Known as the “flight plan” of a company
I have heard and read a lot of expert opinions about what is a business plan? and how importance is for entrepreneurs. Some claim that a business plan provides unreal or manipulated information. Others say that it benefits are huge. In this article I will go in details about this deliverable, for many considered as “the flight plan of their ventures.”
While it is true that the definition of “business plan” is easy to understand, it is also true that it has many intricacies that I would like to analyze.
According to my experience in the subject, a concise definition of what a business plan is would be the following:
A business plan is the “deliverable” that establishes the future objectives and strategies that a new or existing business must pursue in order to be successful.
The word “deliverable” is a term widely used in the world of project and business management. A definition of deliverable would be:
It is something tangible (physical) or intangible (digital) that is delivered at the end of a task or project.
In our case, the deliverable is the business plan itself.
What I like about this word is that it encompasses both the tangible and the intangible. A business plan can be embodied on paper, as well as in digital format.
The word document (physical or digital) significantly limits the way in which a business plan could be presented o delivered.
Tangible or physical
Even though a document is made or written on a computer, people usually print it. The printed presentation causes a special effect on the recipient, much more when it contains images and graphics. Nowadays it is very rare to see business plans written directly on paper.
At institutions (banks and others) where business plans are required, they usually request the physical printed version.
Intangible or Digital
Intangible or digital deliverable are not limited to documents. There are other ways to present a business plan digitally. Personally, I have worked with some of those formats, and they all have their advantages and disadvantages.
Among the best known alternative ways to deliver a business plans we have:
- Voice recording.
Voice and Video Recordings
Voice and video recordings are two very special ways of presenting a business plan to its recipients. Although it seems strange, there are entrepreneurs who choose this format because they consider it very effective, flashy and easy to share. Its major disadvantages are: 1) not all recipients accept this format, and 2) it is somewhat complicated to update them. Even though there are procedures to make the updating process more dynamic, it is usually slow and tedious.
An Infographic is a good way to show the most important details of the business plan visually. It is a very cool, practical and easy to understand. Of course, you should have knowledge of how to handle graphic tools, and be creativity enough to convey the message. Otherwise, you should hire specialists, which cost money.
Future Objectives and Strategies
The business plan has a specific purpose: to show the path to success. This path is defined by specific objectives and strategies proposed by entrepreneurs.
The objectives must be real, and measurable. We cannot fall into the mistake of establishing unattainable or very ambitious goals. We must be very careful with this. Another very common mistake is to set very general or vague objectives. When we say that one of our objectives is “to have many clients”, we are being general and that goal cannot be measured. If instead we say: “build a portfolio of 100 clients by the end of the first year of operation”, we are very specific and it can measured.
Strategies refer to everything we will do to achieve the proposed objectives. Taking the same example of the 100 clients; we must define the strategies that will allow us to reach that number before the end of the year of operation. The strategies can be made in the following subjects: marketing , sales, product, price, among others.
New or Existing Business
A plan can be made for a business that we plan to open in the future or for one that is already operating. The ideal is to have the plan before doing anything, but if the business is already operating we can also create a great plan. Obviously, the business plan structure will vary somewhat between one and another.
Create a plan for a business that is already running and does not perform well could be challenging. Imagine having to define objectives and strategies for a company that has losses and is in free falling. Sometimes it is a very interesting challenge. Other times it is intimidating to have to justify a recovery when the conditions surrounding the company are not promising.
You may state whatever you want in the business plan!
Some people say that “you may state whatever you want in the business plan”. This would happen is you don’t have financial history of the company. In this case, we would have some kind of freedom to estimate financial projections as we wish. But be very careful with that, it is not as easy as you may think.
When forecasting financial projections of a business, you should be using indexes and comparable market. If, for example, market comparables show an annual growth of 1.50%, our projections should be around that number. Otherwise, we would be showing unreal, very optimistic or pessimistic financial projections.
To be successful
Being successful in entrepreneurship is related to the established objectives. That is why being successful could have many connotations. If one of our objectives is to “reach the breakeven point before the end of the first year of operation”, then that will be one of the metrics of success.
Now, we have to be very careful with the objectives. If the market indicators show that the breakeven point of a business like ours should be reached six months after the start of operations, and our goal is to reach it at twelve months, then there is a problem. The objectives must go hand in hand with the market. Reaching the breakeven point in twelve months, as one of our goals states, does not go according to the market. In that case we will not be successful. Everything is related and should make sense.
Elements of a Business Plan
If we survey several specialists about the elements of a business plan, all the answers would be different.
Surely everyone would claim to have their own recipe about the “perfect” business plan, which is not true. The elements of a plan will vary according to the business, the recipient, the information available, and even the taste and experience of the consultant who develops it. There is no wrong structure, unless essential elements are left out.
If, for example, you develop a plan for a new business, the content will be different from a plan for an ongoing business. Similarly, the industry in which it is located, the market it serves, among many other features, will make the plan have a different structure.
How long should a business plan be?
Like the rest of the subjects surrounding a business plan, this is one of the most controversial. On the one hand, some say that the plan must be concise and direct. On the other hand, if you want to use it as the “flight plan” of your company, you must include a lot of information.
Personally, I consider that the length of the plan will depend mainly on the recipient. That is, to whom or who the plan is shown.
For example, for strategic use it is important to include all the elements that help to make business decisions. If we develop a business plan to apply for a loan, the financial part will be vital, as well as the elements on which those projections were based.
If we need a immigration business plan or a tenant / landlord business plan, it must be concise and direct.
But better than being aware of the number of pages of the deliverable, we must include the information that really matters. That is, the objective is not to meet a certain number of pages, but to provide relevant information.
Regardless of the opinions, a business plans is a very important deliverable and still has a lot of weight in many industries and fields.
Even though it is very difficult to predict all the variables of a business, a plan helps to organize ourselves, shape our objectives and define our strategies.
Personally, I have worked on countless projects, and I still think that a business plan can be a very powerful tool. Always remember that you never stop working on it.