How Important Is The Business Plan In Investment?
Say you just won the lottery and have a couple hundred thousand in the bank, all waiting for you. You’re not interested in real estate or something like that, you want to start a business! After you’ve made your intentions known and gone through the proper channels, it’s very likely that several potential future CEOs will submit business plans to you for their companies. A business plan is, essentially, the entire course of that company, outlined in meticulous detail. The person who crafted it will tell you exactly what the business is, what it’s selling (could be products or services), how it’s going to make money, how it’ll procure the material for it, if it’s items how they will be manufactured, how the staff will be procured, how much those products/services will cost (both to the company AND to the end consumer), how much the prospective winnings will be, what the budget for procuring staff, manufacturing goods and advertisement is, how much capital the company needs to remain solvent… I could go on and on, but chances are that every single question you have about a business is explained and outlined in some way in the business plan, from market research to prove that the business is viable to its possible risks and outcomes several years ahead.
Every single business starts out with a business plan, as it is impossible for a company to find investors or, in some cases, even get registered without one. But of course, those business plans aren’t regarded equally. Some investors go over them meticulously, stressing over each and every single little detail and requesting multiple revisions, or possibly even dropping the project entirely if they don’t feel comfortable financing it. Others are a lot more lenient, preferring to trust the business owner, especially if they really enjoyed the pitch. So, where does the truth lie? Well, as with most things, somewhere in the middle. Because, to be perfectly honest, neither stressing over every detail nor absolutely trusting the business owner is the perfect idea. Let’s imagine, for example, that someone is pitching you an aquarium business. You do a little research and realize that hey, aquarium businesses actually have a relatively low start-up cost! It doesn’t cost much to set up the store, and the business owner is asking for very little, since he already owns the property, so what could go wrong? The business plan doesn’t matter much, since it seems like a solid idea! Except, whoops, if you’d read the business plan you would’ve realized that the store is to be opened in Australia, where fish and aquarium businesses are a dime a dozen, and there’s really nothing in there to prove that the business you’re investing in will break through. Sure, it was cheap and sounded like a solid idea, but you’ll end up losing your money.
Similarly, stressing over every detail isn’t a great idea, either. Let’s say that you’re expecting a pure net profit of 10,000 for the third year, but the way the business plan is structured, you can only possibly get 5,000. That could very well be a terrible thing, but look closer in the plan. Maybe the formative years of the business are meant to establish the foundations, and on the fifth year, it’s going to surpass expectations and bring in 30,000. Is such a long-term investment worth it? That, naturally, depends on you. Some investors expect a return pretty soon, others are more lenient and can wait. My point is that you shouldn’t dismiss a business as incompetent just because it doesn’t 100% line up with your exact vision. Maybe sometimes you should give it a shot regardless, if you get the feeling that the business owner knows what they’re doing. A certain amount of trust between the two of you should be pretty important. Don’t ever dismiss something that the owner says or pitches to you without researching it first. Any idea can be fantastic in the right circumstances, any business can work if the numbers support it, any strategy can be a viable one if executed properly and in an appropriate context. If you’re pitched a rainfall collection service for Sudan, don’t immediately dismiss it because you know that it doesn’t rain too often there. Who knows, perhaps it’s precisely the scarcity of rainwater that can make the business go solvent. Saying no to businesses is perfectly fine and acceptable, but not before doing the proper research.
In conclusion, the perfect investor should certainly have a little bit of trust in the plan they’ve been pitched. Nobody would ever craft a 50+ page business plan for an idea that’s not at least somewhat solid in its conception. But whether or not it really is depends on the numbers. When being faced with a decision that could cost you a loss of investment, definitely double-check the numbers to make sure it lines up with your preferences and with the realities of the business you’re trying to start. Because while there’s no such thing as a bad idea, too many good ideas have met their demise simply because the numbers couldn’t support them.
Ever since someone first came up with the idea of owning property and charging for rent, people on both sides have exploited the hell out of this business model. And why wouldn’t they? For property owners, it’s almost free money! For those living on lease, it’s a really cheap way to get a decent place to live that’s not going to break the bank, even if it’s only temporary. I mean, let’s face it, when you’re fresh out of college, crippled by student debt, working a low-paying job and determined not to return to your parents’ place, you’d take pretty much any place you can afford. There’s always a demand for homes on rent (hell, even when 
With that said, though, the act of turning a profit is definitely a slow one. You can think of it a little bit as putting money in the bank and then living off the interest. The average rent that most landlords charge is about 1%, which, depending on the details, may sometimes actually be lower than the bank’s interest. On top of that, you’re also going to be responsible for covering any repairs and damages. If the AC you installed breaks, it’s you who’ll have to replace it, with your own money – the deposit can legally only be used to cover damages caused by your clients. So depending on your financial situation at the time, you might need to shell out some potentially crippling sums just to be able to do your obligations. For example, my parents give several apartments for rent throughout the city, and about ten years ago there was an explosion in one of them. One of the tubes responsible for heating leaked, the gas escaped into the walls, and the compression completely blew out two walls, sending debris everywhere. We did a lot of the cleaning and repairs ourselves, so we didn’t have to pay out the full price, but overall it wasn’t a cheap incident, especially since it came so out of nowhere. It’s honestly these unexpected risks which can, potentially, turn you off from being a landlord.
So, is investing in real estate ultimately worth it for you? Honestly, that depends on the size of the investment, and the amount of cash that you have on hand. Let’s say you have a quarter of a million (doesn’t matter if it’s dollars, pounds or euro, just any currency). You can buy four different apartments throughout the city for about 50,000 each, and save 50,000 for emergencies (both related to your apartments and personal ones, such as emergency medical services). The increased number of places you’re giving out for rent means that there’s less of a chance of going completely without income for the month (if one of your tenants leaves, you still have three more and can get through the month while searching for a replacement), but at the same time increases the maintenance you’ll need to deal with. Either way, the final profits following this hypothetical situation, average to about 2000 a month, before taxes. Could you live off that? Is that a comfortable enough sum of money for you? If so, then perhaps investing in real estate might be the way to go.