“Make It Work, People!”: Critical Numbers for a Competitive Business Plan (Part III)
Converting Your Static Plan into a Dynamic Tool
Whether you’ve thought about starting your own business or you are seeking funding to grow your current operations, a business plan may be just what you need. In the first two parts of this blog series, I introduced some key concepts and basic tools for creating one but now it’s time to bring those tools together and make them work to improve your business the way our title’s author, the fabulous Tim Gunn, puts together his priceless fashion pieces.
These days, there are many different opinions about whether a start-up needs a business plan. While the traditional business plan may not be relevant for today’s tech-heavy startup community, a less formal plan can be an effective way for entrepreneurs to better understand their business, document progress, project future growth, and develop a pitch to potential investors.
Now, you certainly may be able to run your company without one, but running a business is often more complex than starting one and a business plan can be a great reference for running your business. Not to mention that writing your business plan gives you a chance to clearly plan out the legal, operational, and financial aspects of your business.
The trick is to make the business plan a focused illustration of the position your business holds in the market and describe how you intend to leverage that position. Here are a few tips for transforming a business plan into a powerful tool for growing your business.
- Improving Your Forecasts
- Use the projections and forecasts in your business plan to compare your growth forecast with your actual performance. Tracking these two numbers can be valuable in the long run.
- Once that’s done, take a look at the differential between your projections and your actual amounts for the year and use this information to adjust for the following year. For instance, if your growth forecast has been significantly higher than your actual growth every month over the past year, then you may want to be more conservative with your projections for the following year.
- Red Flag Indicators
- These are numbers or facts that you find that clue you in to major weaknesses or risks to your business.
- In our previous example we considered the case when your growth forecast is significantly higher than your actual growth every month over the past year. If you created your forecast cautiously and you’re confident that your projections are accurate, this could indicate a larger market trend that is negatively impacting your business and even your industry.
- First Year Taxes
- New startups can use the list of start up costs in the business plan as a starting point for calculating taxes at the end of the first fiscal year.
- If you have an accountant, the list of start up costs provides a good starting point for calculating taxes for your first year in business. Make sure to pass this information along to your accountant when filing your taxes.
- Year End Financials
- Many new start-ups will need to calculate the year-end financial statements for the first time. Using the information in your business plan (i.e. startup costs) can reduce the time an effort needed to create these documents for the first time.
- Business plans contain information about every aspect of your venture and it contains answers to many of the questions that venture capitalists may have about your business. Before you pitch to a potential investor, review your market research thoroughly to answer any questions about the growth potential of your business.
- Pay special attention to information about the demand for your product or services from your target customers and try to remember a few key statistics or research findings when crafting your pitch.
- Review your financial statements and projections to determine the amount of funding you are seeking from investors.
- For businesses interested in seeking outside funding, a business plan can strengthen your chances of receiving funding because it provides potential investors with information about the financial health of your business and the growth potential for investments made. Keep in mind that you should only send your business plan to investors who have expressed interest in reviewing it.
- To increase your chances for funding even more, go through your business plan and look for key numbers that can be turned into a graph or chart. For instance, your three-year forecast will be easier for investors to read if presented as a graph than a bunch of numbers.
Tim Gunn’s would-be protégés learn time and time again that the best outfits come from finding a combination that works and when all else fails, just making it work. While you may not NEED a business plan, a carefully devised plan can set up your business for success and during the writing process, you can gain a competitive advantage by learning everything about your business and industry. After all, shouldn’t you know what sets your product or services apart from your competitors or who you want to market to before investing in a new campaign?
And if your business begins to show signs of failure, your business plan might be just what you need to turn it around and “make it work”!