HOW TO WRITE AN EFFECTIVE BUSINESS PLAN?

Many business plans are written with the objective of raising finance but do not forget even the most professional and cleverly written plan will fail if the company loses sight of its real audience; that is the customer.

An essential element in the development of a business plan is the identification of real customer requirement and a practical outline of how the business will meet these needs and deliver its product or service to its target base.

Customer analysis should be well researched, highly specific and demonstrate to a full understanding of the customer demand dynamics, purchase motivations and decision making processes.

The company's product development, production and marketing plans should tie in with this customer analysis in every aspect and do remember that it is the customer who ultimately finances your business to every success.

Well, writing a business plan to be used as a practical roadmap for the company's development and writing a business plan that will compel investors to commit capital are two processes with essential differences.

Most Entrepreneurs make the mistake of including too much inadequate information thus entirely overlooking the relevant information what a potential investor really seek for to match its criteria.

Investors flip through numerous business plans daily and the few that generate their interest are able to clearly and concisely demonstrate the following elements:

The company has high growth prospects as validated by thorough research into the fundamental business idea with reality

The company is offering a product or service with a unique selling point that provides a sustainable competitive advantage edge against its competitors

The appointed management team has the relevant experience and the ambition with positive commitment to grow the business rapidly and gradually

The objectives, strategies and execution plan for the business have been clearly thought through with much transparency

Unless your business plan leaves no doubt that all the above criteria are in place, then you are not ready to approach investors because do not forget that, in this context, the real purpose of a business plan is to get to the next stage of the process, which is due diligence where all the fine details of the business will be analysed.

The plan should therefore be a concise document and the executive summary is of paramount importance and well described.

Interesting business plan's primary objective when raising capital is to demonstrate to investors that you are offering an opportunity to invest in a business that will allow them to generate excellent returns, apparently if this message is not conveyed, there it is time to revise your plan.

Nobody, including capital providers, expects a business to evolve exactly as set out in an original business plan because nothing is really perfect, it is an assumption only.

There are many elements that change over the time including internal company factors, as well as external market, customer, competitor, regulatory and financial factors, there in general business plan is the indicator.

These changes will cause impact to many sections of the plan, assuming the general concept and direction of the business remain the same, financial, industry, market and factual changes should be reviewed and updated routinely every quarter to be effectively efficient.

On an annual basis, the whole plan should be subject to a thorough evaluation and revised as part of an overall assessment of the status of the business, progress achieved to date and goals for the future.

In addition to scheduled reviews, any event which precipitates a material change in the company's status or objectives should result in a revision of the business plan normally such events may include:

A change in business direction following new information received and this information may be positive such as the identification of a major market opportunity, a breakthrough in product development or the acquisition of a very large client.

Conversely, the information may be perceived as less positive if the business founder fail to raise enough capital with the original plan.

A major change in capital requirements or structure may be the result of unanticipated growth or contraction of the business or a change in direction on how the company is to be financed.

Some major unanticipated change in outside factors such as the competitive environment, regulatory issues or the financial markets.

Whatever the reasons are going to be the business plan has to update as the most important element is honesty, both with the company and your capital providers.

Your business is an evolving entity and the plan needs to have accurate evaluation of where that entity stands and is heading otherwise the business will fail.

Before Submitting Plan To The Funds Providers

Even the best business idea and most competent management team will fail to raise capital if the company's business plan is of poor quality or contains avoidable errors and it is important to correct the errors and avoid the following mistakes.

Be Precise In Explaining The Opportunity.

The business plan is usually the first impression Venture Capital Company or other Capital Provider after receiving the company and the investment opportunity.

If the reasons provided on how the business will be successful are unclear there is no incentive for the investor to commit capital or even pursue any further discussion or meetings.

Unrealistic Projections And Assumptions:

The business plan is usually the first impression Venture Capital Company or other Capital Provider after receiving the company and the investment opportunity.

If the reasons provided on how the business will be successful are unclear there is no incentive for the investor to commit capital or even pursue any further discussion or meetings.

Incomplete Competitive Analysis:

Errors can range from the claims that the business has no competitors, to vague competitive analysis, or omitting to analyse successful competitors overlooking their abilities.

Admitting the existence of competitors is not considered a business strategy flaw rather on the contrary; successful competition is an indication of customer demand of the products or services and full focus should be reason out on why the business will generate a sustainable competitive advantage.

Inadequate Research:

In-depth research is the importance point that includes all relevant facts and data that will have a direct impact on the business' ability to be successful.

This data should be adequately researched and verifiable the important areas, in addition to competitive analysis, include industry and market trends, customer analysis and any relevant regulatory issues.

Plan is Poorly Written or Incomplete:

Every effort should be made to avoid typographical errors as well as grammar and punctuation mistakes which can lead to confusion.

