager to consider the future. In particular, they must take into account the resources at the company’s disposal and plan to maximise the return on capital, as limited by the wider context.

For many companies, a desire on the one hand to maximise the return from the existing product/service revenue stream, needs to be balanced on the other by a desire to develop new additional revenue streams. By putting a business case together for a particular course of action, a manager ensures that the proposal is financially robust (i.e., worthy of pursuit), that the goals are kept in focus and that resources are allocated accordingly.

Hence, a business plan can support a company’s focus on exploiting a particular market segment, creating a new product, promoting a new use for a product, etc. Once the plan is committed to paper, it is easier to ensure that there is consensus, ownership of the plan, and a breakdown of tasks, milestones and deliverables to help achieve the goals set out in the plan.

4. Preparing for a future exit
At some point in the life cycle of a business, the founders/investors may decide that they want to cash out of the business. The exit strategy will typically focus on extracting the highest value possible from the sale. An up-to-date business plan detailing the opportunity for new buyers will support any valuations put on the business by its current owners.

Before a company reaches the point of sale, it is important to get everything ready by making sure that all historic accounts, cash flow statements and business plans are up-to-date. It is generally accepted that thorough preparation for a sale, well in advance of the sale date, improves internal management focus, aids performance, and ultimately serves to increase the final valuation.

Once management identifies the key drivers for a typical potential acquirer, a business plan can be put in place to focus the minds of employees and ensure that the sale value is maximized. For example, if the general bases for valuation for the industry are focused more on cash generation than profit, a company can drive short term revenues by undercutting sales prices of competitors by selling at cost + 5%. While such activity may not be sustainable in the long run, it can serve to help cash flow when a sale is being considered and prospective acquirers are reviewing performance. While some managers are not that comfortable with planning and projections, the preparation of a thorough business plan plays a vital role in extracting the maximum value from a sale.

Save money with cloud computing

Why move to the cloud? There are plenty of good reasons, but mainly it makes good business sense. You can call it efficiency, or call it doing more with less. But whichever spin you prefer, cloud computing lets you focus on what’s important: your business.

Cloud computing can be used for almost all types of applications, not just business security. While the idea of cloud computing can sometimes seem hard to grasp, it’s clear that it saves its users money – especially SMBs, including small office/home office (SOHO).

 

Plenty of oh-so-clever industry people will tell you what cloud computing is and isn’t. Here’s my simple view: It’s what we used to call software as a service (SaaS), but it’s set up so it’s easy to switch on, simple to expand and contract, and usually has a usage-based pricing model.

Read on to discover why moving to the cloud will save you money in five ways (six, if you’re picky)….

 

1. Fully utilized hardware

Cloud computing brings natural economies of scale. The practicalities of cloud computing mean high utilization and smoothing of the inevitable peaks and troughs in workloads. Your workloads will share server infrastructure with other organizations’ computing needs. This allows the cloud-computing provider to optimize the hardware needs of its data centers, which means lower costs for you.

 

2. Lower power costs

Cloud computing uses less electricity. That’s an inevitable result of the economies of scale I just discussed: Better hardware utilization means more efficient power use. When you run your own data center, your servers won’t be fully-utilized (unless yours is a very unusual organization). Idle servers waste energy. So a cloud service provider can charge you less for energy used than you’re spending in your own data center.

 

3. Lower people costs

Whenever I analyze organizations’ computing costs, the staffing budget is usually the biggest single line item; it often makes up more than half of the total. Why so high? Good IT people are expensive; their salaries, benefits, and other employment costs usually outweigh the costs of hardware and software. And that’s even before you add in the cost of recruiting good staff with the right experience.

When you move to the cloud, some of the money you pay for the service goes to the provider’s staffing costs. But it’s typically a much smaller amount than if you did all that work in-house. Yet again, we have to thank our old friend: economies of scale.

(In case you worry that moving to the cloud means firing good workers, don’t. Many organizations that move to cloud computing find they can redeploy their scarce, valuable IT people resources to areas that make more money for the business.)

 

4. Zero capital costs

When you run your own servers, you’re looking at up-front capital costs. But in the world of cloud-computing, financing that capital investment is someone else’s problem.

Sure, if you run the servers yourself, the accounting wizards do their amortization magic which makes it appear that the cost gets spread over a server’s life. But that money still has to come from somewhere, so it’s capital that otherwise can’t be invested in the business—be it actual money or a line of credit.

 

5. Resilience without redundancy

When you run your own servers, you need to buy more hardware than you need in case of failure. In extreme cases, you need to duplicate everything. Having spare hardware lying idle, “just in case,” is an expensive way to maximize uptime.

