Beginner’s Guide to Writing a Business Plan and Impressing Investors (Part 1)

Starting your own business is never easy. The hardest thing is to come up with a completely new idea and find a market for it. There are other instances of course, where an entrepreneur can take up an already existing idea and make it different or take it one step further. Either way, a business plan is necessary for it to be a successful business.

Here are a few steps you need to undertake before going all-in on a business idea:

Step 1: Research

Before all the revenues and profits start flowing in, you need to do a lot of research:

• Both primary and secondary research (make sure you gather the data from a reliable source) need to be done in order to get the most accurate figures and thus decrease the chance for error to a minimum. Primary research is also known as ‘on the field research’ and it is a chunk of information gathered by you or someone you hire. It is very useful to do (although it may be time consuming) as it provides you with the latest information about your customers and their preferences. It is also more reliable than the secondary research. The secondary research is a second hand data, collected from websites and documents, uploaded by people who have done primary research and posted their results online. However you have to be careful not to look at outdated information, unless you are looking at business trends. Furthermore, you have to carefully consider all the possibilities of making sales such as, whether your business will have a monthly subscription, whether you will diversify your product, how you will receive the payment, online business or a retailer, how you will manufacture the product, how will you promote your product etc.
• Firstly, you need to captivate the people with your idea. Make it engaging and interesting while trying to prove to them, that they need the product. You need to find your target segment, i.e. the people who will be interested in buying you product and focus your marketing strategies on them.
• Secondly, you need to find out whether people will be willing to buy the product and what the demand for that product will be. This is usually done by two-way-communication means, such as surveys, interviews, emails, social networks, advertising etc.
• Self-assessment is very important as it gives an overall look at your business and how you can do better than your competitors. That can be done by doing SWOT analysis which identifies the strengths and weaknesses as well as the opportunities and threats of and for your business. You need to carefully consider what is a strength in your business and build upon in, because that will be your primary source of success. You also need to reduce if not eliminate the weaknesses in your business as much as you can, in order to do better than your competitors. To find out how you are doing compared to those competitors of yours, a Porter’s Five Forces analysis can give you  a better look at the overall market that you are targeting. Another important part is to analyze the external factors, by doing PESTLE analysis,  such as the effects of the global recession, legislation and environmental effects from your business etc. That will help you prepare for the worst.

Step 2: Financial information

• You should keep a close eye on your  cashflow statement as well. It tracks the flow of cash in and out of your business and can be monitored by doing  liquidity ratios. Ratios you can use in order to do that are the Current Ratio and the Quick Ratio. A business can function for a while without earning profits, but it cannot function at all without cash!
• You will need to create an income statement which will show the revenues and expenses over a particular period of time. It is done in order to show the investor whether the company has made a profit or loss over a period of time
• Afterwards, you will need to draw up a balance sheet, which will represent the costs and revenues over a specific time period.
• You need to decide on a reasonable price to charge for your product or services and whether your target segment can afford it. You need to find out whether your product has a USP (unique selling point). That is when the product you are trying to sell is a new product on the market and there is no set price for it, so it is up to you to choose a suitable price. Depending on the demand for that product, you can set the price high or low. You also need to consider whether the people need the product, will they become addicted to it, or is it just another fancy gadget for example. The way to find out whether your product is necessary to the people, is by doing up-to-date surveys and interviews and asking about your customers opinion, a few months after you have launched the product.
• You need to make sure, the price for you product is right and that you will be making profit out of selling your product, after all, that is the whole point of this venture. You can do that by referring back to your balance sheet and income statement and making sure the cost-per-product is not higher than the revenue from the product.
• Make sure to be pessimistic when creating the balance sheet and the income statement, as it will be better if the costs turn out to be less, so you can enjoy more profits, than the other way around.

Step 3: Get investment for your business

You need to raise capital in order to cover the start-up costs and proceed towards making revenue. You can do that in a few ways:

Continue to part 2...

Image courtesy: Larry Vincent, Flickr CC.