The business plan is crucial for every business, particularly start-ups.
Indeed, the heightened uncertainty recently voiced by small businesses over issues such as the carbon tax and sluggish consumer spending has put an even greater focus on the need for a robust plan.
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The plan should cover such areas as market analysis, company description, organisation and management, strategic analysis, marketing and sales management, service or product line, the amount of funding needed to start or expand the business, and financials.
Business plans need to be updated at least every three months.
Plans are important for obtaining bank finance, attracting investors, arranging strategic alliances, completing mergers and acquisitions, attracting key employees and obtaining big jobs and contracts.
When it all goes wrong
But, for many entrepreneurs, business plans can become a living nightmare. Some plans are botched and badly thought out, while many small companies don’t undertake one for lack of time.
It’s easy to see why. Faced with the choice of serving a paying customer or writing a great plan, the start-up goes for the money. But it needs to be done.
Business consultant John Downes from Acorro says the business plan is a living document.
“I call it the conscience of the business because on a monthly basis you’re comparing what is expected to happen against what actually happened,’’ Downes says.
“It doesn’t necessarily mean your plan was right or wrong. It does give you cause to say if the sales aren’t coming along as quickly as I expected. What impact will that have on my cashflow? And how quickly am I going to go out business?”
“When does the cash run out, does it run out before the cash inflows come in to meet that need? And what do I need to do to generate cash faster or reduce my costs?”
“The beauty of the business planning process is not necessarily about being accurate, but it’s about going through the mental process of trying to tick all the boxes on whether your business model actually works.”
“So the rigour of the process is absolutely vital for reviewing as to whether or not you actually have a business model or just a dream.”
Planning start-up discipline
The process, he says, is crucial for start-ups.
“They need to go through a rigorous process of guesstimating how much money they’re going to make because that’s the dream bit. But they also need to figure out what kinds of clients and what kinds of services they’re going to buy; what sort of frequency they will buy them; and who is actually going to sell them those services and how the business service will be delivered,” he says.
“Have we got enough resources to turn over those widgets or provide those services? It forces the business owner to unpack what sounds like a great idea into how exactly this thing is going to work.”
Peter Christo, who set up melbournecoffereview.com, an interesting site that reviews coffee establishments around Melbourne, points out that business plans for start-ups are wrong as soon as the business is up and running.