Your business plan is your ticket into an investors’ meeting. It is essentially a three- to five-year account of the odds of your intended start-up succeeding and the direction it would take to generate enough revenue to survive. Though plans may vary depending on the industry of your prospective company, it need contain some essential elements.
However, investors are not impressed by how “colourful” your plan is and “fantastic” the numbers are, according to Professor Eric Wood of the Centre of Innovation and Entrepreneurship at the UCT Graduate School of Business who works first-hand with start-ups. What is more compelling is that the budding entrepreneur has demonstrated that he can run before he can walk.
“The first thing is to take some meaningful steps towards starting your business rather than spending hours writing about it,” he said. “You need to have made what I call ‘experiments’ which test whether your idea has mileage.”
Such testing would involve actually selling what you plan to sell on a small scale. In some highly technical fields that may not be possible but Woods suggests, to cut down expenses, exploring all avenues to minimize operating costs, including outsourcing the more technical aspects of the job and exchanging your expertise for services instead of money.
“The first question the investor will ask is what the money used is for. If you can present in your plan a detailed picture of exactly what would need to be done in order to evaluate the potential of the business — how long it will take and what will be involved in the process — that’s very valuable. So design the smallest experiments that could answer the biggest questions facing the business, [which is the uncertainty of its success].”
Wood said first prize is growing your business without investment, which would diminish your equity, but through your own creativity in minimizing expenditure. “There are ways of trading that don’t require lots of money to get started. They require lots of creativity and lots of energy.”
Wood provides tips when seeking funding for your business:
- Sometimes businesses need expertise more than they do money. Align yourself with people with such skills and patient investors who are not looking for large returns in the short term. If teaming up with someone, do so on a provisional basis of six months to a year to gauge their level of commitment.
- Investors are attracted by limited risk. Wary are they of an entrepreneur who might lose interest in the business and does not have enough personal equity invested to guarantee he will do everything and sundry to keep the business alive. Put your personal assets on the line.
- Generate such assets through creativity and by being prepared to live “extremely frugally” to save and build up resources to prove your financial discipline to investors.
- Reduce uncertainty by engaging with your potential market base to find out how they make decisions, where they spend money and what problems they face so that you speak with authority about your target market. Then think through carefully on what you are offering them and why it is a powerful value proposition.
Design the smallest experiments that could answer the biggest questions facing the business…
The following information should appear in the business plan:
- Executive summary which describes the company, its intended trajectory, the market it would serve and the novelty of its product or services. It is the last thing you write but the first to appear in your plan.
- Company description of the different elements of the business, its goals and its unique proposition.
- Market analysis which details the size of your target market, the potential market share attainable with competition considered, pricing structure and government regulations affecting your business.
- Marketing and sales which details a strategy to create customers, grow them, distribute your product or services sufficiently widely to reach them and communicate with customers through advertising.
- Funding request with funding requirement over the next five years, how you intend to use it, and mention any strategic financial situational plans like buyout, debt repayment, etc.
- Financial projections so that resources are allocated efficiently. Provide financial data for a five-year period including forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. Make sure your projections match your funding requests.
- Appendix with information specific individuals like creditors would want to see.
You can seek assistance on putting your business plan together by contacting business schools usually attached to larger universities such as the UCT Graduate School of Business or the University of Pretoria’s Gordon Institute of Business Science, as well as visiting websites with sample business plans for specific industries such as www.bplans.com.
(Source for sections of business plan: www.sba.gov)