How to write a winning small business plan

Wednesday, May 26, 2010

Gulf News

Investors must avoid common pitfalls such as being too optimistic with forecasts or being too technical in the final presentation

Dubai A business plan serves three main purposes: to attract investment or secure finance, to help the entrepreneur or management team to plan or to be used as a marketing tool to articulate the company’s vision. Getting the combination right can make or break a presentation. Here’s how to write a perfect business plan.

These documents take many formats. What is important is to make sure that the course of execution is numerically described and the capital needed to be financed is clearly mentioned, says Shirin Jarrar MBA Programme Director at Edinburgh Business School, Heriot-Watt University, Dubai Campus.

A business plan should include an executive summary, which is usually written last. It is critical this is well written, as many people considering an investment won’t go beyond this, says Julie Logan, Professor of Entrepreneurship, Cass Business School.

It should go on to identify the product or service on offer, the market research outlining the unique aspect of the offering and should include the financials, which is the price one gets or makes the product for, what it will sell for, a cash flow forecast, a balance sheet and profit and loss account (the financial forecast should show three year projections, but be careful not to be too optimistic) and the investment required, the return on investment and the exit strategy.

The plan should also include an implementation programme and how will you get everything done including the possible risks, challenges and barriers along with how these will be overcome.

According to Pritam Mirchandari, head of business finance at RAKbank, a good business plan is one that provides a summary of the business model and details the strategy, opportunities and risks involved in the business. A clear business is defined by a set of objectives which outlines what the management is aiming to achieve, the competition and a description of how a sustainable competitive advantage can be achieved.

Number crunching is also important. “There should be an indication of how much investment is required, the return on investment and the exit strategy for the investor,” says Logan.

Common mistakes

When drawing up their business plan, customers are advised to avoid common mistakes, which include the absence of clearly defined goals and objectives in their business plan, as well as unrealistic financial projections. “Customers must also steer clear of plans which focus on profits instead of cash flows, and competitive and market data which is neither substantiated from independent sources nor consistent with financial projections,” says Mirchandani.

Readibility must be clear and precise. “Too many people focus far too much on the financial detail and do not articulate clearly enough their understanding of the market,” Logan says.

A common mistake is using jargon with unexplained abbreviations and acronyms. Be careful not to be too technical. The necessary technical information can be included in the appendices.

Other common mistakes according to Logan include being too optimistic in financial forecasting, not demonstrating a clear understanding of the market and promising you can deliver the product or service at a lower cost than possible.

There’s no proof that having a business plan will make your business more successful. However, undertaking strategic planning and having a clear vision of where the business will go usually enhances the chances of success.

Logan says her top tip would be that a business plan is only a document. The vital thing is that you have a vision of where the business is going and you know how you will make money. The business plan’s prime use should be as a tool. Only 50 per cent of small businesses do a business plan and even then that’s just for securing finance.

what to do

Tips for writing a foolproof business plan for small and medium enterprises

1. Be realistic when devising your plan, taking into consideration current and changing market conditions.

2. Make sure your objectives are SMART: Specific, Measurable, Attainable, Relevant and Time bound.

3. Substantiate your plans with numbers

4. List any anticipated risks for your business and provide mitigants

5. Provide a summary of the funding and the cash-flow projections including high, medium and low free cash flow scenarios.

— A.L.

Too many people focus far too much on the financial detail and do not articulate clearly enough their understanding of the market.”

Julie Logan

Professor of Entrepreneurship, Cass Business School

By Aya Lowe?Staff Reporter