Modern Business Plan

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Guide on how to write a modern business plan when the audience are business angels and crowdsourcers

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Modern Business Plan

  1. 1.              The Modern Business Plan 1 The Modern Business Plan A guide to writing a business plan to gain investment in the modern funding environment. `            © Copyright 2013 | arinobe.com
  2. 2.              The Modern Business Plan 2 Introduction What is A Business Plan And Why Do You Need One Section One - Executive Summary Executive Summary Questions Your Executive Summary should answer Section Two - What is Your Business? Vision Statement Mission Statement Current & Proposed Operations What To Do If You Don't Have A Trading History Detailed Product Analysis Section Three - Is there a Market for your business & can it be successful? Market Research & Analysis Finding Your Target Market Example Sales & Marketing Plan Strategic Marketing Competitive Analysis 1. Cost Leadership 2. Differentiation 3. Focus Promotional Marketing Management Team Intellectual Property (IP) Section Four - How Much Money are you going to make Section Five - Why should I give you my money Section Six - Final Thoughts and Troubleshooting Don't Understand The Purpose Of The Plan Don't Sell Their Business In The Executive Summary Don't Explain How This Will Achieve Targets No Full Financial Model No Acceptable Exit Strategy `            © Copyright 2013 | arinobe.com
  3. 3.              The Modern Business Plan 3 Introduction The economic crisis has had a profound impact on how entrepreneurs and business owners try to finance their business. Banks have been reluctant to lend money to startups without them offering significant collateral against the loan. Despite all of the publicity stating they are lending more money than ever before, banks are still assessing loans based on the CAMPARI model that has been used for the past 200 years. This rules out 95% of entrepreneurs. The government has made £117.5m available for startup loans and there are thousands of grant opportunities. The criteria for the loans and grants are usually restrictive, require match funding and applications for some of these schemes can also take up to a year. Due to the difficulty in obtaining capital from institutions angel investment has emerged as the main source of external funding for entrepreneurs. Crowdfunding has also emerged over the past couple of years as a viable way of raising capital for your business. Venture Capitalism and Corporate Venturing still exist, but are limited to a small percentage of high growth companies and out of the reach of most businesses. Overall, the financing of new businesses has shifted from institutional capital to personal capital. Angel Investors and crowdfunders invest their own money into businesses. They invest because they are either interested in the business or the entrepreneur. The mindset of personal investors is different to institutions, who just want to know if they will get their money back. Personal investors invest for personal enjoyment and the potential return they may get back. This means you require a different type of business plan. A plan that is engaging, presents an attractive proposition for the investor and highlights your ability to make the business a success. `            © Copyright 2013 | arinobe.com
  4. 4.              The Modern Business Plan 4 What is A Business Plan And Why Do You Need One A business is plan is a document that outlines a vision for a business for a particular timeframe with the reasons why the goals in the vision are attainable. There are many purposes for a business plan, it can be used for ● ● ● ● Gaining investment Finding new partners Securing contracts Internal management The most popular purpose of a business plan is to obtain capital or investment, in this white paper we will concentrate on exploring the best way to write a business plan for this reason. Many businesses are set up without a business plan. If you do not require external funding and have a simple business model that requires little planning, it is possible to run a successful business without a business plan. If you do require external funding or if your business model is complicated then you should seriously consider writing a business plan. Some businesses with great products do not get the success they expected on starting up because they did not have a business plan to work from. A lack of planning or poor planning is one of the reasons why 20% of startups go out of business in the first year. Below are the main reasons why you should have a business plan Provides a vision Without a core aim or vision, you business will struggle to grow as you do not understand what is required to make the business a success. You are just muddling along. Having a clear vision allows you to think broadly how your are going to achieve your goals Helps to redefine your business model A business plan is a great way of testing the feasibility of your business model. You may be doing fine at a certain point in time, but the market changes constantly. The market analysis done in the business plan will allow you to foresee potential changes. Being able to predict what is going to happen in the future gives you the option to change the strategy of your business to keep ahead of the market and your competition. `            © Copyright 2013 | arinobe.com
  5. 5.              The Modern Business Plan 5 Helps you to calculate what you need for your business A business plan forces you to think what resources you will need to meet your targets. You may need additional capital, staff or stock to achieve the goals laid out in your plan. Focusses the management team and staff A business plan gets the team focussed on exactly what they need to do to in order to meet the objectives of the business. `            © Copyright 2013 | arinobe.com
