How to write a business plan for a desalination plant?
Putting together a business plan for a desalination plant can be daunting - especially if you're creating a business for the first time - but with this comprehensive guide, you'll have the necessary tools to do it confidently.
We will explore why writing one is so important in both starting up and growing an existing desalination plant, as well as what should go into making an effective plan - from its structure to content - and what tools can be used to streamline the process and avoid errors.
Without further ado, let us begin!
Why write a business plan for a desalination plant?
Being clear on the scope and goals of the document will make it easier to understand its structure and content. So before diving into the actual content of the plan, let's have a quick look at the main reasons why you would want to write a desalination plant business plan in the first place.
To have a clear roadmap to grow the business
It's rarely business as usual for small businesses. The economy follows cycles where years of growth are followed by recessions, and the business environment is always changing with new technologies, new regulations, new competitors, and new consumer behaviours appearing all the time...
In this context, running a business without a clear roadmap is like driving blindfolded: it's dangerous at best. That's why writing a business plan for a desalination plant is essential to create successful and sustainable businesses.
To write an effective business plan, you will need to take stock of where you are (if you are already in business) and where you want the business to go in the next three to five years.
Once you know where you want your desalination plant to be, you'll have to identify:
- what resources (human, equipment, and capital) are needed to get there,
- at what pace the business needs to progress to get there in time,
- and what risks you'll face along the way.
Going through this process regularly is beneficial, both for startups and existing companies, as it helps make informed decisions about how best to allocate resources to ensure the long-term success of the business.
To get visibility on future cash flows
If your small desalination plant runs out of cash: it's game over. That's why we often say "cash is king", and it's crucial to have a clear view of your desalination plant's future cash flows.
So, how can you achieve this? It's simple - you need to have an up-to-date financial forecast.
The good news is that your desalination plant business plan already includes a financial forecast (which we'll discuss further in this guide). Your task is to ensure it stays current.
To accomplish this, it's essential to regularly compare your actual financial performance with what was planned in your financial forecast. Based on your business's current trajectory, you can make adjustments to the forecast.
By diligently monitoring your desalination plant's financial health, you'll be able to spot potential financial issues, like unexpected cash shortfalls, early on and take corrective actions. Moreover, this practice will enable you to recognize and capitalize on growth opportunities, such as excess cash flow enabling you to expand to new locations.
To secure financing
A detailed business plan becomes a crucial tool when seeking financing from banks or investors for your desalination plant.
Investing and lending to small businesses are very risky activities given how fragile they are. Therefore, financiers have to take extra precautions before putting their capital at risk.
At a minimum, financiers will want to ensure that you have a clear roadmap and a solid understanding of your future cash flows (like we just explained above). But they will also want to ensure that your business plan fits the risk/reward profile they seek.
This will off-course vary from bank to bank and investor to investor, but as a rule of thumb. Banks will want to see a conservative financial management style (low risk), and they will use the information in your business plan to assess your borrowing capacity — the level of debt they think your business can comfortably handle — and your ability to repay the loan. This evaluation will determine whether they'll provide credit to your desalination plant and the terms of the agreement.
Whereas investors will carefully analyze your business plan to gauge the potential return on their investment. Their focus lies on evidence indicating your desalination plant's potential for high growth, profitability, and consistent cash flow generation over time.
Now that you recognize the importance of creating a business plan for your desalination plant, let's explore what information is required to create a compelling plan.
Information needed to create a business plan for a desalination plant
Drafting a desalination plant business plan requires research so that you can project sales, investments and cost accurately in your financial forecast, and convince the reader that there is a viable commercial opportunity to be seized.
Below, we'll focus on three critical pieces of information you should gather before starting to write your plan.
Carrying out market research for a desalination plant
As you consider writing your business plan for a desalination plant, conducting market research becomes a vital step to ensure accurate and realistic financial projections.
Market research provides valuable insights into your target customer base, competitors, pricing strategies, and other key factors that can significantly impact the commercial success of your business.
