Business Planning for Start-ups and Small business
There is no question that since the Global Financial Crisis in July 2007 the lending environment for Australian start-ups and small business has changed. Most 1st tier lenders make it much more difficult for small businesses to access the necessary funding they need to establish and grow their business. Non-traditional lenders and investors take advantage of this fact by demanding higher interest rates, returns and equity for their investments. For a small business, the most costly funding they will ever have is the early stage funding.
The best way to ensure that you are accessing funding at the very best rates or attracting the right types of investment is to have a professionally prepared and considered business plan that clearly defines and explains your value proposition to all potential funders.
A professionally prepared business plan is also the most effective way of ensuring that you don’t become one of the 44% of Australian small businesses that fail in the first 4 years due to poor strategic management.
What role does a business plan play with potential investors?
If you’re asking for funding from an investor, one of the first things they are going to ask you is ‘how are you going to use the money?’ Vagaries will not do. You need to outline specifically in your business plan how you intend to use funding, why and what results you expect to achieve, within a specific time.
Investors are not interested in just propping up a business. They need to see growth strategies. They need to understand what their projected returns will be and the need to see an ‘exit’ strategy. When dealing with potential investors you need to remember that they have countless investment opportunities available to them. More often than not, they will be viewing investing in your business from a non-emotional ‘risk vs. return’ model. The role of your business plan is to define clearly this equation, using professionally accepted modeling techniques and from a non-emotional perspective.
What is a Business Plan?
Think of a Business Plan as a roadmap, with milestones and a final destination. Fundamentally your business plan begins with where you are today (from both a business, experience and skill, and financial perspective). It should then explain where you want to be and how you intend to reach your destination. Other key elements of your business plan are research on your competitive environment as well as professional (and justifiable) financial modeling.
Your business plan should also include budgeting, cash flow forecasting, as well as a clear understanding of what additional funding will be required, when and how this funding will be used.
“A goal without a plan is just a wish.”
Many small business people believe that their great idea, enthusiasm, and energy are enough to make their business succeed. They are wrong. Enthusiastic, energetic business people with great ideas fail all the time. More often than not it is due to a lack of planning. Assumptions also play a major part in small business failure.
Imagine climbing behind the wheel of a car and heading off on a trip to a destination on the other side of the country without a map. Now imagine the same journey without road signs. Your chances of reaching your destination are slim to none. Running a small business without a business plan has the same impact.
Your business plan does not guarantee your success, but not having a business plan almost guarantees your failure. Even if you do manage to survive your first 4 years in business without a business plan, chances are you would have expelled much more energy, spent more than you needed and earned less than you should have with a business plan.
Making important decisions based on imperfect knowledge
Have you ever wondered how successful business people make the right decisions on products or markets that don’t yet exist? They make decisions based on imperfect knowledge. All business forecasting is based on imperfect knowledge. Your goal with your business plan is to be as prepared as possible and to have the most accurate knowledge currently available to you.
Investors and financiers will assume that all of your modeling is based to some degree on imperfect knowledge. However, there is professional modeling used by accounting firms such as Bizally that take this into consideration. Using Bizally’s modeling, you can create a business plan with forecasting that is more justifiable and accurate than if you simply created the forecasting by yourself.
At Bizally, we believe every business should ‘start with the end in mind,’ which is why we are so motivated to help clients with their business structure, tax planning and compliance requirements, financing and accounting software selection.
Benefit 1. Increase the Value of your Business
Do you intend to work in your business until you retire or do you intend to sell your business within a few years? If you do intend to sell your business, what will a buyer be purchasing? Will they just be buying a low paying job and dated plant and equipment or will they be buying a business with the potential to grow? Will they be prepared to pay a premium for the ‘good will’ you have created? Will your business be worth less than what you invested in creating it? All of the challenges and opportunities begin with your business plan. As they say, ‘start as you want to finish.’
The real value in creating a business plan is the process itself. A business plan forces you to answer the hard, uncomfortable questions. It demands you confront the fact that you may not have all the answers. It demands you do your ‘due diligence’ on your business assumptions and competitors. It is also how you create value for your business that helps you attract funding, as well as increases the value of your business when you are ready to exit.
Benefit 4. Improved Decision-Making
Small business owners with a business plan know what decisions to make and when to make them. They have a document they can refer to as a basic guide. Small business owners without a business plan tend to be ‘reactive’, only making decisions when circumstances demand it.
The question you need to ask yourself is ‘do you want to be the one making the decisions or the one reacting to circumstances that may be beyond your control?’ The difference is your business plan.
Even if it doesn’t go exactly to plan (and they rarely do), your business plan allows you a ‘navigation’ point of reference, which helps you stay focused on your goals and measure your success.
Need Help creating your Business Plan?
Creating business plans for small business is one of Bizally’s specialties, in fact, it’s something we love to do. We enjoy sharing the vision of our clients and empowering them to become more knowledgeable on how to turn their dream into a reality. If you would like help preparing your start-up or small business plan, call Bizally today to arrange a discussion.