Starting a business (part 13) - Creating business plans and investment budgets

Service Business

The formalities related to setting up your own business are often so busy that future entrepreneurs defend themselves as much as possible against additional paperwork. However, it is worth paying attention to certain aspects that may and may not be necessary for a beginner company, but which may give it a better start and a more certain situation on the market. It is about creating business plans and investment budgets.

When setting up a small company that does not require initial capital, creating business plans or investment budgets is not obligatory. However, it may turn out that it is impossible to predict everything that may stand in the way of a developing enterprise, contributing to its growth or decline. Over time, it may turn out that the preparation of this type of analysis of the company and the surrounding market will become necessary - e.g. when we want to obtain a subsidy, loan or transform a thriving sole proprietorship into a more advanced company. Of course, a committed entrepreneur is certainly able to quote the most important financial results or company's achievements, even when awakened in the middle of the night, but human memory is unreliable. The spoken word will not speak to an investor as strongly as a solid, physical business plan. Therefore, it is worth learning how to create such documentation, expanding it and updating it as the company grows.

Business plan and investment budget - aren't these synonyms?

What do we understand in colloquial language by the concepts of a business plan and investment budget? These are documents relating to the company's finances, describing their current condition and forward-looking, indicating the current, desired and feasible financial plan.

Definition of a business plan and budget

And what are the official definitions of both concepts? According to the PWN dictionary of the Polish language, a business plan should be understood as an economic and production plan of an enterprise or a project. On the other hand, a budget is a statement of income and expenses of a household, enterprise, state, etc., anticipated for the future period.

On this basis, it can be concluded that a business plan is a construct broader than the investment budget. The budget describes only the finances - their real value, the amount of revenues and expenses of the company. The investment budget will therefore determine what part of the property can be allocated to specific investment activities. It is strictly based on facts, calculations and calculations with little potential deviation from the plan. On the other hand, a business plan takes into account the budget, while describing everything around it. It contains a detailed description of the company's development plans - both those relatives for whom a budget has already been established, and those further for whom we are not yet able to designate neither the required funds nor the deadline for completion. In addition, non-financial factors are also included in the business plan. We describe the market in which the company operates, its contractors, customers, suppliers, competition, development factors and those that may stand in the way of growth. We supplement the business plan with history - what did we start with, what we achieved, what failed, why and how to improve it. A business plan is therefore a broad description of the company, its history and the potential, desired future.

Business plan or budget - which is more important?

Are both documents necessary in the company? As already indicated at the beginning, in a small enterprise there is no requirement to create them at the beginning, but it may appear in the later stages of development. Also, an investment budget and a business plan will not always be required - most often potential investors demand the latter as a broader and better description of the company. In practice, in such a business plan, we will also have to take into account the budget.

How to create a company's investment budget?

As mentioned earlier, the company's budget should be based primarily on facts - in this case, these will be financial statements, a company's balance sheet or summaries from tax books kept. Its most important element will be finances, divided into two parts - income and costs.

Group costs

Management specialists advise to divide the costs into smaller subgroups. Therefore, in larger companies, we will create separate budgets for individual departments. Although a smaller, start-up enterprise does not have departments, its costs can be divided in some way. Therefore, we can distinguish expenses incurred for the purchase of necessary raw materials or materials for production, media and telecommunications services, payments for employees, etc.

Group your income

Revenues should be grouped similarly. In a large enterprise, we would create an opposite column - for each department, we show the revenues that it brought for the company. In a small company it is not that simple - the purchase of media itself does not bring us income in the future, it serves to support the entire company. In such a case, the revenues may not be divided, or a different distinction may be constructed - e.g. sales for particular target groups or according to the type of services and goods provided, if we are dealing with a multi-sector enterprise.

Draw conclusions

Once we have a detailed description of the company's costs and revenues, we are able to determine whether and how much we have a financial surplus. We can also indicate where to consider cutting costs, and where it is worth investing more funds. And this is where the strictly investment part of the budget begins. Specialists advise to divide their financial plans for the development of the enterprise into two groups - working, pragmatic, related to the basic scope of activity, which will give the entrepreneur a profit and the possibility of continuing to stay on the market. The second type consists of plans and assumptions above that we would like to implement, while contributing not only to "going to zero", but to the company's development. When designing these two groups of assumptions and determining the expenses that can be incurred, the appropriate proportion should be found for each of them. Too much "pipe dream" may result in a lack of funds for the basic assumptions, but too little will keep the company stationary.

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Creating business plans - plan the future of your company

Budget ready? If this step is already behind the entrepreneur, it is worth starting a business plan. As the foundation of the financial plan is already in place, it will be much easier to build a business plan on top of it.

Get to know the business environment

At the same time, a business plan requires more work and commitment on the part of its creators. As indicated earlier, in his case, you need to collect information not only from the company itself, but also from outside, from all its surroundings. Therefore, the first step to a good business plan is market analysis. It is necessary to describe in detail all aspects of the environment in which the company operates - the target group of customers, the size of the market, the possibility of its expansion, competition, suppliers, marketing opportunities, etc. You can also go a step further and describe slightly further social, business or political aspects. which may also have an impact on the entrepreneur's business - it often happens that political disputes result in stopping or hindering trade with foreign countries, and technological progress in the world will rapidly support the activities of small business. There are many potential factors of growth and decline in this case.

Find a place for yourself

Once the market has been described, we return to what is at the center of it - our own company. If we create a business plan for our own needs, it is only worth writing down the greatest achievements, stages of creation and plans in points. The outline to be provided to e.g. a bank or a potential investor should have detailed information on the basis of which it will be possible to get acquainted with the profile and condition of the company. It is worth paying attention to the location of the company or technical aspects - employment, production volume, warehouses, etc.

We attach the created budget to the indicated aspects of the business plan and create an executive summary based on it. It is a kind of summary of the entire business plan, which will allow the potential investor to find out what our company is all about after the first quarter of an hour. It is extremely important - specialists who deal with, among others, investments usually do not have much time and devote their attention only to strictly selected business plans. Thus, a good summary can open the way for a company to the heart of a business angel or venture capital, but it can also close it.