What differentiates a great business plan from an ordinary one?
Good business plans weave a story that is understandable, believable and makes sense to the reader.
All elements of the story must link together in a coherent way: If the marketing plan provides for a product launch event then the costs of that event must be evident in cash flow forecasts; if the sales forecast provides for a ramp up in sales in month four, then the marketing plan must provide something to spur that increase and the operations plan must provide for the increase in production in month three and four.
A great business plan is short, sharp and to the point. People who read business plans are usually busy and time pressured. You need to capture and hold their attention by including only what is relevant and will assist them in evaluating the proposal being put forward.
A great business plan has a very strong opening that captures the essence of the idea in a few paragraphs. Few people ever get past page two of a business plan so you need to make your point early and position the concept in such a way that the reader wants to go on.
How can a business plan assist in mitigating risk?
Writing a business plan forces the management team of a growing venture to come together and talk about where they are taking their business and how they plan to get there. Very often people in a fast-growing business have different ideas about the overall strategy of the business and therefore begin pulling in opposite directions.
Going through the task of writing a business plan compels the management team to align the different elements of an enterprise and to begin to work together to achieve a specified outcome.
Writing a business plan forces an entrepreneur to test whether reasonable assumptions translate into positive cash flow and, ultimately, profit. If an entrepreneur needs to adjust too many assumptions to create that, then you need to evaluate whether the new assumptions are reasonable. If you cannot achieve positive cash flow with reasonable assumptions, this highlights a major risk for the business. Such a risk will only come to the fore as a result of the pain of preparing a business plan.