As a mentor, I often find myself having a conversation about business plans – or maybe better described as the lack of a business plan. For any new business it is an extremely valuable exercise to write a business plan, as this will force you to analyse all of the areas that need to be taken into consideration when deciding upon the focus of your business and your product or service.

The process should start with the simplified Business Model Canvas (many examples and templates are available online) as this is a bit more of a brainstorming exercise to try and make sure that you have pulled together all of the areas that need to go into the business plan and then grouped them together sensibly. Once you have spent some time on that exercise you can then start to write the business plan. This does not need to be excessively large or detailed but should go into sufficient detail to cover all aspects of the business. It is essential that it covers areas such as:

• Your product / service and what differentiates it and you as a company – what are you doing differently and what factors will ensure that your company succeeds?
• Your potential market place and how much of the market you realistically hope to reach – is this just the UK or do you plan to export? How will you develop this and over what time period?
• Your competition and barriers to entry – will you compete with large players and how easy will it be for you to break into the market or indeed for others to break into your market?
• Your management team and what previous experience they have – a previous track record always adds comfort so if you do not have all the experience necessary how will you cover the gaps?
• Your financials – both actuals to date and future forecast (with detailed assumptions based on research). These must be realistic and demonstrably achievable. If they are too optimistic then they will undermine the whole business plan in the eyes of others and also set you wrong targets
• Your manufacturing / distributing / supply chain / route to market – set this out in order to show the complete process and to help the reader put the financials and everything else into perspective
• Your marketing and sales strategy – explain how you will market and sell your product or service and how you plan to grow sales over time. Again, this will help add credibility to the assumptions used in your financial projections

Do not worry if your plan brings out some areas of difficulty as this is to be expected. What is important is that it demonstrates that you know these areas exist and that you have thought about them and found solutions.

There should be a one or two page executive summary at the front that pulls out all of the really important points from the main business plan. Be warned, this summary is extremely important as many readers, especially potential investors, will only read the full plan if you have grabbed their attention sufficiently in the executive summary.

Once the initial plan is written it can be extremely beneficial to discuss it with your Mentor or other trusted advisors as it is likely that they will point out areas that they feel should be included and they should also challenge some of the assumptions made; especially in the financial forecasts. This process ensures that after any revisions that you may decide to make, either to your plan or indeed your actual business, you have a robust plan and you are able to defend all of the assumptions made.

Once the business plan has been produced it is a very useful document to revise periodically and to update as your business grows and your needs and aspirations change over time. As I mentioned at the beginning of this article, I feel that preparing a business plan should be done simply as a good exercise to clarify your thoughts but certainly if you are looking to raise funding by way of debt or equity then it becomes a necessity. As such, updating and refining an existing plan is a much easier task then writing one from the start, and because it is not the first attempt it should also be a better document.

If you are looking to raise equity funding then clearly the company needs to have a valuation and the only real way that this can be obtained is by producing a full business plan with financial projections and clear assumptions, together with the future plans of the company. If indeed the company is considering raising equity it is crucial that the management team provides a broad range of experience and any gaps in experience should ideally be filled with non-executive directors.

So, whether it is being done simply as a good management discipline or for more specific purposes such as raising equity, the act of writing a business plan and periodically updating it is not only a good idea but, in my view as a Mentor, essential.

In the next article I will look into the cornerstone of all businesses – sales.