In my decade-long experience, building a good business plan is always a challenging moment for many entrepreneurs, for any number of reasons. It’s indeed the reality that I had personally experienced myself when I was once a novice in business way back in the 90s, and later the business consulting experience that I’ve accumulated from hundreds of both local and international business plan cases here at GE Consult. Never the less one of the major challenges that stands in the way of a good business plan is the fact that the evaluations of a business plan would be assessed by more than one investor.
Interestingly, every investor is inevitably different in terms of their goals, approaches and tolerances due to their different backgrounds and personalities. I’d believe that this is one of the first few lessons that startup entrepreneurs and founders need to learn. But what should a good business plan require in order to fulfill each and every requirement, from any investor, from any walk of life? I observed, here are at least 3 extremely critical questions a good business plan should answer by ranking.
Q1: How unique your business is?
This is one of my favourite questions when meeting with my SME clients. Ask yourself if the products or services that you intend to offer are appropriately unique, and will be able to create entry barrier through practicable intellectual property (IP) while enhancing competitive edge to the business in not only short-term, but also medium- and long-term. Undoubtedly, a brief audit of the competitive landscape to witness viable positioning is required. For instance, I was once involved in the Southeast Asian bedding industry, and was fortunate enough to craft a brand new white products series (a range of pillows, bolsters, quilt etc.) through an international collaboration with a leading European fibre supplier. I created the brand name called Sleepedia (means Sleep Encyclopedia) with forthright marketing message – to provide quality sleep experience to people in Southeast Asia with the German’s revolutionary fibre technology that significantly improves health. Without a doubt, Sleepedia has outplayed the competition across regional markets including Malaysia, Singapore, Thailand, Indonesia, Brunei, Vietnam, Cambodia, Taiwan etc.
Q2: How profitable your business is?
A favourite “numbers-driven” question of mine indeed. In my opinion, the key to any successful business is to be a profitable company, not just a high turnover company. In other words, a good business plan should be able to articulate how a product or service will enter the market with realistically high gross profit (GP) margins and viable operating profits, to facilitating achievable breakeven point (BEP) and possible 2-year payback period, ideally. Ask yourself if you prefer the “High-Margin, Low-Turnover” or “Low-Margin, High-Turnover” approach? For instance, here at GE Consult, I have personally worked with many incredible high margins small-and-medium enterprises (in consumer goods, textile, F&B, education etc.) in moderately expanding markets, the yearly turnover numbers have been a better-than-average growth with high margins coupled with relatively low operating costs (due to low turnover). Isn’t it small is beautiful? Now, you should agree more with one of Jack Ma’s favourite quotes: “Small is beautiful”.
Q3: How will the business be stuffed and staffed?
This question is in relation to the initial resources required to establish a business, in other words, it’s the initial capital including capital expenditure (CAPEX) that incurred to purchase fixed assets (e.g. property, tools, equipment etc.), and fulfill future operating and variable costs (e.g. rental, salaries etc.) with aims to create future benefits. In my opinion, CAPEX formula actually reveals whether or not to invest, therefore in a good business plan, startup companies and SMEs should be underspending when it comes to capital expenditure and, in fact, many of them may be overspending! Fancy office and overstaffing are some classical examples. In my observation, low CAPEX may equal to low expenditure. With such low CAPEX condition, a startup company or SME would likely not be overstretched by high short-term commitments. If I’m not seriously wrong, keeping a healthy cash flow is vital to any business at any scale, whether a business is in its startup, developing or developed situation. In accounting terms, a good business plan aims to achieve ideal Quick Ratio and CAPEX-to-Sales Ratio (possibly high cash inflows and low cash outflows situation) so that the company will be able to self-sustain while meeting its short-term obligations (e.g. paying rental, salaries etc.)