Warren Buffet once said: You only have to do a very few things right in your life so long as you don’t do too many things wrong. Warren Buffet is spot on with that comment, yes? Doing things wrong far outweighs doing things right. Especially in writing usable business plans with a good business plan structure.
Why? Our view is that mistakes are more prevalent and certainly more costly. That is why we believe if you are planning on starting a new business, it is critical to spend time on the five most important parts of your business plan.
Check out our thoughts on customer focus.
The real value of creating a business plan is in the process of researching and thinking about your future business in a systematic way. The act of planning helps you to think things through thoroughly, study, and research if you are not sure of the facts, and look at your ideas critically.
It takes time now, but done well can avoid costly, perhaps disastrous, mistakes later.
It’s not clear to us why business plans are the way they are, but they’re often focused on too many things. If you want to maximize success, the key is to focus on five topics. We recommend dividing the business plan into these five sections:
Competitive analysis
Market research and analysis
Marketing plan
Financial plan and cash flow
Short versus long term
Business plan structure … competitive analysis
The purpose of a competitive analysis is to determine the strengths and weaknesses of the competitors within your market. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats.
It helps you size the potential market size and identify your target customers. It also helps you discover the locations of your competitors versus potential customers. With the importance of customer time and convenience, this will be useful in locating your business.
We believe the most critical reason for doing a competitive assessment is to identify the value propositions of your competitors. An analysis of these propositions can help you identify what it will take for you to win customers through your own value propositions.
Market Research and Analysis
The goal of market research and analysis is to describe the market as it is. Describe the market you are entering, the needs that already exist, and the way others have succeeded and failed in the past.
The more specific the better. The more ground knowledge the better. The point? It is to be sure that you’re clear about the way you see the world, and that you and potential partners agree on market assumptions.
A market analysis forces you to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in that market.
Narrow your target market to a manageable size. Many businesses make the mistake of trying to appeal to too many target markets. Research and include the following information about your market:
Distinguishing characteristics – What are the critical needs of your potential customers? Are those needs being met by current competitors? What are the demographics of the group and where are they located? Are there any seasonal or cyclical purchasing trends that may impact your business?
Size of the primary target market – In addition to the size of your market, what data can you include about the annual purchases your market makes in your industry?
How much market share can you gain? – What is the market share percentage and number of customers you expect to obtain in the defined geographic area?
Writing usable business plans with a marketing plan
Marketing is the process of creating customers, and customers are the lifeblood of your business. The marketing plan is your chance to describe how you’re going to change things.
You will do X, and then Y will happen. As you will build Z with this much money in this much time. You will present Q to the market and the market will respond by taking this action.
In this section, the first thing you want to do is define your marketing strategy. This is the heart of the modern business plan. The only reason to launch a project is to change something, and you need to know what you’re going to do and what impact it’s going to have.
An overall marketing strategy should include four different components:
Market penetration strategy
How are you going to win your initial customer base? This is the most important part of your marketing strategy and where most new businesses fail.
Growth strategy
This strategy for building your business might include: how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, or how you will take customers from competitors.
Channels of distribution strategy
Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.
Communication strategy
How are you going to reach your customers? Usually, a combination of the following tactics works the best: promotions, social media, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.
Business plan structure … financial plan and cash flow
And the last section is all about money. How much do you need, how you will spend it, and the details of what the cash flow plan looks like.
There are two parts of a financial plan that will make or break your business. These are perhaps the biggest contributors to business failures.
The first one is an estimate of your business revenue as a function of time. This will determine how much cash you will need to sustain your business.
The second one is how long it will take for your business to get to the break-even point on a consistent basis (comparing revenue versus your total costs.)
Focus on budget versus actual
Take whatever steps you have to take to ensure that you do a good review of budget versus actual at least once a month for sales, costs, expenses, and cash flow.
You should develop the Financial Projections section after you’ve analyzed the market and set clear objectives. That’s when you can allocate resources efficiently.
All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years.
Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should set monthly projections.
If you have made assumptions in your projections, be sure to summarize what you have assumed.
Short versus long term
There are two additional important recommendations we offer. The first is to focus on the short term over the long term. The short term is 18-24 months. Note that if required by a lender or potential partner, then you should add years 3-5.
Our reasoning? It is very difficult to predict with any certainty beyond 2 years.
The second point is the need to make your business plan a living document. You should be reviewing your financial plan at least monthly. We recommend weekly for the first two months of a new startup.
The other parts of the plan should be reviewed and updated quarterly, particularly if there are issues identified in the results of the financial plan review.
The bottom line
A business plan that stresses four or five priorities is a plan with focus and power. You can understand and manage 4-5 main points. A plan that lists more priorities doesn’t really have any.
Agree on performance goals and how to measure them. Make them numerical, objective, so you can track the results and the results will stand for themselves.
There are many great business plans we can learn from. Please post your comments below, offering questions or your own examples for writing business plans.
