The importance of Business Plans for a Small Business
You are at one of the most important steps in entrepreneurship – how to create a business plan for a small business.
“Failing to Plan is Planning to Fail”
The above line stays glued to my memory like two clothes stuck together in a dryer (I know – it’s a bad joke! But we can live with it 😉. Can’t we?)
By now, you have covered the two essential steps of the entrepreneurial journey – Readiness to be an Entrepreneur and Market Research.
Time to get everything in a structure.
Time to put learn the steps to creating a business and financial plan for a small business.
This is where we use the learning from the above two steps to identify – what we think of the market we are targetting and then use the “magical numbers” (read: financial planning) to make sense of the venture.
Always remember – if it does not look good on paper, it will only look worse in the real world. i.e., if the business does not make sense in the business plan, it has higher chances of failure when launched with the same plan.
Therefore ‘the business planning step for a small business or a startup’ step is as important as it gets.
How to Create a 'Business & Plan for Small Business?'
How do you set up a business plan for small business and a startup?
As a layman, I think the following sections cover what you must have in a business plan :
Executive Summary that includes
- Financial Highlights
- Investment Profile
- Mission Statement
- Keys to Success
Company Overview that includes
- Company Ownership/Legal Entity
- Products and Services
- Management Team
Market Analysis that includes
- Market Outlook
- Competitor Analysis
- Expansion Plan (Milestones)
- Key External Drivers
- Market Segmentation
- Major Market Segmentation
- SWOT Analysis
- Target Market Segments/opportunity areas
- Market Strategy
- Marketing Mix
- Growth Strategy
Financial Plan that includes
- Profit and Loss
- Cash Flow Projections
- Balance Sheet
- Investment Requirement
Phew! Now, that’s a lot of information.
You must be wondering – How do you fill in the above sections and subsections?
And WTF do they mean?
All of the above is so confusing!
Don’t pull your hair. I have been there, done that and got as frustrated as you are right now.
To ease your confusion and pain – I can write a long blog explaining how to write a business plan, and you can spend another 5 months writing a simple business plan.
Well! I am not going to do that because I have made the same mistake in the past.
OR – I can teach you the simple steps to set up a quick business plan.
My "Epic" Business Plan failure Story
I started with the internet (like all of us).
Being a novice to Business Plans, I spent hours learning “how to write a business plan” on google.
I managed to gather bits and pieces from here and there to come up with a business plan finally. The business plan did not generate any interest from anyone because it was trash.
You can’t blame me. I was a tech guy trying to learn something along with running a struggling business- the result was going to be trash.
Still, we needed money and raising money meant – getting a business plan.
I then hired a freelancer to do the job for me and spend good dollars to write a business plan for me.
Huh – His work was worse than mine. I just had to take it to the bank to realize what the guy did was a superficial work.
And here I was with months of effort and a few thousand dollars down the drain.
Now, I would have spent a few more months on the plan, if only I had not come across a useful business plan tool called LivePlan.
LivePlan is a product of the famous IT Company Palo Alto Software.
The tool that turned out to be ‘value for money’ and has taught me the art of writing business plans.
How much money did LivePlan save me?
I used their six-month Plan for $18/month that cost me 108$ for six months.
Now compare it with what I paid to the freelancer and the time I wasted learning everything independently. I had spent around 100 hours learning how to build a business plan, relying on the internet to guide me through.
Do the maths, and you will realize how much did I save from using the tool.
With LivePlan, I had a mentor in the form of their software that guided me smoothly through the whole process. Besides, the sample business plans they had made my job amazingly easy.
Trust me – their business plan case studies, sample plans (500+), automatic financials management, and the simple steps to writing a business plan is “Gold.”
As a small business or startup owner or someone just on the verge of starting a business, give me a high five because you will save yourself months of research time and a lot of money using LivePlan.
Now, before I take you through the features of Live Plan (one by one), please register and get started on LivePlan.
To register for LivePlan, click visit this Link: Get Started with LivePlan (50% off 1stMonth and 60-day money-back guarantee)
Let’s Get Started!
Once you click on the above link – you will come to this page to get started:
You need to fill in your details and enter the details of the payment method.
Do not worry about paying them the plan fees as they offer a – 60 days no questions asked refund!
Trust me – this is what got me hooked to their service.
There are very few internet companies that allow you to use their service for 60 days and ask for a 100% refund if you do not like their service.
That’s some confidence level!
Still, have doubts about LivePlan?
Here are some pages to help you get started:
Trust me! There is not a single industry that has left on their list.
I can write another long post on the ‘whys and hows’ of creating a business plan using a liveplan, but you don’t need it.
It is self-explanatory.
The last time I had to help a client with a business plan – all I did was understand his business’s financials and use liveplan’s business template to create a business plan smoothly.
Predictably, I found his business’s sample business plan in liveplan :))
Now, before I forget.
‘Live Plans is offering a 50% discount(first month) to all customers that come through Lessons At Startup. Add to it their 60-day money bank guarantee and you have a tool that not only costs less but also returns all your money.
Time to get started with LivePlan.
And that brings us to the end of Business Planning.
Since you have taken the effort to come so far in the blog – how about I teach you a simple concept of building a business plan called “Financial Planning.”
If you can grasp what I will teach in the next section, you can easily use the knowledge to fill in the numbers in LivePlan software and quickly generate a financial plan.
In my case, I always do my financial planning on the spreadsheet as it is easy for me to quickly modify the numbers there and run different scenarios (best case, worst case, etc.).
I put in my final values in LivePlan to get the final output.
So, without further wait, let me jump to the financial planning section and teach you some basics of how to build a financial plan for your Startup:
Financial Planning – How well do you know your numbers?
In my experience, bad financial planning is the most common and most frequent reason for startups’ failures.
