How to create an effective business plan
To start any business, we should understand about some of major internal points, know how etc. By this article we will tell you about each and every aspect which you should consider with their definition with each items needs to be look at with careful manner.
- Who is the Business Plan for?
- Description of the Business Idea
- Market and Competition
- Team definition
- Strategic and operational plan
- Economic-Financial Plan
- Cash Flow
Definition of Business Plan
The development of a Business Idea or a new business project can only pass from the creation of an effective Business Plan , able to represent the universe of stakeholders how and why an entrepreneurial idea can turn into a successful business.
The drafting of an effective Business Plan is an obligatory step to assess whether an idea is worthy of being implemented through a company activity and is potentially and concretely capable of generating profit for investors and other lenders.
The Business Plan serves to:
Analyze and evaluate the goodness of an entrepreneurial idea;
- Tracing the path to be taken and schematizing the relative operational activities;
- Allow multiple stakeholders to evaluate the convenience and feasibility of the initiative;
- Supporting requests for financing from banks or public bodies;
- Obtain the adhesion of new investors and commercial partners.
Business plan: the 9 fundamental points
The Business Plan is a document that describes in detail how you intend to start a new business or improve an existing business, by defining the following qualitative and quantitative information:
Description of the Business Idea ;
- Definition of needs, market and competition;
- Definition of the competitive advantage and of the Business Model;
- Team presentation;
- Strategic Plan (investments, financial sources);
- Operational Plan (Revenues, Price and Sales Policies, description of the production process);
- Marketing and Communication Plan;
- Economic-Financial Plan;
- Cash flow.
Before reviewing the basic stages of drafting a Business Plan, let me give you some suggestions:
The Business Plan must be clear and not excessively long , otherwise nobody will read it. Often, in fact, any investors are more interested in reading an Executive Summary , that is a clear summary of the Business Plan.
It is important to follow a logical order in drafting the document (I tried in the following paragraphs to develop a sort of index);
It is not advisable to inflate the numbers , so for those who evaluate the goodness of an idea the numbers represent only an important but not fundamental element compared to other elements such as the definition of the product, the road map to make it, the project team and financial strategies that we intend to carry on. In the end, investors convinced of the potential of the business look with greater interest at costs rather than revenues, the latter by definition do not have an accurate definition unlike the former.
Who is the Business Plan for?
The Business Plan has an “internal” validity when it is addressed to members who intend to carry out the initiative, as it allows to evaluate the feasibility of the business and to share it among the proposers to establish roles and responsibilities as well as define the procedures and processes decision-making.
The Business Plan has an “external” purpose when it is aimed at:
Financial Intermediaries: banks, venture capital , private equity , i.e. all those who are asked to finance the initiative and who need to understand the value of the investment, its profitability and the ability of the company to generate the cash flows necessary to repay the loans granted;
Public Administration : in cases where it is intended to request a public contribution (non-repayable and / or subsidized rate loans;
Capital market: when it takes the form of an Industrial Plan and is aimed at stock market investors who must evaluate whether or not to buy the company’s shares and evaluate their fairness.
Description of the Business Idea
In the writer’s opinion, the description of the business project to be launched must be the first aspect to be addressed. It must be clearly described what the idea consists of, what its added value is and to whom it is addressed, as well as the basic motivations (unexpressed needs) that make its implementation interesting or indispensable.
Therefore, it is necessary to describe:
- The characteristics of the new product / service;
- The purposes and uses in detail;
- Because it is better or different from that of the competition.
Subsequently, the person who intends to carry out the initiative must be briefly described; if it is an already established company, it is good to trace its history and the main products / services currently offered in a synthetic way.
Market and Competition
After representing the business idea, it is essential to analyze the potential reference market and, within it, to precisely define the target to which you intend to turn.
Subsequently, it is appropriate to analyze any competitors on the market, mention the services / analogues products already present and describe why the new product / service proposed in the Business Plan should be better than that offered by the competition.
Basically, in the case of similar products / services already existing on the market, the added value is given by the following aspects:
- Better quality of the product / service at a price not too different from those applied by the competition:
- Same quality offered at significantly lower prices.