  6. 6.              The Modern Business Plan 6 Section One - Executive Summary Executive Summary The Executive Summary should be the first couple of pages of your plan but it should be the last couple pages you write. Many experts suggest you summarize your business plan in Executive Summary. In fact, the main purpose of the Executive Summary should be to get the reader interested enough to read the full plan. The Executive Summary should summarize the main points of your business plan, but what people do not take into consideration is that it very likely the Executive Summary will be the only part of their business plan that will be read. The Executive Summary is a selling tool, not just for your business, but the rest of your business plan. Professional investors do not have time to read full business plans and tend to work through agents or associations who hire professionals who screen business plans. Due to the volume of business plans that are submitted the professionals tend to only read the Executive Summary, and in some instances only the first page. They will only read the full plan if the Executive Summary presents a compelling case for setting up or investing in the business. The Executive Summary is your opportunity to sell your business or business idea. You need to prove that your business is unique, viable, profitable and you have the expertise and people to make it happen. Questions Your Executive Summary should answer 1. 2. 3. 4. 5. Is there a market for your business? Does the business have the products or services to capture this market? Does the business have the expertise and/or the people to make it happen? How much money will the business make? What is the future of the business? The Executive Summary should be no more than two pages long, and should focus solely on answering the questions above. Remember the Executive Summary is a selling tool, use positive language and incorporate market research and numbers from reputable sources to substantiate your points. `            © Copyright 2013 | arinobe.com
  7. 7.              The Modern Business Plan 7 Section Two - What is Your Business? The second section of your business plan should provide the reader with an picture of what your business does, your aspirations and how the business conducts itself. Vision Statement Getting your company's vision statement right is crucial to its success. It must not be confused with your company's mission statement. Your mission statement states why your business exists. Your vision statement should state where you want to take your business. Your vision statement should represent your aspirations, it is the framework for all of your strategic planning. Your vision statement needs to be both attainable and ambitious. As a business owner, your vision statement must embody the passion that you have for your business. A great vision statement can help you find the right employee's and help attract investment in your business. When thinking of your vision statement think where you want to take your business in the next 3,5 or even 10 years. Try and limit your vision statement to one or two sentences and remember vision statements should inspire and attract employees, investors and customers. Mission Statement Whether you are starting up a new business or running an existing business you must identify the fundamental reason for your business to exist. Making money is an obvious choice but this is not a good enough reason alone for the business to exist. The reason for your business to exist is your "mission" and this should be summarised in a maximum of 30 words. What problem(s) does your business solve? The answer to this question is usually your mission. Things to try and include in your mission statement. ● The purpose of your business (what your company does) ● Why it needs to exist (problems your company solves) ● The values your company believes in. If you are just starting your business plan do not spend too much time on the mission statement as you will amend it as you progress through your plan. `            © Copyright 2013 | arinobe.com
  8. 8.              The Modern Business Plan 8 Current & Proposed Operations In your plan you will need to present a concise overview of your day to day activities for your business. Here are things you need to mention in your overview: 1. Customer Service - how you provide good customer service and look after your existing customers. 2. Sales & Marketing - how you attract new customers 3. Operations - explain how your back office functions will support your business. 4. Business Development - demonstrate procedures and activities your business will undertake to continually develop your product/service. Existing business should give a an overview of how their business currently operates. If you are writing a business plan to get a loan or investment you need to explain how your business will operate after you have received the obtained the additional funding. A proven track record in your particular business is more attractive to potential investors as they feel reassured when there is evidence that the market exist and you have been successful in penetrating it. If your business has been trading ensure that you present a positive but accurate picture of your business. If you have audited accounts add them to the appendix of your business plan. Even if an investor decides to invest in your business it will be subject to due diligence so it's best to open and honest about your trading history. What To Do If You Don't Have A Trading History Many entrepreneurs spend many hours working on their business plan over several months spending a lot of money in the process. The main problem with this is they are missing a vital component that every business needs, feedback from their customers. There is no value in holding onto a product for until it's 100% complete and when its released onto the market people do not understand or like the product. It is much more valuable and time saving to release a product that is functional but does not have all of the features you have planned and let your customers try out the product. If you do not have a trading history and you require investment to start the business, the best option would be you put your business plan aside for four to twelve weeks and develop a prototype of your product/service and try and test the market. The prototype allows you to understand if you have a product that will actually sell as anticipated and the feedback from their first customers will allow you to improve the product. `            © Copyright 2013 | arinobe.com
