What should a successful business plan look like?
Theory and experiences of writing a forest investment business plan for sustainable forestry projects
Talking about forest investment business plans is a wide field. In this introduction, we focus on general components of the business plan, like goals, presentation formats, content and information quality. Prepared with these background information we present and discuss a real business plan in the practice session. This more specific discussion takes place at the Impact Forestry Forum. Find the business plan for download at the end of this article.
Why writing a business plan?
Nobody really likes to write a business plan and nobody want to read the entire business plan. Hence, why should I sit down and write one?
Project developer: “I know my business environment (market), I have got sufficient experience and expertise to carry out the project, I don’t need a business plan!”
Critical friend: “Yes that might be right, and knowledge about the market, experience and expertise is the necessary prerequisite. But how to convince a potential investor that you are right?”
One opportunity is to show the investor your track record of your successfully realized projects. Invite him to the project site and drink a couple of beers with him. Perhaps he will like the project idea and trust you to do it right. However, usually a business plan is required. We see two major reasons why it is valuable to write one:
- Self-reflexion for the project developer: the business plan can be used as a tool to structure all thoughts and information which are relevant for carrying out the project successfully. The plan helps to not forget important considerations. As human judgment is generally optimistic, costs are often underestimated and revenues overestimated, for example a break down of costs and revenues (which also includes inflation, inflation adjusted price increments) and a comparison with other realized projects helps to meet realistic expectations.
- Comprehensibility and plausibility for the investor: how people write a business plan is directly related to the expertise and capability to formulate clear thoughts. When reading a business plan carefully, one can analyze how the project developer communicate the project information. Is the information clear, comprehensible and well structured? Is the content, relevant, plausible, consistent and complete? Is the author competent and able to carry our the proposed project? A close look at the business plan gives the investor a deep insight in the business concept and required expertise. The reading of the business plan is a central component to analyze the feasibility of the project and therefore is essential for the decision making of the investor. Therefore a good business plan is necessary to obtain funding.
Now as some will agree that a business plan can be a useful tool the next questions comes up: What exactly is a business plan?
The business plan
A business plan contains the business goals and describes the planned path to reach these goals. However, there are countless ways to explain how to reach these goals. The resulting question is: What should a successful business plan look like? Should it be brief or comprehensive, visionary or fact oriented, individualized or standardized, should the focus lay on the business concept or on the financial part or on the forestry operation plans?
There is no straight forward guideline or template, but there are several aspects to be considered which differentiate a good from a bad business plan. We believe, that addressing the following general points, could assist to develop a successful business concept and write a feasible business plan.
What is the goal of the business plan? Should the business plan be used as internal benchmark to measure the business goals in conjunction with a balanced scorecard or a list of critical success factors? Or is the purpose of the business plan to obtain venture capital, a bank loan or private equity to start a forestry business or expand existing forestry operations? For the second case, always try to see things from the investors perspective. For a bank loan you have to show the ability to repay the loan. Towards equity investors you have to explain why current resources, upcoming growth opportunities, and competitive advantages will lead to a higher exit value. Impact investors will focus on multiple success criteria including social and ecological performance. As we are talking about sustainable forest investments this should be an integral part of each business plan.
A business plan for sustainable forest investments need to document all measures to improve beside the economic performance also the ecological and social performance. The long-term project resilience can only be improved by increasing all success factors in an equal way.
In our case the business plan is developed in order to raise capital for a sustainable forestry venture. When starting to contact investors one should start to communicate with a one or two pager summary, the fact sheet, as a potential funder will not read the entire business plan of 20 to 40 or more pages without knowing what he is going to expect. In the case of interest, serious investors will ask for much more detailed information and you have to be prepared. In the case, that an investor wants to go ahead and no further information are requested you are talking to a scammer!
