How to write a business plan for a startup

by admin in Business on October 18, 2020

Your business plan is a lot more than your ideas and ambitions wrote down on paper. It is a necessary document that will either help or hinder your attempts to raise outside finance.

Even at an early stage, it is useful to commit an internal business plan to paper rather than trying to juggle all the business variables in the mind. This should help the business to be well managed from the outset; everybody knows what the business is trying to achieve and timely decisions can be taken when the plan is reviewed. The internal plan becomes more formal as the business develops; a specific plan, based on the internal plan, may be necessary in order to raise outside finance.

At the outset, an internal business plan should cover:
• Your personal objectives.
• The product or service your business is going to sell.
• What needs to be done to achieve the following objectives: developing the technology carrying out market research
recruiting people acquiring other resources (equipment, premises, etc)

Based on the above, the internal business plan should be reviewed continuously and simple budgets and cash flow forecasts should be produced so that finance is available to achieve the short-term objectives.

As the business matures, the internal business plan will become more complex. The overall purpose of planning is to enable the key people to manage the operation so that its objectives are achieved. As an internal document, its style and content reflect the purely internal needs of the business. When the need arises to attract external shareholders, bank finance, or non-executive directors, then the plan’s style and the content will have to become more formal.

It is important to understand that the needs of equity investors and bankers are different. The plan’s emphasis will also depend on the stage of the business. A start-up needs to emphasize its people, its product, and the quality of its market research, whereas a more developed business, needs to emphasize its track record.

Once the business plan is being aimed at external readers, it needs to be structured and should cover at least the following:
• company and management background
• staffing structure
• market (and market research)
• manufacturing or production methodology
• product and details of any intellectual property
• financial forecasts (including how much money is needed)
• competition
• risk and reward for potential financiers
• how the product will be sold
• time scale and benchmarks, particularly for overcoming barriers to entry in the market

If the plan is to raise equity, then the business’s unique selling point must come across. It is extremely important to introduce the plan with an Executive Summary, written after the plan is finalized. The Executive Summary has to attract attention and should be short (two to three pages) but sharp, bringing out the business’s key selling points. It should be written so that an investor with no specialist knowledge can quickly understand the business and see ‘what is in it for him’.

We see many business plans at St John’s Innovation Centre. Their most common weaknesses are:

• Management fails to sell the concept in the Executive Summary.
• Management fails to give the best account of its experience and capabilities as a business team.
• In proposals for knowledge-based businesses, the technology tends to dominate the plan, to the detriment of the business itself.
• The market research is not relevant and robust enough to justify the optimistic projections. There is no substitute for primary market research.
• Reams of computer-generated financial printouts are provided, but the assumptions on which they are based are not properly stated or explained.
• Competition (actual and potential) is ignored.
• In proposals seeking equity, the plan does not take into account the needs of the investors or the exit route. In proposals seeking bank finance, the security offered is not made clear.

In my experience, the vast majority of such plans submitted to venture capitalists
or bank managers are not overstated but understated; they do not do justice to the businesses they propose. Once potential investors or lenders form a negative perception of your business from your business plan, it is often impossible to change that perception, however much the plan is subsequently improved. ‘You don’t get a second chance to make a first impression’. One group of entrepreneurs, in their anxiety not to appear to be overstating their case in presenting their business plan to a Venture Capitalist (VC), focused on the most obvious and immediate market for their proposed product. It was so evident, however, that an affordable product of that kind had many other potential markets that the VC wondered how these entrepreneurs could fail to see them. He concluded – incorrectly but justifiably – that they lacked the vision to make the most of their idea.

Writing a business plan can be an extremely time-consuming activity. Business colleagues whose judgement you know and respect can be a useful sounding board, as can Business Links, Cambridge Enterprise and the business support team of the St John’s Innovation Centre. It is important that external plans are reviewed before they go public, to ensure that the business is presented in the best possible light. Once you have written your plan, it is often very difficult to ‘see the wood for the trees’. Do not be afraid to take quality external advice… and ‘good luck!’

Further information
Stutely, Richard, The Definitive Business Plan: The Fast-Track to Intelligent Business Planning for Executives and Entrepreneurs (Financial Times Prentice Hall 2001).