How will you ensure your Startup does not fail because of financial troubles?
Following a simple financial planning technique in sync with the well laid out system in LivePlan will help you put a structure to your venture.
To start with, forget all the Jargons you read on one of the startup websites a few days back.
My job here is to “Simplify Entrepreneurship,” and I will stick to that during this post.
We will follow an easy-to-understand method to check the financial viability of a Startup by applying maths of expense v/s income v/s seed fund or the money you need to run the Startup.
Financial Planning Tips:
Before I explain to you the financial planning method I use to build financial projections, here are a few simple financial planning tips for you:
- Never start with an assumption; you will get an investor. This way, you will prepare yourself for the worst-case scenario and will keep your expenses in check from day one.
- Work backward, i.e., list all the expenses (capital expenditure and operational expenditure) you will incur to reach a stage when the Startup makes money. Reach a final number to the net expenditure. Call it X.
- Now, you need X + 20% money to start the Startup before it makes any money. (I keep a 20 to 30% buffer for unforeseen expenses)
- List your revenue models and put numbers in front of each revenue mechanism to the list of income.
Let me give you a live example of what I wrote above.
For example, if the next Startup I plan to start is an online business directory. My expense should look something like this:
(Note: I base all expenses based on running a small setup in India and assuming we are bootstrapping)
Well, Look…It wasn’t the most difficult of spreadsheets to make.
By the way, did you notice – I kept the founder’s salary as 0 for the first six months?
“A founder’s zero salaries” is one of the harsh realities of running a startup. Since the company makes no money, the entrepreneur does not get paid.
So, besides the 615,132 amount above – you will need the money yourself to survive.
Add it to the cost, and you have your expense sheet or the funds required to run the Startup for the next six months.
Now comes the tough part – How to build a revenue model for the Startup?
As far as I remember, business directories rely on two revenue models:
- Paid Listings
- Sale of advertisement space
And then there are bells and whistles which kind of complicates the above two models. I will build a simple revenue model minus the bells and whistles 😊.
Assuming the website generates the right amount of traffic in 6 months and is ready to start with revenue generation.
Here is how the revenue section will look:
Few assumptions that I have made:
- The revenue starts from month six onward.
- The Startup plans to close ten new paid listings in the 6thmonth and double it every month.
- The churn rate is 5%, i.e., 5% of old customers do not renew membership every month.
- The 20% buffer should be enough to cover our losses in month six and 7th.
If you keep the expenses as how they were earlier, you should be smiling all the way to the bank from the 8th month onward as you will go above the break-even point.
By the 11th month, you will have enough to spend on generating more revenue or (probably) paying yourself.
As I mentioned earlier, simple financial planning is not rocket science.
You will need to drill down the financials and revenue parts further to build a sustainable financial plan.
Frankly, it is all speculation.
But the speculation only gets better with proper research.
What are the benefit of Financial Planning?
It helps you pave the path for your Startup. i.e., you now have the right numbers to ask unavoidable business questions like
- How will we reach the required number of paid subscribers?
- What is the traffic we need on our website to reach the required numbers?
- How many leads should we generate for paid customers?
- What are the keywords for which we should capture the top positions?
- Which category in our business directory should receive maximum attention? (think of customers who would be the first ones to pay you money)
- Won’t we need to upgrade our servers when the traffic numbers reach a respectable number?
By the way, to get the answer to some of the above questions, go back to market research’s online competitor research section.
I believe that the more the time you spend on Step 2 and Step 3, the better are the chances – you will make fewer mistakes when you start the Startup.
(Note: do not spend eternity over-thinking. I know of startups that could never see the light of day because the founders spent months working on steps 2 and 3. By the time they launched the Startup, someone had already taken away the first mover’s advantage from them)
Once you have done the financial planning and fed the final numbers into LivePlan – you must now figure out a way to fund your Startup.
Fundraising - Here are some methods to help you Raise Funds:
- Self-financed or financed from Friends and Family: That’s the route taken by most bootstrapped startups. Every day is a challenge as they are racing against time to achieve the impossible in a limited time frame. I have always worked with bootstrapped startups. The journey is tough, but it is worth every second you spend there.
- Raise Funds from Banks: Banks can give you a loan against property. So, if you are a lucky entrepreneur with a property against your name, you can approach the nearest bank with a project report and mortgage the property to get secured funding for the Startup.
- Raise Funds from Government Schemes: Many startup schemes started by the government to provide easy loans to Entrepreneurs. You can know about them by approaching the nearest bank or typing “government schemes to help startups” on google.
- Angel Investors: Angel investors are usually early investors who believe in your idea and spend money on the Startup.
- Venture Capitalists: Venture Capitalists invest money in the Startup based on Startup’s evaluation. You can have the Startup evaluated by a professional and then approach VCs to fund the Startup by offering a stake of the Startup to the right VCs.
- Crowdfunding: The newest kid in the town of startup funding. You get to pitch your idea to others, and then they all come together to fund your dream.
The Action list - How to create a Business Plan for a Small Business
This Step of Entrepreneurship is my favorite Step. Trust me; I have worked over the years to turn my weakness in finance into my strengths.
And that is what I want you to do. If you want to be successful in your venture, you must learn Business Planning and Financial Planning.
Here are your action points:
- Action Point 1: Register to LivePlans or a similar solution – I want you to register to a business planning software that can teach you business planning with real-life examples. My recommendation is LivePlans as I have used them and found them to be far ahead of their competition.
- Action Point 2: Once you are up and running on a Business Plan Solution, start looking at their sample plans and kick off your first business plan.
- Action Point 3: Learn to use a Spreadsheet – Setup a simple spreadsheet to get started with Financial Panning. Use the example I gave above for your reference.