Is your business plan credible?
We all make plans for our businesses, either informally or formally. Inevitably they are based to a large extent on our own opinions and experiences. Often we do not challenge our plans in a structured, objective and rigorous way.
We can do this, even if we are not seeking external funding, by asking the questions: “Why should another investor risk their time, money and energy on this following this plan, why should they have faith in it?”
These are interesting and challenging questions. Typically investors reject over 95% of applications for equity funding. They do this, not because they do not have the funds to invest, but because they do not have confidence that the business plan is robust enough to have a high chance of success.
When developing your own business plan you do not have the luxury of external investors to evaluate you plans, you have to do it yourself. So detach yourself for a moment and ask the questions a serious external investor or business partner would ask before investing their resources in your business. Not knowing the history of your business and not being involved in its day-to-day operations gives them the objectivity your business will benefit from.
The first question is always about management:
Should you trust the people who manage the business to succeed? Consider their track record in the roles they are being asked to fulfil, not how well they performed in their last position but how well they will face up to next year’s challenges. Do they have the right person characteristics to be successful in the role – and how do you know this? How well do they work together, has the company outgrown them, will they cope with a crisis, what are their personal objectives and why will they continue to support the business?
The second question is about your market:
An investor would ask you to demonstrate the size of your market; the trends within it and which segment you are serving. He or she would be very interested in your opinions but would want those opinions to be confirmed objectively, you will want to do likewise.
Over the coming two or three years there are likely to be political, social or economic trends that will affect your business. The greater your understanding of them the easier it is to plan your response in sufficient time to benefit from them. Market research is often difficult to obtain and interpret. My article entitled “Why are most marketing failures predictable?” provides guidance on effective market research.
The third question is about competitors:
You will know who your competitors are but you may not know how your customers rate you against them. Successful companies have a clear picture of why their customers buy from them, why they buy from competitors and what they can and cannot do to switch customers to their products or services. Often quite small changes to a product or service or the manner it which it is delivered can make a significant difference to turnover and profit.
The fourth question is about resources:
We may understand our market and how to sell our product or service, but do we have the right people and equipment to sell, produce and deliver it consistently? Consider future staffing requirements; how will they be sourced, trained, motivated and rewarded. Why should your people carry on working for you and why should they contribute fully to your success?
Shrewd investors will value reliable and consistent suppliers highly. They will be worried if your business is heavily reliant on any one supplier. Where possible, source your requirements from suppliers who value your business and get to know them personally. Plan to evaluate their supplies, management and financial strength regularly and ask the question an investor would ask: “Do you have a plan B, another supplier you can switch to efficiently?”
The fifth question is about risk:
All businesses face risk, not all of them take the time to identify the risks facing their businesses and even fewer take steps to mitigate those risks. Investors would expect you to do it for them, why not do it for yourself?
The sixth question is about planning itself:
Investors expect management to have a systemised approach both to planning and the implementation of plans. They will want to see a process in which management hold an objective, forward looking review of the plan, identifying risks and opportunities and evaluating implementation successes or failures.
For more assistance in this area contact Mike Robson on 0207 100 1233 or mike.robson@azurepartners.co.uk