The writing style and presentation should also be tailored to the audience to convey competence, authority and clarity, without arrogance humbly.

Although Capital Provider is not investing in a company's writing skills but the large number of plans received and if it do not exhibit professionalism will be discarded and can cause misunderstanding between the parties.

The plan should also be complete, incorporating all the sections that investors expect to view with interest, there increasing the chance to be called for a constructive discussion or meeting.

Non Effective Plan:

Many plans consist a reasonable job of conveying the opportunity but lack any coherent outline of the steps that will be taken to capitalise on this opportunity.

Well written business plan is not solely a marketing document; it should also provide a roadmap for management and investors on how the company's goals will be achieved.

While the internal business plan may be more detailed in this aspect, these elements should not be omitted from the plan and submit to the Capital Providers.

Finally, do not submit a non-professional prepared business plan which can cause an investment rejection even before a company has met or spoken with a Capital Provider.

By committing the time and effort to produce a quality document, conduct research and think through the practical steps, the business will benefit greatly from the increased focus and enhanced ability to raise capital.

Presentation Of The Business Plan

Before producing a presentation of the business opportunity, management need to understand what their Capital Providers will be looking at and in addition, certain practical aspects such as the length of time allotted, the number of expected attendees, whether key people will be present for the entire time, and how much time should be allotted for questions and discussion, should also be determined in advance.

Practically, it will be a mistake to assume that the same presentation is suitable for all pitches; the following core guidelines shall provide a grand starting point.

The explanation will likely be in the form of slides:

The PowerPoint presentation define the most important aspect of the business, it need to be brief and to the point.

As a general rule, a company should aim for no more than ten to twelve succinct slides in large, legible font.

The slides should address the following points:

The market opportunity, the company's solution, how the business will deliver the solution, what makes the company unique, market analysis and competition, management team, key financial numbers and projections, current status and future timeline, concept summary and what needs to happen next base upon the company's assumptions.

Presenting the slides should take approximately twenty minutes:

Given the sheer number of presentations made to Venture Capital Providers, it is unlikely that the initial allotted time is more than an hour.

Limiting the verbal presentation to around twenty minutes allows for initial introductions, inevitable set-up delays and allows adequate time for meaningful questions and responses with firm answers.

Avoid too much text, complicated diagrams and tables as well as any information that is not absolutely critical to explaining the investment opportunity.

The audience will quickly lose interest and it also gives the impression that the presenter is not familiar enough with the business or numbers and it therefore relying on printed data and a presenter should avoid reading from the slides.

Practice The Presentation In Front Of A Qualified Audience:

This is an opportunity to test alternative slides and scripts and builds presenter confidence and it also in the anticipation of potential audience questions that will arise from the slides and presentation.

The above points may appear basic, but the reality is that it is often requires more effort to explain a business concept and deliver a compelling investment proposal in a succinct manner.

The temptation is to reproduce whole sections of the business plan in slide format, but this is a critical mistake so if you believe in your company as the investors should be able to believe in you as the salesperson of your business concept.

The best way to achieve this is through a brief but compelling presentation that further raises the investor's interest to fund the business

Business Plan Financial Projections

The financial section of the business plan is an area that receives significant scrutiny from capital providers. It is also typically one of the most challenging undertakings for management, especially for an early-stage growth company.

The key is to understand what financial information investors will expect to see and then to focus on the model's critical inputs and accuracy.

Going through the exercise of developing detailed financial projections demonstrates to finance providers that management has given adequate consideration to the financial requirements and profit expectations of the venture.

Investors will look at the projections to see if the company's growth potential meets their return requirements and assess the likelihood of the projections being realised.

The company should produce a full set of integrated financial statements including income statements, cash-flow statements and balance sheet data for a period of three to five years going forward.

Historical statements should also be provided, if available. Income and cash-flow statements are usually shown on a monthly basis, until cash flow breakeven is achieved, and then may be presented on a yearly basis.

The model's inputs are critical to the production of the financial projections. It is good practice to place these inputs in a separate section that drives the model's outputs rather than 'hard coding' numbers into the body of the statements.

This makes it easier to change key assumptions, e.g. rate of sales growth, and review the impact on the projections for legitimate ownership and understanding must ultimately rest with management.

In conjunction with the financial statements, investors may expect to see certain outputs explicitly stated.

This includes the amount and timing of anticipated capital needs, and how management intend to source the capital, e.g. management investment, equity raising, bank loans etc.

Incorporating a sources and uses of funds section may enhance clarity as well as highlighting key ratios, such as debt to equity.

When using a business plan to raise equity, a company can also forecast different exit scenarios to demonstrate potential investment returns.

It is important to keep in mind that it is highly unlikely that a company will grow month to month and exactly achieve its projected numbers.

Investors are aware of this and will run a number of scenarios when attaching a value to the business.