The truth, as often happens, lies in the way that, if it is not a question of introducing new products / services on the market that have never existed before (optimal situation in case of actual needs perceived by the market and not yet solved by anyone), the added value is to offer better quality at lower prices than the competition.
As I often say in conferences or on occasions of discussion with customers and friends, the business idea is fundamental, but it only counts for 10/15% in the success of a business.
This is because execution has a very different importance, that is the ability to transform that idea into a winning business. This is possible if and only if the team working on the project possesses all the resources (human and financial, external or internal) and skills necessary to effectively cover all business areas.
Therefore, an effective team must competently cover at least the following areas:
- Administrative-financial: pertaining to corporate and financial management and management control;
- A technical: related to the operational skills necessary to create the new product / service;
- A commercial: related to the skills (marketing, relations and negotiation) necessary to promote and sell new products / services.
Without these figures, I repeat, to be found among partners, employees or external consultants, it is really difficult for a business initiative to be successful.
Of course, an initiative also needs capital to be able to support investments and be carried out, but I feel I can say that a cohesive and competent team is among the fundamental aspects that an investor takes into consideration in deciding whether or not to bring capital in a new business project.
Strategic and operational plan
We enter the heart of the Business Plan , in the section where the company must analytically illustrate the strategy it intends to implement to produce and market the new product / service.
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In this section, in particular, it is necessary to describe:
- The Sales Plan , ie which pricing policy is intended to be implemented and which product / service offer is intended to be offered to customers; it is important to detail the medium-long term plan of activities that are undertaken to get from development to the marketing phase;
- The Production Plan , which describes the production factors (material and plant resources, human resources) that intervene to create the product / service offered and how the product is produced or the service is carried out;
- The Investment Plan , which summarizes the assets (tangible and intangible) that must be acquired on the market to undertake entrepreneurial activity (patents, research and development, plants and machinery, equipment, etc.);
- The Marketing Plan , which lists all the marketing levers and communication strategies necessary to reach the target market target;
– The Loan Plan , ie the list of financial sources to be drawn on to implement the Investment Plan and implement the business idea: bank loans, public subsidies, private investors.
In this section, the proposers must translate the contents of the Strategic and Operational Plan into numbers and figures.
We proceed with the preparation of the Investment and Loan Budgets, the Sales Budget, the Production Budget and that relating to labor costs.
The result of the economic-financial analysis leads to the preparation of the following numerical documents:
- Forecast Income Statement , to be drawn up in detail that relating to the first year of forecast (annual profit and loss account on a monthly basis) and a summary forecast for the entire analysis period (3/5 years), in which costs are highlighted and revenues that are expected to be recognized;
- Forecast Balance Sheet , which details how the company’s assets evolve over time with the exercise of the activity;
- Prospective Cash Flow Statement, in which the results of the financial management are analyzed.
A prospective analysis of the profit and financial indices can be of enormous help in judging the goodness of the business.
The Cash Flow is a document that is receipts and payments on a monthly basis.
It is extremely important because it allows you to analyze the company’s financial strategies and the quality of the extension policies granted to customers and obtained from suppliers, as well as the effectiveness in warehouse management (where present).
Very often, in fact, companies that also achieve positive economic results (costs and revenues), from a financial point of view do not obtain the same results, since, for example, they grant collection delays to customers that are greater than those obtained by providers.
This last aspect highlights a cash requirement necessary to carry out the activities which, in the medium to long term, put companies in evident difficulty.
The effective and efficient management of cash and cash flows in a company is by far the most critical and important activity ( Cash Is King ).
In particular, from this, in addition to the goodness of the ideas and the validity of the project team, in my opinion, the quality of a business idea is highlighted.
The Business Plan is one of the first steps for starting a new entrepreneurial activity, whether you have the constitution of a capital company in mind, or you want to proceed with the creation of an individual company .
You can take advantage of our consultancy services at the time of establishment, for the preparation of the business plan and for periodic bureaucratic obligations. The same is true in the case of innovative startups that want to enter the panorama of Indian companies with an extra gear.