If your business plan doesn’t tell you these four things, you’ve done it wrong

There are two completely different ways to build your business plan — from the top-down and from the ground up. Building your business plan from the top down is when you start by laying out what you want your business to be, how it will look like, who will be on your team, then you break it all down into a few key goals and objectives. On the other hand, building your business plan from the ground up is when you start by laying out your company numbers first and then breaking everything down accordingly.

Why is starting with your financial plan so important? Well, in order to have a successful business you need to know these four things.

Know the allocation of your resources

I’m going to be a little controversial here. I usually say that the most important part of your business plan is the financial part. But this time, I’ll say it’s the operational plan part. Why?

The financials are important because they will tell you how much money you need to start, scale your business, and keep your business running. But at the end of the day, if you don’t have an operational plan that tells you how are you going to spend that money it’s probably better not to raise it or spend it in the first place.

When putting the people you’ll need to hire, the tools you’ll need to pay, how much it will cost to acquire customers, etc. you’ll have clear what are the key resources and activities of your business, having clear your operational mechanics. And if you’re looking to raise capital this will help investors understand why they should give their money to your project and what kind of return they can expect from their investment.

Know you’re targeting the right customers

One of the biggest mistakes entrepreneurs make is underestimating the cost of acquiring customers.

It’s easy to overlook when you first build a business because customer acquisition costs are not always black and white. They can vary by channel, customer segment, and even time.

However, by doing your financial plan first, you’ll be able to make informed choices about how many customers you need, how much it will cost to get them, what your sales goals should be, and whether you are targeting the right customer segment through the optimal channel.

Many entrepreneurs are so focused on their product or service that they forget about the business side of things. They don’t realize that it could cost more than they can afford to acquire customers.

Know what your business mechanics are

Entrepreneurship is not only about knowing your business idea, it is also about knowing your business mechanics.

Even though finances are the same, every business has its own unique mechanics to operate. And only by looking at your cost structure, accounts receivables, and acquisition channels you’ll know what are the ones for your business.

This is not about accounting, it’s about the pure fundamentals of your company. Before you can be successful in the first place, you need to understand how your business works. You need to know what makes it successful, and what makes it fail.

If you want your business to be successful, then you must know your numbers.

Know your business strategy is viable

All entrepreneurs are good at creating ideas, but usually, they aren’t so great at implementing them.

Why?

Because they don’t do a financial plan from the beginning. When you start a business, if you don’t have a financial plan, you’re basically planning to fail.

Every startup needs a robust financial plan. It doesn’t have to be complex, but it does have to be accurate.

The reason why financial plans are so important is that they will help you know where you’re going as a business and how you’re going to get there. When you have a financial plan, you’ll not only be able to see if you’ll need to raise capital, you’ll know the mechanics of your business, and if things don’t go as planned, you’ll be able to take action before it is too late.

If you do not have a financial plan for building your business, you should start putting it together as soon as possible. Your financial plan is the basis for your entire business and if it is not in tip-top shape, then all other aspects of your business will suffer.

Get started with ClearFinance, where financial planning for pre-revenue startups is easy and fast. By taking this initial step with your business you will know what you can realistically achieve, where you should focus most of your efforts, and where the potential risks to your business lie.

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