Through this research, you may uncover trends that could influence your desalination plant.
1. You may find that customers are increasingly interested in desalination plants that are energy-efficient. 2. You could discover that customers might be willing to pay more for a desalination plant that offers additional features, such as water filtration or storage capacity.
Such market trends play a significant role in forecasting revenue, as they offer valuable data about potential customers' spending habits and preferences.
By incorporating these findings into your financial projections, you can present investors with more accurate information, helping them make informed decisions about investing in your desalination plant.
Developing the marketing plan for a desalination plant
Before delving into your desalination plant business plan, it's imperative to budget for sales and marketing expenses.
To achieve this, a comprehensive sales and marketing plan is essential. This plan should provide an accurate projection of the necessary actions to acquire and retain customers.
Additionally, it will outline the required workforce to carry out these initiatives and the corresponding budget for promotions, advertising, and other marketing endeavours.
By budgeting accordingly, you can ensure that the right resources are allocated to these vital activities, aligning them with the sales and growth objectives outlined in your business plan.
The staffing and capital expenditure requirements of a desalination plant
Whether you are starting or expanding a desalination plant, it is important to have a clear plan for recruitment and capital expenditures (investment in equipment and real estate) in order to ensure the success of the business.
Both the recruitment and investment plans need to be coherent with the timing and level of growth planned in your forecast, and require appropriate funding.
A desalination plant might incur staffing costs for operators and maintenance technicians, as well as costs for the equipment necessary to perform the desalination process. For example, the plant might need to purchase pumps, filters, reverse osmosis membranes, and other specialized equipment in order to effectively desalinate the water. In addition, the plant might need to hire personnel to manage the day-to-day operations of the plant, as well as to maintain and repair the various pieces of equipment.
In order to create a realistic financial forecast, you will also need to consider the other operating expenses associated with running the business on a day-to-day basis (insurance, bookkeeping, etc.).
Once you have all the necessary information to create a business plan for your desalination plant, it is time to start creating your financial forecast.
What goes into your desalination plant's financial forecast?
The financial forecast of your desalination plant's business plan will enable you to assess the growth, profitability, funding requirements, and cash generation potential of your business in the coming years.
The four key outputs of a financial forecast for a desalination plant are:
- The profit and loss (P&L) statement,
- The projected balance sheet,
- The cash flow forecast,
- And the sources and uses table.
Let's look at each of these in a bit more detail.
The projected P&L statement
The projected P&L statement for a desalination plant shows how much revenue and profit your business is expected to make in the future.
A healthy desalination plant's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for a startup will look different than for an established desalination plant.
The projected balance sheet of your desalination plant
The balance sheet for a desalination plant is a financial document that provides a snapshot of your business’s financial health at a given point in time.
It shows three main components: assets, liabilities and equity:
- Assets: are resources owned by the business, such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: are debts owed to creditors and other entities, such as accounts payable (money owed to suppliers) and loans.
- Equity: includes the sums invested by the shareholders or business owners and the cumulative profits and losses of the business to date (called retained earnings). It is a proxy for the value of the owner's stake in the business.
Examining the balance sheet is important for lenders, investors, or other stakeholders who are interested in assessing your desalination plant's liquidity and solvency:
- Liquidity: assesses whether or not your business has sufficient cash and short-term assets to honour its liabilities due over the next 12 months. It is a short-term focus.
- Solvency: assesses whether or not your business has the capacity to repay its debt over the medium-term.
Looking at the balance sheet can also provide insights into your desalination plant's investment and financing policies.
In particular, stakeholders can compare the value of equity to the value of the outstanding financial debt to assess how the business is funded and what level of financial risk has been taken by the owners (financial debt is riskier because it has to be repaid, while equity doesn't need to be repaid).
The projected cash flow statement
A cash flow forecast for a desalination plant shows how much cash the business is projected to generate or consume.
The cash flow statement is divided into 3 main areas:
- The operating cash flow shows how much cash is generated or consumed by the operations (running the business)
- The investing cash flow shows how much cash is being invested in capital expenditure (equipment, real estate, etc.)
