Testing viability of your business idea

Testing viability of your business idea

In my last article I highlighted how an entrepreneur can generate business ideas. After coming up with a business idea you need to check if it passes the viability test. This is done by drawing up a business plan.
The business plan could be detailed or not detailed depending on the purpose of the plan. For a start-up a business can be used to check if the business idea, when implemented, will be viable.

It can also be used as a roadmap of what you want to do. Or you might want to use the business plan to raise funding or attract investors.
The process of planning is more important than the plan itself because as you prepare the plan you are bound to interrogate a lot of issues about your idea and your business model.

The process of drafting a business plan helps in testing out the feasibility of a business idea and in highlighting any flaws in your assumptions. A business plan should not be complicated; it should be very clear to the reader.
If you have to get money from venture capitalists, commercial banks, government-backed lenders or other investors, you will need a business plan.

Investors will be prepared to release funds on a bankable project. An idea that is supported by a written down plan on how you will carry out the project and what you expect to get in terms of profits is bound to be supported by investors.

Investors are not really impressed by wads of spreadsheets but the action behind the spreadsheets. Investors want to see that an entrepreneur has actually examined the market for a product or service, whether he has identified potential customers, or assembled a capable team, or what business model has he devised.

A business plan helps you to evaluate the feasibility of your proposal. Once you have drawn up a business plan you can carry out “what if analysis” by creating three sets of financial forecasts: a rosy picture, a more reasonable one and a disaster or worst case scenario.
You need to establish what will happen to your business in the event of certain unforeseen events happening.

You should do this sensitivity analysis before you pump cash into the business. You need to at least plan for the worst case scenario.
Having a business plan does not necessarily mean that you will succeed in your business. It needs action on your part.
The tendency in business plans is to overstate profits. But if you assess the possible risks then you will be able to adjust your projections accordingly and remove any overestimations.

Businesses draw up plans for a variety of reasons. Some business plans are prepared to source funding, and other to attract partners into a business, or to recruit certain critical skills or for the government to approve a project.
How does one prepare a business plan to satisfy the above needs? There’s a lot of ways to write a business plan.

The format of your business plan will depend on your industry, who is reading your plan and what the plan is intended for.
A business plan should reflect your ideas about your business and its future, and the projections. Your projections should be realistic and be supported by statistics and facts, if possible, from a knowledgeable source to give your plan some credibility.

How you present your plan is very critical. I will discuss the critical components of a business plan below.
A normal business plan should be about 20 pages or so. Of course the length depends on a variety of factors: the purpose of the plan, the type of industry, whether your business is introducing a new product.

In presenting your business plan you need to start with an executive summary which explains the fundamentals of your business. This is usually prepared at the end after writing the whole business plan.
An executive summary provides the description of your business model, the legal form of the business, when the company was formed, its principals and key personnel and its financial requirements.
The second section will provide the detailed plan. In the detailed plan you start with the business description which typically gives a brief description of the industry and its outlook, the product/service you are providing, the business operation’s structure (whether it is a wholesale, retail or service-oriented), who your customers are, how you will distribute your products/services to these customers, what will give you the competitive edge against your competition.
The third area you cover is marketing. The marketing strategy is one of your plan’s most critical elements. In this section you need to define your target market and how you plan to reach it.  You will comment on the results of your market analysis you would have done in your market research. You should analyze your market in terms of size, structure, growth prospects, trends and sales/growth potential.

Also include how you will distribute the product, indicate what your promotion strategy and tactics will be.
In the fourth section you need to cover your competitive analysis.

The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent competition from entering your market, and any weaknesses that can be exploited within the product development cycle. You need to show why your business will be a success over others.

The fifth section will cover your operations and management. This section describes how the business will function on a daily basis, its location, equipment, people, processes and surrounding environment.

It will also look at how you will manufacture your product, the production facility, the personnel you will engage, requirements for any permits or special regulations or licenses, who the key suppliers are.
You also need to highlight how you will manage the organization, what will be the various responsibilities of the management team.
Lastly you need to show your financial projections. Financial data is always at the back of a business plan.
The above format can be tailored to the purpose of the business plan.

l Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy and performance management.

He provides advisory and guidance on leadership, strategy and execution, preparation of business plans and on how to build and sustain high-performing organisations.

For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com or +266 58881062 or on WhatsApp +266 62110062

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