7 Tips for Writing a Business Plan
To obtain finance for a business from an institution such as a bank or an investor it is necessary to write a business plan. This also helps you as a business to understand what can be expected from your business in terms of profitability and longevity. A bank, for instance, will want to know how you are going to use their loan to make more money. They will want to know that your future profits are going to meet the loan repayments. An investor will want to know at what point they will receive their money back and with what return.
So, this article will look at 7 tips when it comes to writing a successful business plan that will impress money lenders and also guide your business into doing well long after you have written it.
Show a Profit
A business plan should always show a profit, otherwise, nobody will want to loan you money or invest in your business. Realistically, it may be a longer-term profit, rather than a short-term one. Eventually, though, a business will need to show that it will run into profit. The plan will need to demonstrate how. That is how the money invested in the business will produce a profit.
Know Your Figures
Known the difference between gross profit and net profit. Surprisingly, many people who start a business do not know the difference. Gross profit is turnover minus operating costs (those directly attributable to creating sales), whereas net profit is after all the expenses, such as fixed costs, have been taken off. When it comes to the finances, turnover is an important figure so it’s worth knowing how to calculate it, even if you don’t normally do the finances yourself. A balance sheet (a statement of your assets and liabilities) should, as the name suggests, always balance. If you are having anything to do with the accounts yourself, you should know that a purchase is a debit and a sale a credit. It is the principle of double-entry book-keeping and how things will balance at a month-end and then a year-end.
Cash Flow Forecast
Include a cash flow forecast as part of your business plan. This shows income and expenses and whether the difference creates a monthly profit or loss. You should see the differences start to become surpluses, and therefore profits. A projection can be over a 3 to 5 year period and show how finances will change. Seasonal differences will show up if that is likely to impact a business. This is where short-term loans can be helpful when it comes to business survival. If you’re struggling with this element, you can see here to find software that will assist you with cash flow analysis.
Know Your Business Model
For example, traditional business models include direct sales, advertising-based businesses, a bricks-and-mortar shop, or a franchising arrangement. Hybrid models might include a business that combines its shop in the high street with internet sales.
Identify Target Markets
Your business plan should not only explain where you think your target markets are but demonstrate that you know because you have researched your potential markets and your competitors who are selling the same products or services as you. It will need to show how you plan to take some of that market share for yourself. Research conducted can be in person or online. It depends on where your business’s marketplace is going to be.
Every business needs to show a direction. That is a set of structured ideas and directions that show long range planning. It allows a lender or investor to see clearly where a business is going to be heading to assess for themselves if they think it is in the right direction to become successful. For a lender or investor, a business will need to show future profitability and growth for at least the duration that the money is loaned or to be invested for. Investments tend to be long-term.
Besides that, it might also be important to consider contingency plans in case the business ever starts seeing a downward trajectory. Things such as securing keyman life insurance for crucial employees, having alternative routes for the company to recuperate losses and stabilize itself, could also be vital for investors to understand the business direction and place faith in the idea.
With a business plan, presentation is important. It should be presented in a way that is clear for those lending you the money to see what your business is about and its future potential. Figures are always better presented in tables or spreadsheets, and preferably graphically. Use business-like language to demonstrate that you know what you are talking about when it comes to business.
In summary, think about your figures but also think about where your markets are. Look to present your business plan clearly and professionally. Constantly refer to your business plan to ensure that your business is heading in the direction you intended.