Compiling a business plan
One of the first things a starting entrepreneur should do is compile a business plan. Compiling a business plan forces you to thoroughly think through the planned activities and analyse the business idea in regards to different aspects and thus, helps to avoid mistakes in planning financial decisions.
A starting business does not have a history, i.e. the data, to provide a statistically adequate prediction. Therefore, a business plan and in particular, its financial part, can be taken as a tool for playing through the perspectives. For example, this includes:
- How much do I have to sell to cover the minimum of unavoidable fixed costs;
- How much additional financing (loan, grant, capital) do I need to include to acquire the necessary assets and cover the start-up costs;
- Which are the sales volumes and prices that achieve profit for the entire company and when will the company achieve them.]()
A business plan is also necessary if you are looking for funding to start the business – whether you are applying for an enterprise support, wish to include an investor, or contract a loan from the bank. The business plan must provide an all-embracing overview of the operation of the planned business and enable to assess the prospects of the business idea. Business plans do not have a specific predetermined structure, but there are a number of topics that must be included. If you are compiling a business plan for a specific donor, you must take into account that the donor may have their own requirements for the content and forming of the business plan. Additionally, various types of donors may consider different things more important. For example:
Risk investors are interested in the capability of the business to grow rapidly and reach great volumes and foreign markets as fast as possible and therefore, it is important to present a competent and ambitious team;
National donors (for example, EAS) – the proposed project must comply with the conditions of the support measure and these conditions, in turn, determine which aspects must be considered in the business plan (for example, export, job creation, added value and its growth);
Banks find it important that the business is able to maintain stability and profitability, which would guarantee the loan servicing and therefore, projects must have a low risk and the business itself must be reliable.
When compiling a business plan, it is important to emphasise the distinctive features of the business – what makes it different from the others? Specific competitive advantages should be presented.
Generally, a professional business plan reader seeks answers for the following questions:
- Does the product or service seem necessary and is there a demand for it?
- If yes, then how big would its market be and will it grow?
- Is the whole business, given the potential size of the market and the conditions (people, capital, expenses, assets, properties) necessary for the provision of the product/service, effective and sustainable?
- Is the business plan convincing in terms of winning a considerable share of the market, i.e. what is the plan for going against its competitors?
- Do the key persons of the business seem capable of achieving the described objectives, what is their background and previous experience?