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do I really need to do a business plan?

I’m often asked: do I really need to do a business plan? In short: yes, you really do. Here are a few reasons why:

 

1. Business Viability

 

Having a great idea for a business is one thing, but actually understanding what it takes to make a success of it is another altogether. Say you’ve invented a witchamajig – you can get it made for £1 and sell it for £5, that’s great! But if you want to make a decent amount of money out of it; you’ll have to make and sell your witchamajigs at scale. This means you’ll need to pay for storage, transportation, an office and staff. Your customers are unlikely to come running towards you bearing wedges of cash, so you’ll need to find them by spending money on marketing and advertising. To grow, you’ll need to sell your products to other retailers or distributors, who will expect to buy at wholesale.

 

When a business grows, its cost base rises. It’s really important to think about this in advance; putting it all down on paper can really help you to understand if the business is actually viable at scale. It can also help you to plan for any nasty surprises further down the line.

2. The Magpie Syndrome

 

I doubt this actually exists medically, but it’s the term I’ve given to something I see ALL the time, especially in start-ups. This is where entrepreneurs constantly flutter from one shiny thing to the next. When starting a business, it’s easy to see an exciting opportunity for your start-up and put all your efforts into seeing if it works. This is often at the expense of the core business. Take the witchamajig as an example: you know you need to be calling and prospecting customers and distributors to gradually drive up sales but, all of a sudden, a big brand approaches you wanting to create a specialist version of your witchamajig for their huge customer base. You pour all your heart and soul into making this happen when the reality is, it’s far from a dead-cert. Low and behold, it all falls through and your core sales have dropped as a result. Back to building the sales back up to where they should have been 2 months ago … oh wait, Nike is on the phone…

 

Having a business plan in place can help you to focus on the core, the real ‘bread and butter’ of your business. Put together a sound plan and stick to it. When your foundations are secure and you’re comfortably profitable, only then should you look at doing something different or experimental.

 

3. Getting Funded

 

Let’s face it, sourcing investment was always going to be a key reason for the plan; it’s what we do! But the landscape is changing. I do come across many companies that secure investment on the back of a ‘pitch deck’ or summary, and they always vehemently deny the need for any business plan. The reality is, although they peaked interest using a summary, they only nailed the investment after months of talks, discussions and negotiations with a handful of wealthy individuals they managed to build a relationship with. The chances are they delivered a business plan verbally, and probably repeatedly, to secure the funding they needed. With the trend increasing that investors spread their pots of money over more and more companies, they’re investing less per deal. It means you’ll have to meet with and convince each investor to invest with nothing but a handful of pages to back you up.

 

To have the best possible chance of securing investment, you need to spread your net as far as it will go and a business plan is a great way to do a lot of the ground work for you. If you structure your plan so that it is geared towards an investor, it will make fundraising a lot faster, easier and ultimately cheaper, but getting it right is an art form.

 

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