Without guidance and use of a template, many hopelessly optimistic entrepreneurs assemble an unrealistic or incomplete business plan
Creating a business plan is a necessary step for any business, but it is especially important for those seeking funding through formal channels.
Any seasoned investor will be able to tell if an entrepreneur has taken the time and expended the effort to create one.
A micro, small and medium enterprise (MSME) seeking capital without first having a well-constructed business plan is like a developer building a skyscraper on a foundation of sand.
This document is an indispensable, sturdy foundation for MSMEs when soliciting investments because it contains a detailed, comprehensive strategy for business success.
Without guidance and the use of a template, many hopelessly optimistic entrepreneurs will assemble an unrealistic or incomplete business plan.
By their very nature, entrepreneurs are confident people who do not always like to think about risks and challenges.
In their minds, the demand for their products is infinite and investors should be bending over backwards to provide funding.
Though this spirit has its place in business, a business plan must be air-tight and realistic to withstand the scrutiny of investors.
While developing a business plan is often tedious and time consuming, it will yield results beyond just securing capital.
It will especially help first-time entrepreneurs do a better job of answering questions they did not even know they had about owning and operating a business.
Topics such as the target market, field of competition, capital requirements and specific risks will all be breached and thought out in the course of developing a solid business plan.
A completed plan will also include a timeline and measurable objectives for the business to go out and achieve.
All this is essential and impressive to investors.
Business Plan Template
Hundreds of business plan templates are available to entrepreneurs over the Internet.
Some are simple outlines, while others are interactive templates for developing your ideas.
Which one an entrepreneur chooses is less relevant than putting in the effort to systematically think through the company’s strategy.
It is not the plan document itself that is important, it is the process of systematically outlining the business in a way that can be clearly communicated to others.
It will force the entrepreneur to challenge her/his assumptions and strengthen the value proposition of the business.
It is a long and painful process, but it can save the business from disastrous mistakes in the future.
A business plan usually consists of a narrative and several financial worksheets.
The narrative tells the story of your business.
The financial worksheets, if well prepared, help investors see that you have planned your operations carefully and have a path toward profitability.
One good business plan template for MSMEs is available from the small business non-profit organisation SCORE (See: www.score.org.)
Using this or any template, do not feel compelled to go systematically through the template.
Work on sections in an order that is comfortable for you, but do the executive summary last so that what you write there reflects what you have learned while preparing the other sections.
Skip any sections that do not apply to your company, but think that through carefully.
Make sure that an investor will agree that it is not relevant.
A business pitch is the verbalisation of the business plan.
It is the beginning of negotiations between the entrepreneur seeking funding and the potential investors who will provide it.
Though some businesses attempt to substitute the pitch for a business plan, that is a mistake.
Complete the business plan first and then use it to develop your pitch. Your goal is to distill the most critical aspects of the written business plan into a convincing verbal sales pitch.
When deciding which aspects of your business plan to emphasise in a pitch, consider envisioning your business on a sliding scale.
At one end of the sliding scale is an idea. Ideas, taken alone, are essentially worthless and will not convince any investor to invest.
At the other end of the scale is a successful company that can generate significant cashflow on a regular basis. This business is exactly what investors are looking for; it is also what will hopefully transpire from your idea, initiative and hard work. The essential role of an MSME proprietor in a pitch, therefore, is to convince the investor that the business is quickly moving toward the right end of this scale.
Pitches must not just distill your business plan, they must also be targeted at the person on the other side of the table.
The first thing that an entrepreneur must do is be sure that the potential investor is at least potentially a good fit for his or her business.
To do this, it is best to review your potential target investor’s portfolio of investments to see if your business fits with the focus, interest and competencies of the investor.
Is your business in the investor’s preferred sector? Their preferred business type (eg, business-to-business, or business-to-consumer)?
Is the amount of money you are looking for appropriate for this investor? Is your expected growth path likely to meet the investor’s objectives?
Does the investor generally fund businesses at your stage of development?
If the answer to the questions above is yes, the next step is to ensure that your pitch is designed to be as effective as possible with that particular potential investor.
This does not mean changing your business plan, but you do have to carefully think about how to pitch your business in a way that matches what you have learned about the investor.
- This article was first published in the Handbook for MSME Access to Alternative Sources of Finance in Asean produced by the Asean Coordinating Committee on Micro, Small and Medium Enterprises (ACCMSME) and the Asean Business Advisory Council (ASEAN-BAC).