- The financing cash flow shows how much cash is raised or distributed to investors and lenders
Looking at the cash flow forecast helps you to ensure that your business has enough cash to keep running, and can help you anticipate potential cash shortfalls.
It is also a best practice to include a monthly cash flow statement in the appendices of your desalination plant business plan so that the readers can view the impact of seasonality on your business cash position and generation.
The initial financing plan
The initial financing plan - also called a sources and uses table - is an important tool when starting a desalination plant.
It shows where the money needed to set up the business will come from (sources) and how it will be allocated (uses).
Having this table helps understand what costs are involved in setting up the desalination plant, how the risks are distributed between the shareholders and the lenders, and what will be the starting cash position (which needs to be sufficient to sustain operations until the business breaks even).
Now that the financial forecast of a desalination plant business plan is understood, let's focus on what goes into the written part of the plan.
The written part of a desalination plant business plan
The written part of a desalination plant business plan is composed of 7 main sections:
- The executive summary
- The presentation of the company
- The products and services
- The market analysis
- The strategy
- The operations
- The financial plan
Throughout these sections, you will seek to provide the reader with the details and context needed for them to form a view on whether or not your business plan is achievable and your forecast a realistic possibility.
Let's go through the content of each section in more detail!
1. The executive summary
In your desalination plant's business plan, the first section is the executive summary — a captivating overview of your plan that aims to pique the reader's interest and leave them eager to learn more about your business.
When crafting the executive summary, start with an introduction to your business, including its name, concept, location, how long it has been running, and what sets it apart. Briefly mention the products and services you plan to offer and your target customer profile.
Following that, provide an overview of the addressable market for your desalination plant, current trends, and potential growth opportunities.
Next, include a summary of key financial figures like projected revenues, profits, and cash flows.
Finally, in the "ask" section, detail any funding requirements you may have.
2. The presentation of the company
As you build your desalination plant business plan, the second section deserves attention as it delves into the structure and ownership, location, and management team of your company.
In the structure and ownership part, you'll provide valuable insights into the legal structure of the business, the identities of the owners, and their respective investments and ownership stakes. This level of transparency is vital, particularly if you're seeking financing, as it clarifies which legal entity will receive the funds and who holds the reins of the business.
Moving to the location part, you'll offer a comprehensive view of the company's premises and articulate why this specific location is strategic for the business, emphasizing factors like catchment area, accessibility, and nearby amenities.
When describing the location of your desalination plant, you may emphasize that it is near a coastal area, which could potentially provide a steady supply of water for the desalination process. Additionally, you could point out that the area has access to necessary infrastructure, such as transportation networks, that could make it a convenient location for the plant. Furthermore, you might emphasize that the area could be attractive to potential customers due to its proximity to major population centers.
Lastly, you should introduce your esteemed management team. Provide a thorough explanation of each member's role, background, and extensive experience.
It's equally important to highlight any past successes the management team has achieved and underscore the duration they've been working together. This information will instil trust in potential lenders or investors, showcasing the strength and expertise of your leadership team and their ability to deliver the business plan.
3. The products and services section
The products and services section of your business plan should include a detailed description of the offerings that your company provides to its customers.
For example, your desalination plant might offer potable water for drinking, irrigation water for agriculture, and industrial water for production purposes. Through the desalination of seawater, the plant can provide an abundant supply of clean, fresh water that is necessary for sustaining life on land. It can also be used for energy production, oil extraction, and other activities that require large quantities of water. By providing these services, your desalination plant can help meet the needs of customers while safeguarding the environment.
When drafting this section, you should be precise about the categories of products or services you sell, the types of customers you are targeting and how customers can buy them.
4. The market analysis
When you present your market analysis in your desalination plant business plan, it's crucial to include detailed information about customers' demographics and segmentation, target market, competition, barriers to entry, and any relevant regulations.
The main objective of this section is to help the reader understand the size and attractiveness of the market while demonstrating your solid understanding of the industry.
