Do you really need a business plan? It’s a common question, and one that often stirs intense debate.
A well researched and written business plan can help you understand your market, set clear objectives and launch your business in the strongest and most informed position possible.
It’s not the only way to achieve this though. Other models exist such as the Business Model Canvas which can map a business in a more visual and dynamic way.
Still, if you’re planning on seeking finance from an investor or lender a business plan is absolutely essential.
Recently I had the chance to fire a few questions at Vaughan Evans, the author of the FT Essential Guide to Writing a Business Plan and an independent consultant, specialising in strategy and planning for business clients and strategic due diligence for private equity clients.
Read on for Vaughan’s thoughts on how to set out your business plan, which section is the most important and the most common things entrepreneurs get wrong.
Could you briefly explain what a business plan is and why it is needed?
A business plan sets out how you are going to get from where your business is today to where you aim for it to be in three to five years’ time.
It is essential if you aim to secure backing for your business.
What questions is a potential backer trying to answer when reading a business plan?
If an equity investor: do the opportunities from investing in this business outshine the risks?
If a banker: are the risks of lending to this business sufficiently low and/or containable for me to get my money back on time and with interest?
Is it just for new businesses?
No, a business plan is needed for any business, small or large, when seeking finance, whether this is just go-ahead from the board of directors or external finance from an investor or lender.
Why is there the misconception that to start a business you should start with a business plan?
Perhaps because the terms business concept and business plan are mistakenly interchanged. You need a concept to start a business, you don’t need a plan.
Or perhaps more likely is that any business needs finance to get off the ground, whether that comes from your own bank account, from friends or family or from financiers. If the latter, you need a plan.
How useful is the business plan format for businesses not seeking finance?
Good question. Some say that the discipline involved is essential for ensuring you pull together and aim your scarce resources in the right direction for your business to succeed.
The truth is that for some people, like me, such a structured, left side of brain approach works, but that for others, maybe the more creative, right side types, it doesn’t. The latter prefer to proceed in what their gut and feel tell them is the right direction, wing it a little, pilot new ideas and if they work follow them. More structured types like to plan the route in advance.
I liken it to writing a book proposal. No publisher will sign a contract with an author without a proposal, which sets out the book concept, what it will be about, at whom it will be targeted, why people should buy it and how you intend to promote book sales – all done preferably before you write more than an outline and a table of contents. You can then hone the book in its writing to meet expected demand.
As with a book, so too I believe with a business. But it is horses for courses. Others launch a business with no plan. It is only when your business has grown to a certain size that a business plan becomes essential, to ensure that all members of your team, your managers, your company of employees, are pulling in the right direction.
Which is the most important area within the business plan?
By far the most important section in a business plan is the analysis of market demand. Is market demand growing? It is better to have the wind at your back than in your face. Or is your proposition going to fill a previously unmet need, an undiscovered gap in the market? In which case is there a market in the gap?
You need a robust analysis of market demand and supply and how your business is placed, positively one hopes, within that market.
Almost as important, and so often overlooked, is the chapter on competition. There is always competition. Yet many business plans dismiss the competition with a couple of throwaway paragraphs in the section on the business’s product/service. A financier will toss away a plan that does not have a realistic assessment of the competitive challenge the business faces.
What format would you recommend using for the business plan?
Follow the format in my book (FT Essential Guide to Writing a Business Plan), exactly as set out. Every chapter, every page, every word is geared towards you addressing the questions your backer needs answering to give you the backing you need for your business to succeed.
What is the most common mistake entrepreneurs make with their business plans?
Where do I start?! Ok, by far the most common mistake is entrepreneurs writing what they want to write, what they are proud of having done or thought. That is all flannel. Write only what your backer needs to know.
How else can a business increase its chances of raising finance?
You need two things to raise finance: a watertight business plan, addressing all the backer’s concerns, and a convincing pitch. Too many entrepreneurs do not take the trouble to learn how to pitch, to present, to speak in public. They let themselves down at the pitch through frankly inept speaking skills, of which they may well be unaware.
If in doubt, see my other book Stand, Speak, Deliver! How to Survive – and Thrive – in Public Speaking and Presenting.
Finally, what advice would you give to someone thinking about starting up?
Go for it!
About Vaughan Evans
Vaughan Evans has worked on both sides of the table. He has been advising financiers on whether they should back businesses for thirty years and has written many successful business plans tailored to meeting the concerns of backers.
An independent strategy consultant Vaughan Evans & Partners, specialising in strategy and planning for business clients and strategic due diligence for private equity, he has written many business books, including the companion to this book, The FT Essential Guide to Developing a Business Strategy, the top selling strategy book, Key Strategy Tools, and a unique guide to strategic due diligence, Let the Sun Shine!