Why is the business plan essential?
The main objective planning the business plan is to write a convincing approach both to warrant financing - and, therefore, the continuity of the company- and to go towards an essential change required by the project with successful warrants.
If this effort is not done in the properly moment, there are several problems deriving from this. One of the most important is the lack of communication between promoters and creators of the project. The last consequence: the project can not be totally exploitated.
When writing a plan, the team of entrepreneurs must look for a language free of technical or specialized terms of the sector and the technology used, in order to reach a diversity of public to who the document is addressed. The task aims also to send the specific terms of the company model to future members of the team or to an external promoter.
The plan can be considered, despite its size, as the fisrt commercial newsletter and it is as important as patents, strategic alliances o publications in scientific journals. It is the link to the outside.
The message to be sent must be simple, correct but not too technical. It has to be written addressed to a banker and at the same time to commercial agents.It has to be accurated and show the commercial viability of the entreprise (a company does not start up creating a product and trying to place it in the market; the product has to be studied and the needs of a concrete group (target) will be those which will make sales possible).
The plan may include all aspects of the activity: the idea, the startup, the management and the control, even the achievement of annual sales forecast. Usually, planning period is five years.
The main objective of the plan is often to obtain the necessary funds, however, it has further objectives. The final plan may provide a comprehensive analysis of the activity, objectives, the market where is dealing, the rivalry that it must face and the problems that have to be overcome in order to fulfil the plan. So, it has to be elaborated as the general guide that managers will use to reach their objective; interests and character of the members of the team could be read between the lines.
Preparing the project, an accurate examination of the basic hypothesis of the promoters has to be done, provided that it has to be presented to a thid party, impartial. It can happen that the creator's enthusiasm needs a vote of confidence that can not get from the market. Any weak point of that kind will be clearly stated during project elaboration, which will be finished when it will be able to face the examination of sceptical financial investors.
We must not base the project on value judgements; one of the aims of the project is to eliminate them as far as possible. Every year the project has to be updated, the commercial activity must be checked and imporvements for market penetration must be found. Differences between initial hypothesis and achieved results must be justified. Moreover, if needed, we must modify them to adapt forecasts to new hypothesis in order to make the plan work in the real business environment.
Entrepreneurs may take into account that financiers, capital risk investors and bankers have an interest to recover their investment in a reasonable period of time, above all in hard times. Their aversion to risk is really high given that they are under external pressures. Although a gradation between the three actors still exists, the suitable word for capital risk is "investment capital". For this reason, other arguments not related with the financial environment are often needed in order to support the investment: improvement of the quality, market position with regard to a specific segment (Top range), environmental advantages, etc.
Updated 5/5/2005