Instead, why not let a cloud computing service deal with the redundancy requirement? Typical clouds have several locations for their data centers, and they mirror your data and applications across at least two of them. That’s a less expensive way of doing it, and another way to enjoy the cloud’s economies of scale.

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Need to Know About Business Plan Mistakes

The importance of business planning is widely documented; however, guidance as to what constitutes good business planning is less clearly defined. This article aims to redress that imbalance by describing 10 of the most common mistakes that occur in business plans.

While the business-planning process is in itself a very worthwhile pursuit, most business plans are produced for a specific purpose. The plan is used as a means to convey an idea with a view to achieving a specific goal, e.g. securing funding. Hence the plan needs to be tailored with the audience in mind, and good knowledge of their requirements will help shape a winning plan.

For example, the requirements a Venture Capitalist will have in assessing a plan seeking to secure a million-pound investment will differ considerably from those of a local bank manager who needs a plan to support a small-loan application. While the former will be primarily looking for capital growth, the latter will be more concerned with security. Regardless of the specific purpose of the plan, these following business plan lessons will apply.

1. Incredible financial projections

One of the key areas business plan readers will focus on will be ‘the numbers’. Specifically, they will concentrate on the projected Income Statement or Profit & Loss. The fact that numbers are projected does not mean that those figures can be included without due rigour or process. They need to be credible, defensible and consistent. Of course forecasting is not an exact science, and the use of proxies can help the author ensure that the figures included are plausible and consistent with the story being told in the other areas of the business plan. The figures must also show an ability of the company to generate free cash flows so that the business can be run profitably while satisfactorily servicing their debts at the same time.

All costs should be recorded including salaries to owner managers who run the company. It is not credible to generate P&L projections where expenses such as salaries are omitted to demonstrate managerial commitment or to artificially reduce losses, etc. By the same token, no investor will be prepared to fund a business where the projected salary payments are excessive. While dealing with finances is not everyone’s strong point, there has to be someone on the management team who is cognizant with the maths. A business plan will need to include everything from break-even projections to proposed return on investments to cash flow forecasts, and one of the key players will have to converse on these subjects in a convincing manner. They will also need to justify the numbers.

2. Lack of a viable opportunity

A business plan needs to not only describe an opportunity, it must also detail how the opportunity can be exploited profitably and demonstrate the company’s ability to deliver what is required. In recent years there has been a significant increase in plans that are inaccessible to the average reader because they are couched in technical jargon and unfamiliar terms. If the reader of the plan cannot fully grasp who the prospective customer is, how that customer will be targeted, and the prospective benefits from the proposed solution, the reader will not invest. In an increasingly time-pressed world, people crave simplicity. Many business plan recipients will only scrutinize the Executive Summary and the financials, using these as the decision points as to whether to read further or not. Hence it is of paramount importance that both the executive summary and the wider plan describes the opportunity in readily understood terms, such as:

  • What is the issue or pain point?
  • What is the proposed solution?
  • What are the benefits of the solution?
  • Why are these benefits compelling?
  • Who will benefit the most from these?

Once these are detailed, there will be greater transparency regarding the viability, or otherwise, of the proposed opportunity in terms of the company’s ability to profitably serve the target market.

3. No clear route to market

All opportunities are only prospective ones without evidence that the target market can be accessed profitably. Many entrepreneurs are inherently product focused, concentrating their energies on ‘the idea’ to the exclusion of many other important elements such as how they intend to access their customer base. The growth in popularity of the Internet has certainly helped niche producers find geographically dispersed customers, making many more ideas commercially viable. However, it does not come without its challenges, as creating awareness online is both costly and intensely competitive. The business plan must include a comprehensive and credible analysis of how the company intends to secure access to their target market in a cost-effective manner. The low cost and barriers to entry for websites have resulted in the creation of hundreds of thousands of sites. Ensuring that a site stands out from the crowd is easier said than done. Knowledge of who the customer is and how they buy is very important, but identifying them and accessing them on an individual basis is much more challenging and costly.

4. Overestimation of revenues

Another key element of the plan will relate to the size and value of the opportunity. Does the business plan describe a small local business-to-business opportunity with limited scalability/ return or is it a concept with widespread or even potentially global consumer appeal? While the description of the market opportunity will undoubtedly be couched in positive terms, an obvious danger relates to the innate optimism of entrepreneurs and their tendency to exaggerate every business opportunity. Hence the general interpretation of sales forecasts is that they will be optimistic but not excessively optimistic. Admittedly what constitutes ‘excessive’ is subjective, but the numbers will need to be justified and if it emerges that the figures are mere fantasy, the author will lose all credibility and it will significantly undermine any confidence the potential investor might have in the plan.