  9. 9.              The Modern Business Plan 9 The prototype should be a functioning product without all of the planned added features, remember the main purpose of the stage is to prove that there is a market and gain valuable feedback from your customers. For example, if you are planning to launch a new social networking website, start blog and/or facebook page about your idea to attract and engage people with your business. If you are planning to develop software as service (saas) either develop a prototype online or deliver the service manually in person, over the telephone or using a teleconference service. This concept is also applicable to services, you just need to scale down the service appropriately to prove that people buy it. For instance if you are a beautician and you want to open your own store, a great example of a prototype would be to start servicing your customers from your home or your customers homes. Whichever option you take you should document the whole process and present this in the appendix of your business plan. An investor will be interested in how many sales you have made and the feedback that you have received from your customers. Detailed Product Analysis You should give a detailed analysis of the product in this section. You should explain the key functionality and features if the product and an overview of the technical specifications. Make sure this section is not too long. Do not confuse the audience by being too technical. `            © Copyright 2013 | arinobe.com
  10. 10.              The Modern Business Plan 10 Section Three - Is there a Market for your business & can it be successful? The third section of the plan should convince the reader that there is a need for your business and you have the correct plan, approach and people to make it successful Market Research & Analysis It doesnt matter how good your product or service is you have to prove to the investor that there is a market for it. If you cannot afford a market research company it is possible to research your market for your self. Below are some suggestions. Google - search engines contain lots of use information but be prepared to spend a long time looking for what you need. Wikipedia - contains a wealth of information on most topics. Libraries - most local libraries contain trade journals and local information you may find useful. Leverage your social networks - Use a company like Survey Monkey to send mail out surveys to via email and your social networks to find out what people think of your idea. A couple well written tweets in peak hours may generate a response also. You need to demonstrate exactly how large the potential market is. It is not enough to say that you product will appeal all adults, you should be as specific as possible. The more specific your target market is, the easier it will be to build an effective marketing campaign to reach them. `            © Copyright 2013 | arinobe.com
  11. 11.              The Modern Business Plan 11 Finding Your Target Market Example For example, if your product was an andriod app for London nightclub goers. Its not enough to research how many people there are in that age group in the region as there could be 5 million. Your first market calculation should be based on finding your target customer, this could be: - Adults aged between 18-30 - The go to nightclubs in London - Own an android tablet or smartphone This could reduce the market down to 1.5 million You have now established how many people have an android and go to clubs within London, however this is still not evidence that they would be interested in your product. You require deeper analysis of the market. Lets say the app will appeal more affluent males, you should apply additional filters to the market. Such as: - Have disposable income of at least £1000 per month - Has bought an clubbing, dating or lifestyle app in the past 2 years. This could dramatically reduce the market down to just 300,000 potential users Many see this as a bad thing, however it should be a positive as its much easier to market your product to 300,000 people who would be interested in your product than 5 million people who have no interest at all. You should then provide the audience with an overview of where the market is going, will it grow in future. Will the product appeal to similar makes in other UK cities? Can you build an app for the iphone? The target market could increase to 2 million over the two years, you have to prove to the audience that you have done your research and know the market. `            © Copyright 2013 | arinobe.com
  12. 12.              The Modern Business Plan 12 Sales & Marketing Plan Now that you have identified the market and identified a market and done some research on people will potentially buy your product.  Next you need to show the audience you have done the ability to engage with the market and get your product noticed and finally how you will get them to buy from you and not your competition. Key to this is understanding the difference between strategic marketing and promotional marketing. Strategic marketing is the foundations of your plan. Here you assess your market and plan how you will reach that market. Strategic Marketing Why will people buy your product or service and, what makes it unique. You need to show the user that your business has something special that will make people come. This is called your unique selling point (USP) The most popular way of finding out what your USP is the by going through the 7ps of marketing and finding out where your business's strengths and weaknesses. Competitive Analysis Proving that there is a market for your business is the first step in building a successful business plan. Demonstrating that your business can beat the competition is the next stage. Michael Porter defined the three methods to gain competitive advantage. 1. Cost Leadership Becoming the lowest price supplier or retailer in the market will give your business a competitive advantage. You need to decide whether your business provides a "no frills" product/service by stripping out additional extras or you deliver the same as your competition but at a cheaper price. Remaining the cost leader is difficult as your competition will try and lower prices to compete. Pursuing a cost leadership strategy can also lead to reduction of quality. `            © Copyright 2013 | arinobe.com
