Zenith Finance Blog

RBA Finance

Business Plan

Yes business planning necessary but a business plan? Is it really necessary?

When do you need to prepare a business plan? When you want money or partners or both. Even if you wanted to buy and existing business such as an operating franchise, a banker or investor will want to see that you have a plan in place. It might only be a one-pager but it still requiring ticking off a number of boxes. On the more challenging front of raising capital from investors for expanding a business or financing a start up, a business plan requires some comprehensive development of a business case that can withstand scrutiny. Investors (and bankers) have certain, unique criteria they need to meet (such as ROI) but most will want some if not all of these elements covered off:

  1. There is a large and growing market for the business’s products and services
  2. The firm has a sustainable competitive advantage
  3. The firm has developed realistic financial assumptions

For you and your partners you need to have your one-page which allows you too regularly (monthly or quarterly) ask the questions:

  • Are we on track?
  • If not what do we need to do to get back on track or indeed change to a better track?

As far as the plan:

Large and Growing Market

The business plan must prove to investors that the company is positioned in a large and growing market and that there is a clear and compelling need for the product or service. Here we are talking about an “addressable’ market. So if the business was going to brand and label a range of health supplements the market estimate is not “a GLOBAL MARKET OF $5 BILLION”. Rather it is how many can we sell first of all, into our local market? Who are our possible buyers and how many of them can we reach in our marketing? The relevant market is the specific niche of the healthcare market in which the firm competes.

Realistic Financial Assumptions

It is critical that financial assumptions and projections be realistic. Plans that’s how penetration, operating margin and revenues per employee figures that are poorly reasoned, internally inconsistent or simply unrealistic greatly damage the business’s chance of success. Importantly, imperfect financials often result in the business running out of cash, which is perhaps the primary reason why new ventures fail.

Will the Management Team Execute?

If the management team is great, often the business is great. Likewise, with a poor management team, the chances of success are dim. As such, investors need to really assess the quality of the management team when determining whether to invest in a private venture. Questions regarding the management team should include:

  • What are the backgrounds of the management team?
  • Are they respected leaders in their field?
  • Do they have a track record of success?
  • Have management team members successfully worked together in the past?