How to create a business plan?

Company creation process Leave a comment   Published on par Jonatan Carbonell

Making a business plan is a requirement when starting a business. It is a fundamental document for maturing a project and obtaining external financing.

If we go to the definitions, there are many, but in simple terms, the business plan is a tool for the visualisation and presentation of a project, where the objectives and strategic actions to achieve it are defined.

Therefore, the business plan must be impeccable, both in substance and in form, based on a rigorous methodology to build a solid business plan.

FOR WHOM AND WHY?

A business plan is a reference document whose purpose is to present a complete plan for setting up or taking over a business. It is about explaining, in the most didactic way possible, the economic model of your company, the type of product offered, your medium and long-term strategy or your sources of financing. In short, the business plan must convince an external observer of the viability of your project, of the adequacy of your skills and, finally, of the reality of your motivation.

The business plan is not a marketing tool, nor is it intended for your future clients. This document is primarily intended for people who will agree to follow it and support it financially, i.e. banks or other investors (business angels, future partners, etc.). The readability requirement requires that you limit yourself to a certain volume: beyond 15 or 20 pages in A4 format, your document will lose its effectiveness considerably.

WHAT SHOULD THE BUSINESS PLAN BE USED FOR?

This is the first question you should answer because a business plan can be used for many things: to obtain financing; to find a partner; to ask for an investor; to sell a business; and so on.

On the one hand, depending on the objective, the interlocutor will not be the same, but also, the objectives of the interlocutors are different depending on the nature of their relationship with your company. Clearly, your business plan should not present the same things if you have different objectives, you should adapt it to each of the interlocutors to whom you will present your plan, structuring and highlighting what matters most to the person who will see it.

THE STEPS

The construction of the business plan generally follows a logical reasoning, which demonstrates step by step that the business plan is constructed and feasible.

There is no strict rule in the presentation of the content of the business plan. What is important is to respect a certain logic. Whatever order is chosen, it should include the following points, but other elements could be added for larger projects.

THE EXECUTIVE SUMMARY

Your business plan should start with a synthetic and “sales” presentation of your project. This presentation, which should not exceed one or two pages, should make your interlocutor want to continue reading and be interested in your project. To do this, they must immediately understand what it is all about. This is the “moment of discovery”. Soak up your words to arouse the reader’s interest and encourage them to continue reading beyond the executive summary!

YOU AND YOUR TEAM

The presentation of the project leader (i.e. you) or the founding team should be made with the same care as the writing of a recruitment CV, emphasising everything in your past experience that is linked in a rewarding way to the project in question. This presentation should be “punchy”. In some projects, the personality of the creator or the presentation of the team is as important as the project itself. And if there is more than one of you, insist on the complementarity of the team!

THE GENERAL PRESENTATION OF THE PROJECT

At this stage, you can talk about the genesis of your project: how and why did you come up with the idea? What are the motivations that drive you to start this business? What are the objectives? What are the assets for success? All of these will give context and captivate your interlocutor.

MARKET STUDY

In order to develop a sound business plan, three main elements should be analysed in the framework of a market study:

  • Supply: it is necessary to identify the supply available in the target market. Competitors are the essential component. It is important to know how many competitors there are in the market, the variety of their offer and the prices charged. You need to understand their commercial and operational strategy, because it is essential to better understand the existing supply in the market.

  • Demand: it is also essential to carry out a detailed study of target customers, their consumption habits, their average budget, their unfulfilled expectations, etc.

  • A potential market failure: identifying one or more needs that are not satisfied by the competition allows you to determine the competitive advantages that your own company can exploit.

  • To identify your target market, you first need to know your customers, competitors and other market players. The rule is simple: to create my business plan, I must be able to understand the concrete expectations of my future customers.

THE ECONOMIC PART

It has several parts:

  1. A presentation of the products and services you will offer. Make sure it is completely understandable – avoid using jargon that is too specific!

  2. A presentation of the economic model (or business model) you will adopt: describe how the company delivers and shares value with all stakeholders.

  3. The strategy you have chosen to enter a market and develop this business: the market segmentation, the choice of product/market, the positioning retained in relation to the competition, as well as the marketing decisions that have been made (product, pricing policy, distribution and communication).