Emergency Exercises Like Just Another Drill

It’s no secret that the world can be volatile and violent. Shootings and bombings in public places. Floods, fires, droughts, and other dangers amid an uptick in severe-weather events. Any of these could be a threat to your organization, its people, its customers, and its suppliers. And although senior executives contemplate the likely impact of these phenomena in risk-analysis meetings, far fewer take the time to participate in real drills, instead designating someone else as a stand-in. After all, it’s tough to get an operational dry run on the calendar of a CEO, CFO, or other executive.

That is an enormous mistake. Executives who let someone stand in during practice set themselves and their teams up for failure when the worst happens: The first crisis may be beyond your control, but that is not the case with the second, highly avoidable crisis that results from a fumbled response. Participating in a rigorous, well-crafted, scenario-based drill is the closest you’ll get to experiencing the emotional tension and challenging ambiguity of an actual event that may involve fatalities, skittish investors, and intense media scrutiny. I’ve seen many occasions in which seasoned executives who start an exercise confident, even joking, wind up sweating amid the flurry of high-stakes decisions to be made in a response drill.

If you are a senior leader, you don’t need to attend every exercise, but you should make time for at least one in your calendar each year. It is the only way you’ll know what to expect in a true emergency — and the only way you’ll be able to judge whether those engaged in the nitty-gritty of the response are capable of succeeding.

An exercise is your chance get to know your emergency team, how it works, and where you fit in. It is also a chance to ask seemingly naive questions. If you are wondering about something, chances are someone else is, too. A drill will likely trigger important realizations or gaps you wouldn’t have known needed to be addressed had you not been in attendance. It will provide a real window into not only what a crisis might look like, but what the recovery will be in the weeks after.

Here are three frames to help you get the most from your investment of time.

Understand the operational rhythm (and how not to impede it). The first 20 to 30 minutes of any response will be chaos. Incomplete and sometimes conflicting information will be flying around. Resist the temptation to try to assert control — the easiest way to create chaos is to take command when you aren’t fully versed in the plans and protocols the response team members are using. Instead, watch to see how long it takes for the team to get into an operational “battle rhythm” in which the team members are effectively processing information, making or elevating decisions, and taking appropriate actions. What you can do at this point is ask how you can be useful.

A critical benefit of taking part in an exercise is trust building with security and safety managers with whom you might otherwise not have much chance to interact. In an actual incident, you’ll need to count on them, and they’ll need to be comfortable with you.

Learn what questions you’ll want answered. A good drill exposes gaps that lead to learning. For example, in the Deepwater Horizon oil spill response, where I did several days of field research, responders were prepared to provide Gulf-wide information on resource allocation — but elected officials wanted those details on a state-by-state and parish-by-parish level. An enormous effort was required to retool the mechanisms for more detailed reporting on resource allocation. That need could have been learned of and addressed ahead of time had those officials attended more drills.

Returnships for Retaining Women

It started as a whisper. Back in 2008, Goldman Sachs, which originally coined the term returnships, began a high-level, paid internship program for professionals returning to the workforce after an extended absence, with the opportunity for a permanent role. The participants were mostly women who had dropped out to raise children and now wanted to restart their careers.

That whisper is now growing louder. Returnships have become more common; they are a part of the conversation in business and media circles. The U.K. prime minister is even getting in on the act: The day of the country’s 2017 budget announcement, Theresa May unveiled a £5 million (US$6.2 million) fund to identify opportunities for — guess what? — returnships.

iRelaunch, a U.S.-based business specializing in returnships, has identified more than 100 active programs globally, in sectors as diverse as construction, advertising, and financial services. They’re clearly making a mark: Many corporate heads of diversity, when asked what they’re doing to create senior-level opportunities for women, will reply, “We’ve got this covered — we have a returnship program.” But the situation is not that simple. Both organizations and women seeking to return to the workforce should be aware that these programs aren’t a panacea.

The function that knows your company best

Tax discussions have the rare power to put senior executives to sleep yet keep them up at night worrying.

Business leaders have traditionally compartmentalized tax management as a compliance function, a complex specialty ceded to the experts. Although some C-suite executives have begun to realize that the tax function plays an important role in their overall strategy, it tends to operate relatively independently. When taxes do force their way onto the agenda of the CEO or the board, it is often in the context of bad news. Consider the uproar in the U.S. in recent years over corporate inversions, in which a U.S. company avoids paying U.S. taxes by buying a foreign company and moving its own headquarters overseas. And with the promise of some kind of tax reform under the Trump administration, the only certainty is that corporate taxes will continue to be headline fodder. On the other side of the Atlantic, the European Commission’s rulings against perceived cases of “state aid” in the form of favored tax treatment of certain companies can be costly to companies that are required to pay back their tax savings, as well as damaging to their reputation.