  13. 13.              The Modern Business Plan 13 2. Differentiation Competing on the basis of offering products/services more valued by the customer than the competition. Differentiation can be convenience, higher quality customer service, better customization of the product/service or a better warranty. When a customer values a product/service they are willing to pay a premium to obtain it. Before adopting this strategy market research is required to find out what the market values. Sometimes the best product is not always the leader, it is usually the business that understands the market the best that becomes the leader. 3. Focus Focus is competing on the basis of being a specialist in a particular market providing a narrow range of products/services. This strategy can be extremely profitable for a small business if they can effectively market their business as larger companies tend to ignore niche markets. To assess what is the best strategy for your business, you need to take into consideration: 1. 2. 3. 4. What the market wants Which looks most attractive for your business Gaps in market Which strategy fits in with your business's strategy Promotional Marketing Promotional marketing is the actual execution of your strategy, for instance advertising. You should detail in your plan exactly which promotional marketing activities you will undertake along with any assumptions regarding success rates of the campaigns. You should be able to monitor the performance of your promotional marketing campaigns. Below are some of the possible promotional marketing campaigns you could plan: Print Advertising Media Advertising (Television & Radio) Cold Calling Direct Mail Internet Marketing ­ SEO, Pay Per Click (PPC) Social Media `            © Copyright 2013 | arinobe.com
  14. 14.              The Modern Business Plan 14 Management Team You may have a great product or service but you need to demonstrate that you have the people to make your business a success. Investors will quickly realize that your business does not have the required management team to grow the business and will not invest. In your business plan you should list down the key skills, qualifications and experience of your management team. You should highlight the teams most relevant skills to grow and manage the business. If you are running a very small business or do not believe your management team have the right skills to you should try and find a business mentor or non-executive director that can add valuable experience and credibility. In your plan you should also mention who will carry out the key tasks in your business. Be fairly brief as you have mentioned your core operations earlier in your plan. Key tasks to mention: ● ● ● ● ● ● Production or Delivery Sales & Marketing Product & Business Development Distribution Finance Operations Intellectual Property (IP) If another business is able to copy or steal your ideas, inventions, contacts, designs or knowledge your business is at risk. Protecting your intellectual property is crucial for the sustainability of your business, potential investors will reluctant to invest in a company whose intangible assets are not protected. There are five main ways to protect your business's intellectual property. ● ● ● ● ● Trade Marks Designs Patents Copyright Contracts `            © Copyright 2013 | arinobe.com
  15. 15.              The Modern Business Plan 15 Section Four - How Much Money are you going to make Explaining when and how much money your business will make is the most important part of your business plan. No investor or bank will inject funds into your business if your plan does not foresee making a profit. This does not mean you should be overly optimistic in your plan as serious investors will challenge the assumptions in your plan or perform due diligence on your business before they make a firm offer. Explain exactly how your business will generate revenue, including all potential revenue streams. Will your revenue come from sales, advertising or additional products/services? There are many different business models to choose from, prove in your plan that you have chosen the best model for your business and your chosen market. Your plan should include a detailed explanation of your start up costs, cost of sales (costs to produce your goods/services), administrative costs and asset purchases. Rising costs hit many small businesses as they grow, if possible you should include a plan of how you will keep costs down using by procuring the best value goods and services. A simple break-even graph will help support your profit and loss statement, showing your audience exactly how many units need to be sold to break even. Managing your cash flow is crucial for small businesses, especially in the first couple of years. Your plan should include and detailed cash flow. Take the information from your sales & expenditure forecasts but you need to make assumptions how fast you will get the money after you have made a sale and how quickly you intend to pay your creditors. As a rule, you should try convert sales into cash as quickly as possible and hold off paying your supplier as long as possible. The financial section should also include a balance sheet. A balance sheet is a statement of assets, liabilities and capital of a business. Balance sheets are difficult to forecast, use your forecasted P&L, capital purchases and capital inflow to assist you. Make sure that your p&l, balance sheet and cash flow are consistent with each other. `            © Copyright 2013 | arinobe.com
