You may think a business plan is something you put together hastily when you need a loan and want to impress your bank. But according to Daniel LaBossière, Area Manager, a business plan is really an invaluable management tool that helps you set clear objectives for your company and describes exactly how you'll achieve them.
"It's not a one-time affair. A business plan can be consulted on a regular basis and should be revisited often. It's the best way to document where your company is going, and it should evolve with your business, too," he emphasizes.
Allow for adjustment time
LaBossière feels that the most common pitfalls can be avoided if entrepreneurs take the necessary time to put together a sound document. "Allow yourself ample time to do your research and adjust your plan. Overall, it's important to tie everything together and make sure that your narrative is backed up by solid facts," he says.
Here are a few areas where entrepreneurs should be particularly vigilant, says LaBossière:
- Write detailed assumptions The core of any good business plan is based on solid assumptions, which enable you to do accurate forecasting. "You can think of an assumption as a premise that helps you forecast future results and allows you to simulate how your business will perform," he says. Entrepreneurs will typically need to make assumptions about three key areas when writing a business plan: sales, variable costs and fixed costs. "In the simplest form, you're projecting what sales you'll need to cover fixed and variable costs," he says. "Entrepreneurs often fail to include detailed assumptions that are clearly broken down. You have to show that you've given your plan a lot of thought," he says. LaBossière gives an example. "Your assumption is that you're going to get 1.5 per cent of the electrical industry market, which represents $1-million. However, the targeted market share needs to be broken down so that the reader understands how you are going to achieve your market share goal." For example, you need to build specific objectives that you can aim for (i.e. 5 commercial contracts averaging $10,000.). Detailing your assumptions and objectives, says LaBossière, will also help you with establishing specific marketing strategies and identifying resources that are required to meet your objectives. "Everything in your business plan has to tie together," he emphasizes.
- Don't forget start-up requirements A common pitfall in business plans, says LaBossière is omitting to cover start-up requirements. "It's not enough to simply say, 'We need $400,000.' It's important to clearly outline the specifics so that the reader feels that you've done your homework. For example, you'll be looking at factors such as how much equipment you'll need. Ask yourself, do you have sufficient working capital? Will your real estate needs change? What are your hiring needs? What are your possible sources of funding and how will they be used? These details give your plan credibility and build confidence that you know exactly where you're going," he says.
- Have supporting information Backing up your assumptions is also crucial when writing an effective business plan. "If you're trying to make a case, you'll need the ammunition to support it," says LaBossière. Supporting information can include feasibility studies, surveys, market analyses, key competitive information and industry overviews. "The reader should see clear footnotes that point to your supporting information," he adds. "Keep the information clear and concise. Bankers want to see the facts, but avoid overwhelming the reader with irrelevant data."
- Emphasize human resources management Business owners often overlook key areas such as human resources management in business plans. "HR poses many challenges to entrepreneurs today, particularly when recruiting in a shrinking labour market," says LaBossière. "You have to show that you know precisely how you'll attract skilled staff to operate your company," he says. Business plans should include your organizational structure, as well as clear HR requirements such as recruiting and outsourcing strategies. "People are the core of any business, so your overall company strategy has to address intangible assets such as employee skill sets and knowledge," he says.
- Get outside help LaBossière highly recommends that entrepreneurs deal with external consultants such as BDC Consulting for assistance in writing business plans. "It may be wise to first take a stab at your plan yourself since you're very close to your own company's reality," says LaBossière. He encourages business owners to use business plan templates as a way to get started. "However, having a consultant revise your plan can help you make a stronger business case. It's good to have that objective point of view. Sometimes it's difficult to see weaknesses in your document and where you can improve it," he concludes.
Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.