A business plan is a basis and foundation for proper conduct at the business-economic level, whether it is an existing business or a new venture that is being considered. In the following lines, we will review three main rules for building a correct business plan
The first rule for building a correct business plan is to be realistic with a pessimistic tendency. On the face of it, it seems that this is a strange rule since the whole intention and goal is to achieve success, that is, to act from an optimistic attitude and maintain it. At the same time, when you look at the statistics, you see that half of the new businesses established in Israel do not survive the first five years. Added to this are many businesses that have survived but the results are far below expectations, and even if it is an existing business that made a move with a new product or service, the results do not necessarily match expectations.
In fact, the difference between optimism and realism or pessimism is one of the main reasons for failure in the end. Naturally, the entrepreneur or business owner seriously considers the move from an optimistic point of view, in light of the thought, understanding or ambition to achieve decent profits. In fact, without this optimism, vision and motivation, it is not possible to succeed or at all to promote significant moves, and their dignity is in their place. On the other hand, the problem is that the tendency to listen to the wishes of the heart and fantasies about profits and success on the part of the entrepreneur or business owner, also turns into great expectations and exaggerated numbers.
It is not just a question of disappointment and discouragement from a business venture that did not meet expectations. When you tend to imagine the venture in rosy colors, you don't take into account other scenarios, which are very possible, for example there will be times when the business will work more slowly, that it will take time for the product to be absorbed, that the competitors will take significant steps, that the run-in period will be longer, and so on. Therefore, when a skilled business consultant builds a business plan, he brings the more realistic and even slightly pessimistic approach, which takes into account a long list of scenarios that can affect profitability, along with a thorough knowledge of what is being done in the economy as a whole and in the specific industry in particular.
A business plan that does not take such scenarios into account, suffering from over-optimism, may give drive and wind in the sails, but at the end of the day the other side of the coin will be revealed. That is, due to the optimistic forecast, proper preparation was not carried out in terms of the funding sources that will sustain the business or venture, in terms of the budget, cash flow, etc. From here, the road to serious financial problems is short, which may end in a tooth and an eye for the entrepreneur or business owner. Furthermore, the realistic and slightly pessimistic forecast paints a more reliable picture of profitability and of reaching a break-even point, and therefore the entrepreneur or business owner can decide with their eyes open whether it is really worth it for them to enter the venture. Indeed, a business plan should be based on accurate data, and realistic and accurate forecasts as possible, since this is the right way to create a solid foundation for a business move. Thus, in the "worst" case, the actual results will be better than the forecast.
Take extra in the marketing budget
As we know, marketing and advertising are among the foundations on which every business stands. With them it develops and reaches new customers and markets, increases turnover, maintains adequate profitability, etc. Apparently, building the budget as part of the business plan is quite simple: just add the numbers that go to the digital media, to the outdoor signage, to the sales promotion and so on, and that's how the amount is obtained. However, this is a much more complex task because one must consider the ability to meet the Haggadahs and the goals of the business plan, the cash flow situation, the limitations of the general budget, the ability to handle the increase in the amount of orders, and of course also consider the variety of marketing options and their costs. Among other things, the marketing and advertising options include digital media such as Google, Facebook, Instagram, TikTok, LinkedIn and YouTube, as well as collaborations, KDM products, conferences, old media, and more.
One of the complexities of building the budget is that these are only estimates regarding the number of customers you will be able to achieve, so a skilled business consultant will direct you to accurate data of average effectiveness in the various advertising channels. But in the end these are still predictions and there is an element of risk. The budget must balance the economic capabilities of the business and meeting the goals set in the business plan. Inside, he must prevent situations where suddenly, in the middle of the year, high and unplanned investments are required.
Therefore, a basic rule of a correct business plan is to take a bigger marketing budget than you thought about, 20 to 40 percent bigger than what was planned. It must be understood that throughout the years there has been an increase in the cost of advertising, especially in digital media. A major reason for this is that this environment is dominated by lions, almost monopolies in their field, such as Facebook, Google and Instagram. These platforms enjoy huge demand on the one hand, and low competition on the other hand, and when there are no competitors, prices can be raised. Beyond that, the same spirit of optimism that was talked about in the previous paragraph, certainly also blows as entrepreneurs and business owners think about the marketing results. The truth is that marketing is more difficult than the popular perception, and you have to invest more to get the results.
If so, the rule is to take an extra of 20-40 percent above the budget you thought about, of course depending on the financial situation of the business, constraints, abilities and goals
Take into account the run-in period
When building a business plan for a new business, the run-in period must be taken into account. Again, many entrepreneurs come with vision, enthusiasm and fantasies, but to succeed and avoid serious problems they must put their feet on the ground. Therefore, a good business plan for a new business must take into account the start-up process, which takes at least six months to a year depending on the type of business, the competitive environment, the experience of the entrepreneur and other parameters. This is a period when, on the one hand, there are relatively high expenses, both at the level of the initial preparation of equipment, renovations and initial inventory, and at the level of the marketing budget discussed above, which in the case of a new business should be higher.
On the other hand, during the run-in period, the circle of customers is still not large or constant, and neither is the income. When you combine these two: high expenses and relatively low or irregular income at the beginning, you understand why in the first period new businesses do not make a profit at all. Although the bottom line changes in light of the different parameters of the business, a good business plan will take into account that in the first half of the year the business will operate below the break-even point, meaning that at least six months will pass before the business starts to make a profit. Of course, this point of reference will have great effects on the entrepreneur's expectations, on knowing the picture and making decisions regarding the opening of the business and its concept, and regarding the raising of funding that will be required for the initial activity period.
This article was written in cooperation with Levy Finance