  4. Projected revenues, relying as much as possible on tangible elements.

  5. The means to be implemented to achieve these sales forecasts: explain concretely how the company will operate, how, with what and with whom.

  6. The drafting of this section should be the occasion to visualise the future market of the company, breaking down the operational process and putting in parallel the necessary equipment, manpower and other means, in particular intangible ones.

THE LEGAL PART

La presentación del régimen legal de la nueva sociedad debe servir para explicar y justificar la elección realizada, presentar la distribución del capital y las competencias resultantes.

Esta parte debe ser objeto de un archivo separado para recopilar todos los documentos de respaldo y no sobrecargar el plan de negocio.

THE FINANCIAL PART

It includes all the elements that translate the economic part into financial terms. Its composition will naturally depend on the sector of activity and the development potential of your project.

As an indication, to convince an investor, here are the financial elements that are often found in a business plan:

  • The investment table: This indicates the purchase price of the investments, their expected acquisition date, the duration of the accounting depreciation and the annual amortisation charge for each of the first three financial years.

  • The initial financing plan: This indicates the capital to be raised in order to start up the project under good conditions. In order to correctly identify all sustainable financing needs (to compare the sustainable financial resources required), a thorough analysis and calculation must be carried out to correctly determine the amount of capital and working capital required.

  • The profit and loss account for the first three years: This allows to judge the future profitability of the new company.

  • The 12-month cash flow plan: This table makes it possible, in a relatively short period, to ensure that the new company will always be able, on a reasonably foreseeable basis, to meet its financial commitments.

  • The calculation of the break-even point: It is important to know the turnover that the company must imperatively reach to cover all its expenses and to determine when this threshold will be reached. Beyond that, the company starts to generate profits.

  • The three-year financing plan: This table is necessary to assess the expected evolution of the company’s financial structure in the medium term, because a good financial structure is one of the conditions for the sustainability of new companies.

  • The annuity and credit table (if there is a medium or long term loan): The breakdown of loan repayments must be known. This is necessary to feed the profit and loss account (financial charges) and the 3-year financing plan (repayment of the borrowed capital).

For these last two sections, which are quite technical and need to be well analysed and broken down, you can use a trusted business consultant or advisor to give you a great advantage when presenting your business plan.

THE DOCUMENT AND THE PRESENTATION

As such, the business plan should be well presented, easy to read and coherent to understand. So, first of all take care to highlight your idea and take care of the wording, here are some recommendations for that:

  1. Keep it simple. Avoid overly technical jargon – everyone should be able to understand it.

  2. Although simple language should be used, you should be an expert on the topic you are going to develop and be well documented. Select the most relevant information, label your documents. Be specific, avoid guesswork.

  3. Structure your comments and make the text flow, linking your ideas as naturally as possible.

  4. Take care of your spelling, air your text and lighten complicated paragraphs as much as possible. Remember that quality is always better than quantity. Don’t forget to include images in your document so that people can refer to them.

  5. Don’t hesitate to talk about the problems you may have and the questions that have arisen. Ask yourself, “Do I have credibility?” and show that you have anticipated well.

  6. Finally, keep your tone upbeat and motivated, but not too stylised.

KEY POINTS:

To summarise, remember that the business plan document should be structured around 5 main axes:

  • Presentation of the project

  • Market study

  • Presentation of the products and services offered

  • Presentation of the strategy

  • Financial data

And most important of all, prepare your speech or oral presentation, provide comments to the data you include in the document, speak naturally and skillfully so that you convey confidence. Once you have that, you have 80% of your business plan presentation won.

In the business plan, the questions “why? what for? how will it be achieved?”, the motivation and differentiation of your project from the competition should be stated in detail; this is because the idea is to add value to the market with your project.

This document will serve as a guide so that you do not lose your way in the process of evolution of your business. For that reason, it must be constantly updated, if you are starting from scratch a new venture, review it two or three times, show it to your partners, compare it with your competition and ask for opinions, if required. If you are already an entrepreneur and your business is already known in the market, update the document annually and analyse the strategy used, the objectives achieved and possible financing or investments for the project.

You are now ready to create your business plan!

Don’t forget: be open to possible changes, use your analytical eye and get to work!

 

Published on par Jonatan Carbonell

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