Running an enterprise without a business plan is like driving into the unknown without a map, navigation system or a clear idea of which route to take. Yes, you may end up in the right place, but it’s likely that you’ll get lost along the way or bogged down by involuntary detours, wasting your time and resources. In the business context, this goes well beyond petrol and can cost you dearly.
‘Without a business plan, or if you’re using a generic cookie-cutter business-plan template, a business is essentially rudderless, and day-to-day activities are likely to be haphazard and reactive,’ says Thommie Burger, founder of Joburg-based JTB Consulting, which has assisted more than 2 500 start-ups and existing companies in more than 25 countries with tailor-made, industry-specific business plans.
‘When you use your business plan as a tool to help you outline action items, next steps, and future activities, you are creating a living, breathing document that not only outlines where you are and where you want to be, but also gives you the directions you need to get there,’ he says.
That’s why a business plan is not only essential for those wanting to start a business, but also serves as a road map or action plan for already established businesses wanting to grow or reach certain goals. No matter what size or industry, companies should update their business plan regularly to respond to opportunities and change.
Cash, money, moolah
The other key purpose of a business plan is attracting finance. ‘The honest fact in Africa (and this most definitely includes South Africa) is that if you want to apply for funding or require an investment, whether from governmental or private institutions, you will need a business plan,’ says Burger. ‘You can’t get around this fact – unless you have a rich family member who throws money at you, or you recently won the lottery.’
In the United States and Great Britain, there’s a trend where the ‘investor pitch deck’ replaces the lengthy traditional business plan, but Burger is quick to point out that this still requires the creation of a written and well researched document. ‘So, whether you call it a business plan, pitch deck or presentation, it takes time and considerable insight into both your business and the market in which you want to operate,’ he says.
Forbes.com agrees that there is a lot of crossover between pitch decks and business plans. ‘Yet, one is for presenting and specifically for getting funding from angels and venture capitalists. The other is more organisational and internal in nature.’
Most South African financial institutions provide guidelines on exactly what information they require for start-up funding or company investment applications. Absa, which has set up dedicated enterprise and supplier development centres and also offers financing solutions to SMEs, has an online list of simple questions that a good business plan should answer. These range from ‘What type of business do I want to run – will I be selling products, services, or both?’ and ‘Will I be in business by myself or in a partnership?’ to ‘What market will the business be serving?’.
Harvard Business Review sums it up: ‘For a plan to be effective, it needs to detail out what the opportunity is, who the customers are, why competitors should be fearful, and how the company operates and makes money.’
Furthermore, a business plan needs to be based predominantly on verifiable facts and market research, including key risks and mitigating factors, rather than personal opinion and belief, says the Industrial Development Corporation. The organisation, which funds start-up and existing businesses with a maximum of R1 billion, continues: ‘The business plan should demonstrate that the business venture is commercially viable and that all those involved in the project, from management to employees and consultants, have the skills, knowledge and/or qualifications, to deliver on the plan.’
While the format is not cast in stone, a business plan should include an executive summary, company overview, market analysis, organisation and management structure, marketing and sales, financial plan and funding request, as well as an appendix with supporting documentation.
However, even if everything is in place, there’s no guarantee that it will secure funding and business success. But, as Burger says, ‘a good business plan goes a long way toward reducing the odds of failure’.
Illustration: Gallo/Getty Images