By James D. Roumeliotis
Often, the initial task expected from an aspiring entrepreneur is to prepare a business plan. A comprehensive business plan, when concisely written, is a tool that conveys in detail the short and mid-term (1 to 5 years) goals and objectives comprising the projected sales strategies, the marketing, operational and financial plans. This document should include in-depth research conducted regarding the industry and the competition. Moreover, it describes the strengths, weaknesses, opportunities and threats/risks (known as a SWOT assessment) along with a financial analysis, and assumptions on growth. The average 25-50 page document also lays out a map of where your company will be and how it will get there – also known as the “vision.”
Pitch Deck vs Business Model vs Business Plan
A typical question normally asked is: which one comes first? It depends on which of the three is being requested. However, the pitch deck is generally sent early in the discussion. The business model is created for internal purposes and can be comprised within the business plan. The U.S. Small Business Administration (SBA) refers to the business model as “a company’s foundation and the business plan as its structure. The foundation, or business model, is the original idea for your business and a general description of how it functions. The structure, or business plan, elaborates on the details of your business idea.”
A pitch deck is a presentation − a deck of between 10 to 20 pages slides that is shared to potential investors and/or used as a visual during a live presentation to either investors or other audiences. The pitch deck is an effective summary of the key items in the business plan and includes information about the business, who it serves and why, the size of the market, the unique selling proposition (USP) and how the business will win in that space. It also lays-out the details about what the entrepreneur intends on doing with the funds sought from an investor.
The pitch deck is created in a Microsoft Powerpoint format and converted to PDF prior to being sent-out via email.
The business model, more specifically, a Business Model Canvas is a company’s plan for making a profit − a design for the successful operation of a business. It’s how you create value/make money while delivering products or services to your customers. It’s in a form of a visual chart with nine building blocks describing, among other elements, a business’s value proposition, infrastructure, customers and finances. It can be used to understand your own business model or that of a competitor. The business model canvas was created by Alexander Osterwalder, of Strategyzer.
The business plan is a non-static document (usually in MS WORD and sent in a PDF format) which describes in detail, what the business does, and how it’s going to achieve its goals and objectives. It also incorporates the business model, the financial projections, and all other details about customer interaction/engagement, customer service, operations including management capabilities.
The business plan is first and foremost used by a business as a reference guide and shared when requested by the bank for a possible loan and/or funding considered by the potential investor.
What a banker or private lender seeks
For debt financing, which is either provided by a bank or an alternative loan source, the business plan should contain a convincing reason why the money is needed and how it is going to be used in the business. Being the least risk adverse, as compared to an equity investor, a money lender’s main concern is the possibility of a business failure/bankruptcy. Its main focus is on the ability to make the loan payments and eventually repay the entire loan. As such, much emphasis is on the cash-flow analysis. Likewise, bankers are interested in the business background of the management team. The marketing plan provides information on how the business plans to cope with competition.
A lender’s additional information sought is other sources of finance the business presently has in its books along with a list of potential collateral which the bank can have readily access to (business and personal assets), in case the business is unable to repay the loan. Likewise, the borrower’s financial track record is carefully evaluated.
What an investor seeks
When writing a business plan specifically to raise capital to fund a new business or take an existing company to the next growth stage, an Investor — whether an angel investor, private equity or venture capital, seeks certain vital information and requirements. The business plan should include a detailed use of funds, a descriptive growth strategy, a list and profile of the competent management team, and credible, reasonable yet ambitious financial projections. An Investor will also look for a unique competitive advantage that enables the business to be more effective than its competitors, as well as whether the business will be making a profit and how long it may take to do so. The business plan should also state an exit strategy since the investor needs to know how quickly he or she will achieve any gains on his or her investment.
Other specific uses of a business plan
Immigration officials (referring to U.S. & Canada) require those applying for an Entrepreneur or Investor visa to submit a business plan which states that the proposed business has the potential to create the required number of jobs (economic benefits for the country) to qualify him or her for business related immigration visa. Furthermore, the business is being invested meets the monetary requirements and is irrevocably committed (wire transfers, cancelled money orders etc.), an itemized list of goods and materials purchased for the start-up, as well as the lease agreement. The source of funds must be stated, as well as convincing information on the ability to develop and operate the business.
A Government agency may request the business plan to issue a grant. One of the components that simply must be present in the plan is to show that, as the business owner, you are investing your own money. The bureaucrat wants to know that there will be skin in the game. Additionally, what needs to be in the business plan to increase the chances of receiving a grant is how much money is sought, how the funds will be used and how soon required (perhaps include a timeline). The plan must be written in a form which takes into account the economic benefits for a legitimate and viable business.
A Strategic Business Plan differs from other business plans as it exclusively centers around on the company’s vision and places emphasis on a particular objective. For example, to focus on a particular niche in the marketplace. What would follow is to makes sales, marketing and customer strategy more effective.
What follows is an ideal description and comparison, from the BDC (Business Development Bank of Canada), between the Business Plan and Strategic Plan.
Business Plan. Strategic plan. There’s a lot of overlap between the two, but there are also some crucial differences you should understand.
A business plan answers “what do I want to do?” questions. It includes your company’s organizational structure, marketing plan and financial projections. Its purpose is to define where you want to take your business. It’s often the founding document of a new business.
A strategic plan, on the other hand, answers “how will I do it?” questions. It includes a detailed action plan for the next few years to achieve your company’s goals.
Both should include a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) and be reviewed regularly so that they’re up to date.
In the final analysis
In essence, the business plan is a document not solely for the entrepreneur to spell out strategy and to implement it. Its purpose is also to make a pitch to a banker, potential investor, and prospective partner, or for other (rare) purposes such as immigration. As such, the information should be tailored to what is sought by the specific reader. It ought to provide clarity of thought and purpose, by clarifying strategy, introduce the Business Model, the company, its “raison d’être”, as well as the management team. It attempts to persuade investors in raising funds, as well as honestly highlighting risks and challenges. The business plan serves as an entry point for further discussions. Besides the management team and its competencies, banks are concerned that their loan gets repaid at a defined point in time so they place emphasis on the projected cash flow statement. An equity investor prefers a business plan which is realistic yet ambitious, their focus being on growth, a return which will yield at least a 10x return on their investment along with an exit strategy in approximately five to seven years.
Key Elements of a Business Plan:
- Explain the business model in simple terms;
- Fit the plan to the company;
- Be credible and informative;
- Demonstration of knowledge of the market and competitors;
- Stressing the risks and steps to overcome the risks;
- Using clear and concise language.
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Unconventional Business Wisdom for the refined entrepreneurial mindset - by James D. Roumeliotis 