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As startups navigate a challenging economic environment with increasingly cautious investors, securing financing opportunities has become an uphill battle. A solid business plan is an essential step to any type of business growth, as it provides a roadmap that helps entrepreneurs evaluate where their businesses are now and where they’re likely to be.
A Harvard Business Review study found entrepreneurs with formal business plans are 16% more likely to succeed long-term than businesses without a plan.
A solid business plan should not only address investor concerns and take current economic factors into account, it should also be structured and simple, proving that your business can survive long-term without including unreasonable expectations.
We examine what entrepreneurs need to know when creating a business plan for sustained growth.
Understanding the current market
Companies are facing a turbulent economy. An already high inflation rate jumped four percent in early fall of this year, with recent data showing a rising unemployment rate and shrinking economy.
Along with rising interest rates, increasing inflation and a sudden spike in layoffs, particularly in the tech field, starting a business or growing a company has become a risky endeavor for many.
The biggest challenge for entrepreneurs remains finding sustainable funding, which is becoming increasingly difficult as venture capitalists and investors become more cautious with where they invest their money.
Building a business plan that supports growth
To thrive in the current environment, it’s essential to work with a trusted financial team to review your business strategy and create a fiscally conservative business plan that takes financial reporting into account, including:
- Gross margin and net margins
- Channels and markets, particularly those not bringing in enough profit
- Sales and inflation rates
- Your customer base
In order to build a strong business plan, it’s essential to take investor concerns into account. This affects how your business will be valuated, meaning it’s important to do your research, fully understand the current climate and create a solid plan for the future growth. As an entrepreneur, investors are looking for you to prove that your businesses can sustain itself in both the short and long-term. It’s also essential to show that your company will be able to pay back any financing loans at a reasonable pace.
To prove your company can thrive in the current market, your business should include the following components:
- A company profile. This is where you sell your company and its vision. Include a business description and value proposition explaining the problem your business is solving. This section should detail the products and services you provide, along with any unique features and costs. Investors are looking to see that you know your product or service inside out and fully understand your market.
- A sales and marketing plan. This section should answer the question, “How will you generate sales in the current environment?” Include all major marketing and sales activities, the cost and time involved and the expected results. Again, ensure you’ve done your research and understand how to market your business in an economic downturn.
- An operations overview. This includes everything from why you chose your company’s location to a list of assets, such as equipment or real estate. If relevant, include a list of suppliers and be as detailed as possible. Investors are looking for as much information as needed, including supplier location, turnaround time and any trade agreements or border issues.
- A financial plan. This is key in any business plan. Entrepreneurs should create a cash flow forecast (typically these are presented as spreadsheets and shown on a monthly basis). You’ll also want to add financial statements like income statements, balance sheets, cash flow statements and a statement of retained earnings. New businesses can also list start-up costs.
Common mistakes to avoid:
Investors in the current market are especially discerning, meaning any mistakes can affect a financing deal.
The most common mistake we’ve seen are entrepreneurs with unreasonable expectations who believe investors want to see incredible growth and exponential potential. Investors will quickly see through any outlandish claims. It’s important to show a realistic view of your business.
Another common issue occurs when businesses ignore expenditures (such as labour and overhead costs) and opt to only review revenue growth. Both should be examined and shown in your business plan to ensure a clear button line.
Showing insufficient details can also be detrimental to your financing goals. Investors are looking for solid management teams, reasonable marketing plans and explanations for all cash flow forecasts.
Navigating trying times: How Zeifmans can help
Creating a solid business plan that takes the current economic downturn into account is essential to any start-up’s growth. Our experienced Technology & Startups team at Zeifmans has a long history of supporting new companies during turbulent times. Our trusted advisors have helped a wide variety of entrepreneurs write solid, sustainable business plans. To reach out, contact us here.
