Mr Tunji Matthew (not real name) is a retiree. He had to leave his job voluntarily at the State Civil service having worked for 35 years as a project supervisor in the Ministry of Works. Because he failed to put in place concrete retirement plans while in service, he decided to invest his gratuity (which was depleting very fast) on cat-fish business he had little knowledge about. No effective feasibility study was carried out, but based his on business plans on rudimentary knowledge acquired from his former landlady who had a fairly large cat-fish farm behind her house.
Business commenced after initial hiccups. Three years later, a major disaster struck and the business went under. All effort to revive it failed due to financial challenges and inability to hire the right personnel to manage the business efficiently. Eventually, he closed shop. Having nothing else to do, he relocated to his village and only visited Lagos to collect his meager pension which is hardly enough to meet his needs. He passed on a few months ago from stress related stroke.
One of the major causes of business failure globally is that most people who intend to go into business often put in place unrealistic business plans. A well thought out business plan is a valuable tool for a new company or one seeking financing. It can also provide milestones to gauge your success. Indeed, the very process of developing a good business plan will help you think through some important issues that you may not have considered yet.
Before getting down to the actual preparation of your business plan, take the time upfront to evaluate your business and personal goals. Then use this information to build a comprehensive and effective business plan that will help you reach these goals.
Professional guidance should be sought for the actual preparation of the plan, particularly for financial components.
If you are starting a new business
If the reason for preparing the business plan is that you are starting a new business, you should first examine your reasons for wanting to go into business. Some of the most common reasons for starting a business are:
- You want to be your own boss
- You want financial independence
- You want to fully use your skills and knowledge
Next you need to determine what business is ‘right for you’. Ask yourself these questions:
- What do I like to do with my time?
- What technical skill have I learnt or developed?
- What do others say I am good at?
- Will I have support of my family?
- How much time do I have to run a successful business?
- Do I have any hobbies or interests that are marketable?
Then you should identify a niche your business will fill. Conduct the necessary research to answer these questions.
- What business am I interested in starting?
- What services or products will I sell?
- What is my competition?
- What is my business advantage over existing firms?
- Can I deliver a better quality service?
- Can I create a demand for my business?
You will also need to consider several options for getting your business off the ground:
- Do you want to purchase an existing business or start one from scratch?
- Are there franchises available for this type of business? If so, does a franchise make sense to you?
The final step before developing your plan is the pre-business check-list. You should answer these questions.
- What skills and experiences do I bring into the business?
- What will be my legal structure?
- How will my company’s business records be maintained?
- What insurance coverage will I need?
- What equipment or supplies will I need?
- How will I compensate myself?
- What financing will I need?
- Where will my business be located?
- What will I name my business?
- Your answers will help you create a focused, well-researched business plan, and that should serve as a blue-print. It should detail how the business will be operated, managed, and capitalized.
Based upon your initial answers to the questions listed above, you should formulate a business plan.
A business plan formalizes the analysis of a prospective business by forcing you to put your ideas and answers to the above questions in writing.
A business plan sets forth the mission or purpose of the business venture, describes the products or services to be provided, which presents an analysis of the market state, the goals that the business has, and how it intend to achieve those goals and last, but not least, has a formal financial plan.
The business plan is necessary to obtain external capital for your business, but it serves a number of other purposes.
It forces you to critically evaluate the feasibility of your business and whether it will provide a return which is appropriate to the time and money you will invest in the business.
The plan provides a benchmark against which you can evaluate the success of your business in later years.
What the Business Plan Should Include
Whether you are starting a new business, seeking financing for an existing one, attempting to analyze a new market, or wanting to define and evaluate future growth, the following outline of a typical business plan can serve as a guide. However, you should adapt it to your specific business.
In the introductory section of your business plan, you should:
- Give a detailed description of the business and its goals.
- Discuss the ownership of the business and its goals.
- List the skills and the experiences you bring to the business.
- Discuss the advantages you and your business have over your competitors.
Products/ Services and markets
In this section, you must describe your products and/or services and:
- Identify the customer demand for your products and/or services.
- Describe how your products/service is unique.
- Identify your market, as well as its size and locations.
- Explain how your product/service will be advertised and marketed.
- Explain the pricing strategy.
In this section, you should:
- Explain the source and amount of equity capital.
- Develop monthly operation budget for the first year
- Develop an expected (return on investment, or ROI), and monthly cash flow for the first year
- Provide projected income statements and balance sheet for a two-year period.
- Discuss your break-even point.
- Explain your personal balance sheet and method of compensation
- Discuss who will maintain your accounting records and how they will be kept.
- Provide “what if” statements that address alternative approaches to any problem that may develop.
In this section, it is important to:
- Explain how the business will be managed on a day-to-day basis.
- Discuss hiring and personnel procedures
- Discuss insurance, lease or rent agreements, and issues pertinent to your business
- Account for the equipment necessary to produce your products or services.
- Account for production and delivery of products and services.
In the ending statement, you summarize your business goals, objectives and express your commitment to the success of your business. Once you have completed your business plan, review it with a friend or business associate. When you feel comfortable with the content and structure, make an appointment to review and discuss it with your banker. The business plan is a flexible document that should change as your business grows.