Creating a business plan for success
The business plan is the most important thing for anyone who wants to be successful. Whether you are a natural entrepreneur or you have an existing career, planning for success will give you the best chance to avoid failure. A good plan should also maximise profitability. In this case, you want to ensure that the costs of manufacturing bricks are as low as possible without compromising the quality of the product. At the same time, you want to obtain the highest selling price for the concrete bricks. This is the basic formula to maximise remuneration; but if you are in an area with high competition, your profit might be very little.
This article will guide you through the way of thinking when considering the business plan. There is a downloadable document available for members to offer an outline as a starting point. This document has been translated but not professionally; thus there can be many grammatical errors. It is offered to assist you in your own documented planning.
Let's talk about planning a business that makes bricks.
CORE QUESTIONS
WHO ARE THE PEOPLE?
WHAT DO THEY WANT TO DO?
WHY ARE THEY DOING THIS?
WHERE ARE THEY DOING THIS?
HOW DO THEY INTEND TO ACCOMPLISH THIS?
WHEN WILL THEY ACHIEVE PROFITABILITY?
There are many business plan templates on the internet. Any of the templates can be used for the document structure, but it is important that you understand what the business plan must achieve - It must address the questions above despite having a fanciful layout.
Change your perspective by presenting this as a story.
If someone approaches you and asks to borrow money so that they can start a business, you might be concerned about their ability to repay you. To help you decide whether you will lend them the money or not, you might ask questions about how that money will be used.
Why do they want the money? What is their idea? Why do they think their idea will work? Have other people tried this idea? Has this idea been successful elsewhere? Do they possess the skills to accomplish the tasks? Can they get someone to accomplish the tasks? Where will they get supplies from? Are their suppliers reliable? Have they looked around for the best price and best quality? How much money is needed for expenses? How long will it take to start the business? Do they have a backup plan in case something goes wrong? etc.
Answer relevant business questions to build investor confidence.
Answering these questions reduce the perceived risk, even if the actual risk is still high. There is always risk, but the risk will always be higher when there is a lack of planning. A person that asks to borrow money from you will build your confidence in them if they have planned out how to use that money properly. If they tell you their idea, why it's a good idea, where they have seen it successfully implemented, why the local market is similar, show that there's little competition, demonstrate their ability and experience from their curriculum vitae, etc. - you will gladly lend the money because you have confidence they will be able to pay it back.
The extent of how well the business plan is will reflect in negotiating the return interest percentage. High risk means high interest rates. Low risk means low interest rates. With a business that isn't yet started, there is no evidence on how well the business is doing. In order to convince a person that the business would do well, you must supply evidence on why you believe it to be true.
This brings the discussion to the topic of inference. Let's just call it evidence since that is a more understandable idea.
EVIDENCE
If you say your expenses are some value, how did you come up with that value? Let's take rent: If you say that you need to rent a premises for $1 per month, where did you get that $1 figure? You NEED to provide evidence for your claim. In this case, that would be a rental offer from the land owner. Even a basic printout from the internet of similar premises indicating the market amount (and availability) for the rental you want.
The reason this is so important is that the rest of the business plan relies on figures like this. If the potential investor reads that rental amount and doesn't find evidence, they will equally question the rest of the plan. More importantly, if the actual rental is discovered to be very different from that planned amount, the investor will lose all confidence in your ability to plan.
If you lack the ability to plan a business, you lack the ability to run a business.
Ultimately, the purpose of the plan is to identify all considerations for the business when it is operating. If your plan relies of falsified information then failure is more likely. If your figures are outdated then when you execute your plan of action, the reality will be very different and those unforeseen circumstances could cost more money than anticipated. This could increase expenses and reduce profits, which could impede your ability to repay the loaned amount.
A veteran investor will be able to deduce all of this from the business plan. Ensure that they have no reason to doubt your figures. If the investor doesn't doubt your figures, they can then evaluate your plan of action fairly. If you have the money yourself and you do not need an investor, the business plan will reduce your own doubts and offer a more accurate assessment of the the expected future in business.
CORE QUESTIONS IN DETAIL
1. WHO ARE THE PEOPLE?
Investors want to know who you are. In order to trust you with their money, they need to know that you are a person with the relevant contacts and skills to make the business work. Your history of employment, past projects, citations from other managers or co-workers, character references - this question is a condensed summary of your C.V. that you would normally use for job applications.
If there are more than one person involved, it is likely to instill more confidence in the plan especially when different skillsets are brought to the business.
2. WHAT DO THEY WANT TO DO?
In the case of a brick-manufacturing business, this question needs to be extremely specific. You need to identify the need for a particular brick type in the community. You need to research how much it sells for; how much the raw materials cost to make it; what the labour will be for the brick production; etc
3. WHY ARE THEY DOING THIS?
This can be something of a personal investment as to why you are starting a brick-manufacturing business; But for the business plan be sure to expand on the marketing analysis. Don't be afraid of this terminology - this is simply to say that you have looked at the local market of bricks, blocks or paving and you have identified an opportunity. This opportunity is usually because of an excess in demand (new housing developments, government projects, growing construction sector, etc) or an insufficiency in concrete brick supply (this can easily be seen with long waiting periods to have bricks delivered).
Having opportunity isn't the only reason to start a business. You might have an advantage over the competition to produce faster, better or cheaper. Whatever the motivations you have, make sure your investor is informed and convinced of your intentions.
4. WHERE ARE THEY DOING THIS?
A brick-manufacturing business needs a geographical location. A property or premises that is owned or rented. Typically, for start-ups, the opportunity of bricks is in a less accessible region with little supply. The competition is usually in the major cities and the cost of transporting bricks means that the setting up a business locally will enjoy an advantage in cost price already.
Include some satellite maps and photos of the proposed site to build a visual connection with the investor.
5. HOW DO THEY INTEND TO ACCOMPLISH THIS?
Similar to the second question of what, the question of how is the most important. From the time you receive investment money to the time you pay it back, a strategy must be in place and used as closely as possible. The more planning in this strategy the closer the reality will be to it.
For a brick-manufacturer, this question of "how" is about the process. What machinery will be used? How will the daily operation work? What must workers to to yield a consistent high-quality product? Who will supply the raw materials? What day of the week will they deliver? What is required for the office administration? What are the monthly expenses? Are water tanks needed for water supply? How long must the bricks be kept to harden? How must the customer pay?
6. WHEN WILL THEY ACHIEVE PROFITABILITY?
The easiest overview for profitability or "turnaround time" is by evaluating a financial plan or income projection. Together with the business plan (rather, part of it) is the figures used in calculation for the monthly profit. The financial plan might be the quickest way to evaluate any business plan rapidly, but is only as good as the thought that goes into the plan.
Investors want to see the monthly income or sales, costs of goods sold, expenses, provisions, repayments, interest paid, cash flow, balance sheet - all of it. They trust that the figures are representations of facts and evidenced as best as possible for the most relevant numbers.
With a five year projection showing profit on a monthly basis, the return on investment can easily be seen and ultimately a decision made on whether the business is a good or bad investment.
CONCLUSION
This concludes the introduction to business planning. Whilst this is not as specific as it could be on the topic, it's important to gradually come to understand why the business plan is relevant to every business whether starting out or still in operation. In the next article, we will begin building a business plan. We will create each section with due care. A task list will be made, listing what evidence should be sought to support the assertions made in the business plan.
If there is one thing you should remember from this article, it's this:
In a business plan, you are explaining how you will use money to create a successful venture; and why you believe you can do it.