  16. 16.              The Modern Business Plan 16 You will need to include - Forecast P&L - Forecast Cash Flow - Forecast Balance Sheet & Fixed Assets - Start Up Cost Its usually advisable to have financials for 3-5 years with the first couple of years completed monthly. Section Five - Why should I give you my money You have to explain to the the audience exactly how much money you require and what you intend to do with it. This is the whole point of doing the plan so make sure you ask for a reasonable amount and can back it up. In this section you should also get the audience a glimpse of the long term plan for the business going beyond the timeframe of the plan. If you think in 10 years the business can be a global brand now is the time to mention it. This should lead into your exit strategy for the business, Investors want to know when they will get their money back. The only likely exit strategy for most businesses is a trade sale to a larger business. Mention in your plan the type of business that would potentially be interested in your business in the next few years. `            © Copyright 2013 | arinobe.com
  17. 17.              The Modern Business Plan 17 Section Six - Final Thoughts and Troubleshooting Below are the essentials of what a business plan should contain 1. Executive Summary 2. Mission / Vision Statement 3. Operations Overview 4. Competitive / Market Analysis 5. Marketing & Sales Plan 6. Financial Planning & Business Metrics 7. Funding Plans & Options 8. Key Milestones 9. Management Team 10. Intellectual Property 11. Long Term Projections A key thing to remember is that your business plan is also a key selling tool for your business. Your plan should be succinct and concise, between 20 and 30 pages, any additional information can be put in an appendix. Summarize your business plan by creating a presentation, it's a great way of focusing your business. You should also tailor your business plan to the audience that you are presenting it to, highlighting what you think they will be most interested in. A great example of this is the difference between a bank and an investor. Banks want to be sure you will repay your loan so you should place emphasis on your cash planning. An investor wants to know how profitable the business will be and how much money they can earn from the business and how quickly they will see a return on investment. When presenting your plan to a potential investor you need to explain how much money they could make from their investment and when they will get this. `            © Copyright 2013 | arinobe.com
  18. 18.              The Modern Business Plan 18 Below are some of the most common mistakes made when writing a business plan. Don't Understand The Purpose Of The Plan A business plan is a sales document where you are trying to sell your business and your management team to the potential investor. The whole document should be tailored to the needs of the audience. A business plan is not the place for detailed product descriptions and narratives. Don't Sell Their Business In The Executive Summary As mentioned before, the executive summary should sell the rest of your business plan. If your executive summary does not demonstrate you have a unique, viable and business the rest of the plan will not be read. Don't Explain How This Will Achieve Targets Stating how many sales you will make or the revenue targets you will hit is not enough. You should explain how you plan to achieve your targets. Your marketing and sales plans should demonstrate how you will engage with your target market and how you convince them to buy your product or service. It is also not enough to calculate the market size and then say you will capture a small percentage. It will only convince an investor if they have specific industry knowledge and can understand the value proposition of your business. No Full Financial Model This is a very easy mistake to fix. You should include the full financial plans with your business plan as part of the appendix. If the investor is interested in your business, they will probably ask a financial minded person to double-check the financial model before they commence due diligence on the business. When presenting the summary financials within the actual plan, include a narrative of what the financial models are trying to convey. Most investors will not understand the financial model alone. `            © Copyright 2013 | arinobe.com
  19. 19.              The Modern Business Plan 19 No Acceptable Exit Strategy Professional investors want to know how much money they will make and when they will get their money. The only realistic way this will happen is if you sell the business to a larger organisation. On your business plan mention that you believe the business will be valuable enough to be acquired from a larger business within 2-5 years. IPOs and management buy outs are rare and do not appeal to investors. No Disclaimer There must be a legal disclaimer at the beginning of the plan explaining the workings of the Financial Services and Markets Act 2000. Without it you could be in trouble. Likewise you must make certain that each eventual investor has signed a form stating that they are either a High Net Worth Individual or a Sophisticated Investor. Don't inform the investor about potential tax relief Making investment your business more attractive understanding the implications of the EIS and the more recent SEIS schemes and how important they are to an investor. Both schemes provide significant tax benefits to the investor and ultimately make it more attractive by reducing his/her exposure and by de­risking the opportunity. Ensure your business complies with at least one of these schemes. `            © Copyright 2013 | arinobe.com

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