The spectrum of startups in Pakistan has grown manifold. In 2020 alone Pakistani startups have been able to raise USD 47 million of funding. All startup funding pitch is backed up by a thorough and detailed business plan, however, all the founders are not equipped to make a good business plan and some good ideas fail to raise funding because of a poor business plan.
It’s not about ideas. It’s about making ideas happen.Scott Belsky, Behance Co-founder
So what are some of the key ingredients of a good business plan?
A detailed scope of business
First thing first, you need to write it down what your business idea is? What are the products and services? What will be some of the variants of the business? How will these be delivered to the customers? Is your business b2b or b2c? There can be a long list of questions that you need to ask yourself and put there reply on the paper. As it is said that an idea is just an idea until you have its execution planned. Most of the business idea fail at this stage because they lack an appropriate implementation plan.
Not necessarily all you have thought or written in this phase is required to be made part of the business plan, however, clarity of mind will be helpful to jot down the key points of business scope.
The heart of your business plan is the financial numbers of your business. Before these numbers are derived a detailed set of assumptions are required to be laid down. These assumptions include but not limited to:
- Sales forecast concerning both quantity and price. This is required for all possible variant of the products.
- Macro-economic assumptions such as inflation, interest rate, exchange rates, etc. All the macroeconomic indicators that affect your business model
- Capex assumptions including the land, machinery or other capital assets required. This includes the type of asset, its useful life, its residual value, capacity etc. These are very important assumptions as these set down the capacity or size of the business.
- Operational assumptions – These can be arrived at through in the following two ways:
- Cost-plus method – If you have clear information concerning the inputs and their costs then this method is effective. This is more detailed and accurate however, in many circumstances’ accurate information of all the cost items is not readily available.
- Gross margin method – This method applies a broad-based industry gross margin % on your sales and ignores the individual cost items. This is quick and conforms with industry performance. However, this may ignore some company-specific costs.
- Financing Assumptions – Whether the project will be financed through equity or debt or a combination of both.
- Marketing Assumptions – In this digital world, the marketing of the product has become extremely critical. You need to identify the channels and estimate the amounts that you will spend on each to get the desired reach.
- Dividend Assumptions – What an owner wants from its business is the returns. Different sets of dividend assumptions can be built in to see how much return can be taken out and when.
The financial projections are generally for a period of 5 or a maximum of 10 years. Beyond 10 years the financial impact becomes negligible. These projections are used to evaluate the business. There are various ways to financially evaluate a business, some of the most renowned methods are:
Net Present Value(NPV) – NPV is the present value of all cash inflows and outflows over the life of the projections. The discounted value shows the true value or worth of the business. A positive NPV means that the business will give a return over and above the required return of the investor.
Internal Rate of Return (IRR) – IRR is the discount rate at which the NPV of the project is zero. The higher the IRR the more desirable the project is.
Payback period – Payback period shows the time in which the investor will get back its original investment. The quicker the investor gets his investment back the better it is.
Your business plan is incomplete without a detailed overview of the industry in which your proposed business will operate. For example, if a startup wants to enter into a retailing business, then it needs to analyze the industry. The analysis includes the market size, competitors, distributors, regulations, customers and trends. Your industry insights derive your strategy for entering into a particular industry. Your strategies can be:
- Market Penetration – means that you increase your market share through marketing
- Market development – means entering into a new geographical area where the product doesn’t exist
- Product development – Improving existing product or developing a new product
Understanding your competitors is the key. Who they are? What are they offering? And how can I differentiate myself? Your Unique Selling Proposition (USP) is derived from competitor analysis. You need to answer why would the customer buy from you and not from your competitors.
SWOT analysis does not mean a laundry list of strengths, weaknesses, opportunities and threats. You need to understand how your strengths are taking advantage of external opportunities and avoiding or reducing the impact of external threats. Further, will you work on your weaknesses to enable you to take full advantage of the external opportunities and reduce external threats.
How you intend to inform and provide your product or services to your potential clients it’s critical. Marketing function/cost have become one of the most critical in the modern world. You need a clearly defined marketing strategy that will be transformed into a marketing plan. All this will depend on your product /services, the analysis performed above and the strategies you have chosen in response to your analysis.
Generally is the heart of your business plan, that summarizes the key aspects of your business plan and summarizes your finding on the analysis you have performed throughout your business plan. It comes at the start of your business plan and generally a set the tone whether the investors will go through the details or not. So more than 50% of your time will be spent on drafting the executive summary. This includes an iterative process where you do and redo the executive summary multiple times.
We all are unique, and our business plan will be unique as well. However, the above general guideline will help you structure the key components of your business plan. Always remember to provide specific, clear and accurate information of your business to attract investors.