When starting a business, one of the most important steps is to write a business plan. However, many entrepreneurs make the mistake of diving straight into writing the plan without taking the time to properly vet their business model concept first. It is crucial to do the necessary research and critical thinking before putting pen to paper or fingers to keyboard. In this article, we will delve into five thoughts to consider before writing a business plan.
A business plan is a marketing document
A common misconception is that a business plan is a comprehensive document that explains everything about a business model concept. However, a business plan is actually a marketing document. Its primary purpose is to communicate expectations to potential investors, lenders, partners, and employees so that they will invest their time, money, and/or resources in the business concept. As such, the plan must be compelling and persuasive, and it must clearly communicate the business concept’s unique selling proposition (USP).
Rather than presenting a data dump with every possible fact about the industry, focus on the most relevant facts and how they make the business model concept likely to succeed. For instance, instead of merely listing statistics about the market size and growth rate, explain why the market is attractive, what gaps or opportunities exist, and how the business concept can address those gaps or opportunities. Also, don’t forget to emphasize the team’s experience, credentials, and track record.
Conduct market research before writing the plan
Market research is crucial before writing a business plan. It involves gathering information about potential customers, competitors, and industry sizing and trends. The purpose of this research is twofold: to help you understand the competitive landscape in which you’ll be entering and to help you craft a sound and compelling strategy that can properly position your company to readers as one that’s poised for success. Much of the market research needed will be readily available. Look at industry associations or vertical websites that analyze the industry.
If you’re planning to start a vending machine business, you can leverage sites like Vending Mavericks to gain insights into industry trends, customer preferences, and supplier options. You can also talk to potential customers to understand their needs, preferences, and pain points, as well as to gauge their willingness to pay for your products or services.
You should analyze your competitors’ strengths and weaknesses, pricing strategies, marketing tactics, and customer satisfaction levels. This can help you identify gaps in the market that you can fill, or areas where you can differentiate your business from the competition. By doing so, you can develop a more compelling value proposition that resonates with your target market and sets you apart from the crowd.
Figure out the precise amount and use of funding
One of the key purposes of a business plan is to convince investors, lenders, or other stakeholders to provide funding for your business. However, to do so, you need to have a clear understanding of how much funding you need, what it will be used for, and what the expected returns on investment will be.
Conducting market research can help you estimate the costs of starting or expanding your business, including equipment, inventory, rent, salaries, marketing, and legal fees. You should also talk to potential suppliers, contractors, and advisors to get quotes and negotiate favorable terms.
Once you have a realistic budget, you can present it in a clear and concise manner in your business plan, along with a detailed financial forecast that shows the expected revenues, expenses, profits, and cash flow over the next few years.
Compile historical financials and develop financial forecasts
If you’re writing a business plan for an existing business, you need to include historical financial statements, such as income statements and balance sheets, as well as tax returns and other relevant financial documents. These can help you assess the financial health and performance of the business, as well as identify areas where you can improve efficiency, profitability, or cash flow.
For both new and existing businesses, a business plan must also include financial projections. These projections should cover at least three to five years and include income statements, balance sheets, and cash flow statements. These projections should be based on realistic assumptions about market trends, competitive dynamics, pricing strategies, and other factors that may affect your business.
The financial forecasts should also reflect different scenarios, such as best-case, worst-case, and most-likely scenarios, to help you and your stakeholders understand the risks and opportunities involved in the business concept. By having a clear and realistic financial plan, you can better manage your cash flow, allocate resources effectively, and make informed decisions about growth, investment, or divestment.
Determine how the business concept is uniquely qualified to succeed
Before writing a business plan, you need to analyze your business concept’s competitive advantages and discuss how they will help achieve success despite the challenges that may stand in the way. This involves thinking through every key aspect of the business concept, such as the team, products, services, marketing plan, operations, and so on, and figuring out what’s needed to be uniquely qualified to succeed in each of these areas.
If you’re entering a crowded market with dozens of competitors, you need to explain what makes your product or service different from theirs and why that’s important to your target customers. You may have a better quality, lower price, more convenient delivery, or stronger brand than your competitors, and you need to leverage those advantages to gain market share and customer loyalty.
You should consider the potential risks and challenges that may arise in your chosen market. Every business model concept has its unique challenges, so it is crucial to conduct research and analyze the potential threats that could impact the success of the business. For instance, in the vending machine business, you may face challenges such as theft or vandalism, maintenance costs, or the risk of low traffic areas where the machine is located. Identifying these risks early on will help to develop a plan to mitigate or manage them, ensuring the business’s long-term success.
Conducting market research before writing your business plan provides valuable insights that help you make informed decisions about your business concept. It helps you understand the competitive landscape, identify potential risks and challenges, and gain insights into your target market and competitors. Armed with this knowledge, you can develop a sound and compelling business strategy and create a winning business plan.
Ultimately, the key to success in any business venture is to remain flexible, adaptable, and focused on your goals. With a sound business plan in place and a willingness to learn, adjust, and innovate, you can build a thriving enterprise that delivers value to your customers, your employees, and your stakeholders for years to come.
If you are planning to start a business or are thinking about scaling an existing one, be sure to read the ebook “Customer Centric Business Planning: A Guide to Optimizing Your Business for Maximum Success”. It is an essential book for business owners, managers, and entrepreneurs looking to leverage real-time insight to start and improve their business operations. Learn how proper customer centric business planning can assess risk and opportunity, and create an actionable roadmap for success.
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