But to assign tax management entirely to a compliance role is to miss an important opportunity. In fact, executives should move quickly in the opposite direction: They should pull the tax function out of its silo and integrate it into the company’s daily operations. This function gathers data on every part of the business, including employees, assets, and intellectual property, in all territories. It’s one part of the organization where, at least once a year, you can be certain to find a comprehensive accounting of the entirety of the business.

This overarching perspective, of course, isn’t just “nice to have”; it’s increasingly necessary if companies are to communicate effectively with regulators and tax authorities. For example, multinational organizations are facing unprecedented challenges in the global tax environment as governments require greater tax transparency in the countries where they operate. Moves toward digitization of the tax system in a number of countries — Russia, Mexico, and Brazil are among those at the forefront — are also giving government tax authorities unprecedented amounts of transactional data about companies, often in real time. Since the tax function is gathering all this information together for regulators, it behooves the organization to use it more effectively in its own right. Thus, it is becoming a best practice to view the tax function as a strategic partner, one helping to set business priorities and giving the company a competitive edge. Otherwise, the tax authorities might have more insight about your company’s data than you do.

Giving Up Control Is Key to Creating Value

In the two years after Lew Cirne founded Wily Technology in 1997, he assembled an experienced executive team, hired 50 employees, and raised two rounds of VC funding. But he also had to relinquish three of five board seats to his investors, who promptly decided that Cirne should be replaced by a CEO with a stronger business background. CA eventually bought the firm for US$375 million — a far larger haul than Cirne could have brought in, as he admitted. But the founder was still chagrined about the early decisions he made that led to his ouster.

Whether in Silicon Valley or any of the other startup hubs around the world, Cirne’s dilemma is all too familiar. To grow their firms, founders desperately need financing, skilled employees, and the kind of “social buzz” that makes investors reach for their checkbooks. But the more investors or key hires who come aboard to provide much-needed resources, the more autonomy the company founder must surrender. Founders face a trade-off between retaining control and increasing the value of a young firm.

According to a new study of more than 6,000 high-potential U.S. startups that launched between 2005 and 2012, how one navigates this early-stage founder’s dilemma has a profound impact on the firm’s long-term value. The more power retained by founders, the author discovered, the less valuable their companies are.

For every additional position of power a founder occupies (being both CEO and chairman, for example, as opposed to controlling just one of those roles), the company’s value decreases by between 17.1 percent and 22 percent. The author also found that startups whose founders retain an additional level of power see a 35.8 percent to 51.4 percent decrease in the amount of financing they raise, depending on which variables he used to measure a founder’s control.

But this trade-off effect kicks in only after three years, at that delicate stage in which founders’ technical expertise or visionary outlook typically become less crucial to growth than the resources a firm has attracted.

Business Solutions Ideas

Many SMBs and SOHOs are walking away from their traditional phone companies and moving to the Internet for their telephony needs. In tech jargon, they’re switching from POTS (“plain old telephone service”) to Voice over IP (VoIP, pronounced as one word). Read on to find out what it is, why you should use it, and what to watch out for.

 

VoIP lets you make phone calls over the Internet with a number of advantages over your landline. It gives you low calling rates, especially when making overseas calls; excellent voice quality, rather than the muffled squawk of a traditional phone; and extra features (or easy access to the hard-to-use features you already have).

A phone using VoIP is different from a regular phone; instead of connecting to an analog phone line, it connects to a computer. That computer is usually called a VoIP gateway, and it’s the bridge between the handset and other telephone users.

 

Breaking it Down: VoIP Types

Cloud vs. Local

The gateway connects you to the regular telephone network, or to other VoIP users. Your gateway might be on-site, or it might be a hosted service—“in the cloud”—that you connect to via the Internet.

Running it yourself might be a good option if you have the expertise in-house, but for most people, a service is the simplest and least expensive option.

 

Which System?

Classical VoIP is based on Internet standards like SIP and RTP. The best-known example of a commercial service like this is Vonage; the best-known in-house product is probably the Cisco UCM Suite.

Some newer systems are based on a different standard, called Asterisk. This is a robust, battle-tested system supported by many vendors, including Fonality.

(Normally, you can ignore all this nerdy alphabet soup, but it’s helpful to know which standards your system uses, in case you ever need to know about compatible add-ons.)

No discussion of VoIP software would be complete without mentioning Skype. It’s probably best known as a consumer-focused, free, peer-to-peer service, but the company also offers a service aimed at businesses of all sizes. It’s not just a program you run on your computer; you can also buy dedicated desk phones that work with Skype.

 

Security

One of the advantages of VoIP over regular phone service is the extra security. In the VoIP world, voice scramblers aren’t just the preserve of the military.

It’s similar to working with a secure website, such as your bank. By enabling encryption, you get privacy for your business communication, plus authentication (i.e., protection against call rerouting).