- When LivePlan Doesn’t Cut It…. how much should you invest in your business plan? - September 18, 2019
I’ve seen dozens of automated financial projections and business plans from LivePlan floating around this past year, and look, I totally get it! When you’re starting a business or tracking down an investor, money isn’t always flowing abundantly. Using an online business plan software program to download a financial model or a business plan seems like a savvy way to stretch a dollar.
There are just a few catches……
In this article, I explain what online business plan software programs offer and where they fall short. I see LivePlan in the same light as Wix and SquareSpace. They offer value to certain customers, but don’t provide the highest return on investment. In the modern era, everyone with a laptop has the ability to build his or her own website, but that doesn’t mean that these automated templates will give you the best results. Investing in a consultant to build a financial model and business plan is still a worthy endeavor for certain businesses. Should you drop $350 on a LivePlan template or hire a professional? Read on to figure following to better understand the best path for you and your business.
1) Understand your goals.
A few years ago, I started a blog on SquareSpace. It was a great choice to house my meanderings about economics and personal development. But when I wanted to build a website to represent my company professionally, I hired a web development studio. The $5,000 felt like a hefty investment at the time, but I created something customized for my business and learned so much from the website development process. There were a lot of elements of website building that I didn’t know beforehand—Search Engine Optimization, meta-tags, and sales funnels— and I took full advantage of the process and asked the developers to explain everything to me. When I work with clients, I take the same approach and try to explain the methodology behind puzzling together the assumptions and financial projections. I call the process a “a mini cannabis MBA” because ideally, I want all my clients to walk away from the process with a better understanding how the cannabis market might evolve and how their businesses may be impacted financially in an upside or downside scenario. I want my clients to know what EBITDA means and how upsides in yield or pricing might affect their projected net profit. It’s not just about having a piece of paper to show investors! It’s about becoming an educated CEO who knows how the business is going to unfold and is prepared for the best and worst case financial or business scenarios.
Back to the analogy, investing in my website also showed that I was a professional willing to invest in my business, which time and time again, gave clients the confidence to invest in me. My advice here is to think about your goals and what “Return on Investment” (ROI) you’re seeking. If you’re just looking to build a business plan for a passion project to sell silk scarves or homemade chocolate edibles, LivePlan might be a great option for you. Or better than LivePlan, do some research, take a course, and read a few business plans before embarking to create your own. But if you’re asking an outside investor for $500,000 or more, show them upfront that you are investing quality resources in your financial projections and business plan. It will give them more confidence to invest in you.
2) Remember the adage “Garbage In. Garbage Out.”
LivePlan and most automated business plan software programs will give you a template to follow but won’t actually give you any data points. In order to create quality financial projections, you have to start with accurate assumptions. For example, a hemp or cannabis cultivation facility needs to understand supply and demand dynamics; the average price they can garner per pound; the costs of soil, nutrients, and electricity; and how much it costs to build a facility or a farm. If you have been running a business for the past few years and have this data and just want to run a simple expansion model, LivePlan may be a good fit.
If you don’t have historical data assumptions for these inputs, you have to find them or you’re going to create problems for yourself and your business in the long-run. Creating a LivePlan model based on loosey-goosey assumptions will not pay off in the long-run. Investors will be turned off by the lack of credible assumptions in your model and you might lose your one shot to get a check or even a meeting. Even if you are able to raise capital, your business plan has been built on precarious ground. Without using quality data to create financial projections, you might not have the profit margins you presumed or you might be in the red for six months, instead of one month. Financial projections and business plans need to be more than pretty. They need to take a hard look at the data to answer questions and give you a solid plan, so you can stay in business once you get started
3) More doesn’t mean it’s better.
You can go to the all-you-can-eat Chinese buffet or you can go to a fancy restaurant serving a single pan-seared scallop topped with brioche croutons. Which one is more likely to get a Michelin star? To this effect, just because you paid for a 100-page document with graphs and pie charts doesn’t mean that it’s the best way to portray your company. I’ve seen so many long business plans that are not having good traction meeting their goals.
When you’re starting out, I recommend sending investors a simplified executive summary: 1-2 pages with the key highlights of the business. Once you’ve piqued their interest, you can send a business plan or pitch deck, but it’s still important to keep it simple. It’s essential to tell a compelling story and think about how investors interpret information and what they’re looking for. Make it easy for potential investors to access key data points. For example, the profit margin on a pound of flower is much more compelling data point than looking at a chart with revenues in one column and expenses in another. Eliminate information and extra visuals that doesn’t contribute to your particular story. Anyone can google generic big-picture numbers about the size of the cannabis industry. How do these numbers translate into the investment opportunity you are offering through your business?
I get it—hiring a consultant can be expensive. But in the long-run, it’s far more expensive to not be able to turn your business dream into a reality. I hope these tips help you decide the best path for you and your business.
Good luck. I am rooting for you!