The content should be adapted to the perspective of the party you are addressing with the business plan. However, it is useful to orient on standard structures and layouts as this will help potential funders to orient and compare a business plan with other investment opportunities. A common business plan is often structured as follows:
- cover page and table of contents
- executive summary
- business description
- business environment analysis (including political stability)
- SWOT analysis
- industry background
- competitor analysis
- market analysis
- marketing plan
- operations plan (forest management plan)
- management summary
- financial plan
- attachments and milestones
Templates we found useful for an orientation are the business plan formats of UBS which provide a short version (10 pager) and a complete version (20 – 40 pager). A unconventional template we love and used for our selves is “The Business Model Canvas“. It allows you to briefly describe, design, challenge, invent, and pivot your business model on one page. Each serious forest investment business plan should also contain a side document with the operations plan (forest management plan). This helps to see whether assumptions and predictions are realistic and plausible. Addressing forest investment projects, we have designed a template which contains information investors looking at when screening potential forest investment projects. This template can also be filled out online at out marketplace for sustainable forest investments.
When talking about business plans, many people think of financials, cash-flow analysis, break-even, IRR, etc. Yes, generating a monetary profit is a frequent prerequisit to guaranteeing the necessary flexibility but it is not an end. We therefore encourage you to have also a close look at the social and environmental success criteria. Describe the potential impact of the project and all measures to increase multiple success criteria (see also Impact Investing for Sustainable Forestry IISF). As forestry investments are characterized by long investment periods the project stability plays a major role for the project success. Project stability is directly depending on the social and environmental integration of a forestry project.
We also want to draw attention to a component that is often underestimated in the business plan, creativity. Many common forest investment business plans focus on one tree specie as it is more easy to walk on existing paths. At the same time this means you have to work in a cutthroat market environment as you will have many competitors. However, there are successful alternatives. Take courage to break new avenues.
- Why not diversifying your products?
- Why not planting different tree species?
- Why not underplanting with other cash-crops like cacao, etc.
- Could be eco tourism a complementary option?
- Are there opportunities to broaden the value added chain?
- Would it be possible to create your own market for lesser known high quality timber species?
Organize and invent your own market!
While developing your business concept, you need expertise and you have to dig deep into the subject matter. You have to know your business. At the same time you have to know how similar businesses are working. Get in touch and exchange information and experiences. Kahneman and Tversky found that human judgment is generally optimistic. Costs are often underestimated and revenues overestimated resulting in later cost overruns, revenue shortfalls, and possibly non-viability. Be realistic and compare your project with existing ventures and real numbers!
In comparison to other businesses, in forestry one has to plan far into the future. It is crucial to do the elementary things right, as they can not be changed at a later stage as this would be possible for a web design company. Bad soils remain bad soils. You can fertilize, but this will eat up your benefits. Especially initial and high expenditures cause high capital costs and lower returns or in the worst case lead to a business failure. Therefore the quality of the business concept and the accuracy of decision making depends on the quality of the information and expertise. The quality of information of your business plan should be optimized according to three factors: communication quality; content quality; and source quality. Critically answer yourself the following questions to self-assess the information quality of your business plan:
- Communication quality: How do I communicate the project information? Do I provide information that is clear, comprehensible and well structured? Is data I have delivered in standard formats? Is the level of detail of information appropriate? Is the content supported by the way it is presented?
- Content quality: What is the statement in terms of content? Is the content relevant, plausible, consistent and complete?
- Source quality: Who is the author of the information? Is the author competent and independent? Does the evaluation of the source support reliability, verifiability and transparency of the information?
Preparing a forest investment business plan draws on a wide range of knowledge from different business disciplines. Starting with forestry expertise and going to financial-, marketing-, legal expertise, etc. Beside the expertise and information quality the ability to communicate the investment proposal (business plan) is crucial for a successful collaboration with investors.
We would like to use this introduction to start our online workshop by turning to a real forest investment business plan example. We thank Bruce McKelvie, the Director of CV. BEYAN, to provide his business plan for this workshop. At the following link you find the business plan for download. As this business plan is still in progress we would like to share it with you and use it as a base to discuss its quality and potential areas of improvement. Bruce McKelvie will act as counter part to answer the upcoming questions. We at OpenForests will moderate the discussion and structure it if necessary. However it would be great to have a lot input from all participants. We wish to have a controversial and fruitful discussion. We again want to thank Bruce McKelvie for sharing his business plan with us and hope this workshop creates added value for all participants. It should help to lead to a better understanding of the requirements of a forest investment business plan in order to scale up sustainable forestry world wide.
Read the forest investment business plan: Business plan for download
Go to Impact Forestry Forum to discuss the business plan with experts.