What management can control however, is the quality of the model's inputs and investors want to see that the driving factors are the result of careful research and realistic expectations.

Producing financial projections for three to five years into the future may appear to be a daunting task, but it is also a necessary one.

Tangible funding and growth numbers forces management to focus on the best use of limited financial resources and provides a benchmark for evaluating progress.

A business plan should always express confidence and optimism, but in this section, realism should be the main theme.

Does Your Customers Know Your Product?

This has to be one of the first questions that an entrepreneur has to ask themselves before committing to an idea or business venture.

Successful start-up is usually based on filling a defined customer requirement or providing a solution to an existing problem.

The customer requirement itself does not have to be basic, instead it must be innovative to create products based on fashion or social trends, but your solution has to fill an existing gap.

It is eminently more difficult to start generating cash flow and raise capital based on the assumption that demand will follow supply which is not realistic but forging new markets is essential and most important of all is generating cash flow from existing ones speaks louder to investors.

How Well Do You Know About Your Customer?

The market analysis and marketing plan sections are both the most critical elements of a business plan and Private equity investors or loan providers need to be convinced that a real demand exists for the company's products and services and that management has a viable plan for capturing market share.

Market analysis should be current, specific and supported by credible, independent data plus the section should precisely identify the customer base that the business is serving the requirements of those customers.

The below following elements should be thoroughly covered based on detailed market research:

***Description of the company's industry and potential customer base in reality

***Data on market size, demographics, growth trends, recent market innovations, any relevant regulatory issues by Laws

***Number of potential customers in targeted niche market and declare the percentage of target market that company aims to capture, with justifications.

***Customer requirements, purchasing decision key drivers, such as price, quality, tailored solutions, and reliability of products or services.

***Purchasing behaviour of customers, including purchasing rate and cycle and profile of typical decision makers.

***Analysis of company's existing customers, transaction data, their purchasing habits and transaction history.

***Credibility will be greatly enhanced by verifiable evidence of customer demand and response to business products or services.

Information sources will vary by business and industry type and research should be carried out independently or with the aid of a professional market research consultant.

Local and National Government Bureaus are excellent sources of demographic information and business surveys with questionnaires compiled for current and potential customers will provide the best feedback specific to the company.

Having identified a specific target customer base and articulated the requirement of those customers, the management team must now demonstrate that the marketing plan will produce result in driving the successful and profitable distribution of the company's products or services.

Projected sales shall manage to drive the rest of the business plan in terms of growth and capital requirements and in order to proceed with the marketing plan, it should encompass the following:

***Pricing strategy of the products or services and is the company aiming to appeal to customers though low pricing or is a pricing premium sought based on higher quality or unique product aspects?

***Pricing decisions in the context of gross margins and competitive issues

***Details of distributions channels because the product could include, wholesalers, retailers, direct sales, distributors

***For a service provider, the means of advertising and promotion must be well explained and jointly managed with choices directly that impact growth projections and cost structures

***Analysis of the competitive environment and add identification of existing competitors, their strengths, weaknesses and market shares

***Management must explain how the company's offerings will be compete, including, if possible, direct product comparisons

***The investor will need to be convinced that the business can generate sustainable advantages over the competition in the customer market

The essential message is that without any customers, there will not any business with the importance of understanding your target market which should be over emphasised.

Finance providers will only risk their capital if they are convinced that demand exists for the company's products or services and that management can capitalise on the market opportunity to generate profits.

The Customer Is Consider As King In Your Business Plan

The market and customer analysis section of a business plan will be carefully scrutinised by any potential investor and nobody will be lenient enough to commit capital to your company, product or service unless it is ultimately capable of generating substantial cash flow from a base of paying customers.

Customer analysis therefore needs to be clear, transparent, specific and substantiated by credible, verifiable data from the consumer market.

The most important rule is to adopt a bottom-up approach in defining the company's target market with a top-down approach, claiming that you will capture a small fraction of a huge market conveys that you are both naïve and have failed to do your homework.

First, be as specific as possible in identifying the target market with explanations of the factors that have been used to segment the market such as demographics, geography, company revenues or number of employees.

Describe why the business is focused on its chosen segments and identify relevant market trends using the bottom-up approach to realistically forecast the number of potential customers based on the ability of the business and able to reach its customer to deliver the product or service.

It will be important to assume the accessibility of target market to demonstrating that a customer requirement base exists and that your business can fulfil any quantity and quality

The assessment must also be superior based on one or more key criteria such as price, prestige or ease of use of the product.

Also explain how the company's marketing strategy is aligned with the customer's typical decision making process in targeting the customer.

Entrepreneurs sometimes assume that a great idea or product will generate its own customer base and that vague market research based on bold predictions suffices, it is unfortunate to say they may never get to find out since these are not usually the start-ups that get funded Capital Providers.