Begin with the demographics and segmentation subsection, providing an overview of the addressable market for your desalination plant, the key trends in the marketplace, and introducing different customer segments along with their preferences in terms of purchasing habits and budgets.
Next, focus on your target market, zooming in on the specific customer segments your desalination plant aims to serve and explaining how your products and services fulfil their distinct needs.
For example, your target market might include people who live in coastal areas with limited access to freshwater sources. These people may not have access to piped in water and may need to find alternative ways to access fresh drinking water. As such, they would be a prime target for a desalination plant that could provide them with a reliable source of freshwater.
Then proceed to the competition subsection, where you introduce your main competitors and highlight what sets you apart from them.
Finally, conclude your market analysis with an overview of the key regulations applicable to your desalination plant.
5. The strategy section
When writing the strategy section of a business plan for your desalination plant, it is essential to include information about your competitive edge, pricing strategy, sales & marketing plan, milestones, and risks and mitigants.
The competitive edge subsection should explain what sets your company apart from its competitors. This part is especially key if you are writing the business plan of a startup, as you have to make a name for yourself in the marketplace against established players.
The pricing strategy subsection should demonstrate how you intend to remain profitable while still offering competitive prices to your customers.
The sales & marketing plan should outline how you intend to reach out and acquire new customers, as well as retain existing ones with loyalty programs or special offers.
The milestones subsection should outline what your company has achieved to date, and its main objectives for the years to come - along with dates so that everyone involved has clear expectations of when progress can be expected.
The risks and mitigants subsection should list the main risks that jeopardize the execution of your plan and explain what measures you have taken to minimize these. This is essential in order for investors or lenders to feel secure in investing in your venture.
Your desalination plant may face the risk of natural disasters, such as hurricanes, storms, and floods. These kinds of events could cause significant damage to the plant, disrupting operations and leading to costly repairs. Additionally, your desalination plant might also be impacted by technological failure, such as a power outage or equipment malfunction. This could lead to costly delays in production and could result in financial losses.
6. The operations section
The operations of your desalination plant must be presented in detail in your business plan.
Begin by addressing your staff, specifying the main roles and your recruitment plan to support the anticipated growth. Outline the qualifications and experience needed for each role and discuss your recruitment strategies, which may involve using job boards, referrals, or headhunters.
Next, clearly state your desalination plant's operating hours, allowing the reader to gauge the adequacy of your staffing levels. Additionally, mention any considerations for varying opening times during peak seasons and your approach to handling customer queries outside regular operating hours.
The key assets and intellectual property (IP) required to run your business should also be highlighted. If you rely on licenses, trademarks, physical structures like equipment or property, or lease agreements, ensure they are well-documented in this section.
You may have key assets such as specialized equipment and technology that enable the desalination plant to operate, as well as intellectual property rights related to the desalination plant itself. This could include patents related to the process of desalination, or trademarks associated with the desalination plant’s brand. Additionally, the plant might have trade secrets, such as proprietary processes or formulas, which could be valuable IP assets.
Finally, provide a comprehensive list of suppliers you intend to collaborate with, along with a breakdown of their services and main commercial terms, such as price, payment terms, break clauses and contract duration. Investors often seek insight into the reasons behind your supplier choices, which may include a preference for higher-quality products or established relationships from past ventures.
7. The presentation of the financial plan
The financial plan section is where we will include the financial forecast we talked about earlier in this guide.
Now that you have a clear idea of the content of a desalination plant business plan, let's look at some of the tools you can use to create yours.
What tool should I use to write my desalination plant's business plan?
In this section, we will be reviewing the two main options for writing a desalination plant business plan efficiently:
- Using specialized software,
- Outsourcing the drafting to the business plan writer.
Using an online business plan software for your desalination plant's business plan
Using online business planning software is the most efficient and modern way to write a desalination plant business plan.
There are several advantages to using specialized software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You are guided through the writing process by detailed instructions and examples for each part of the plan
- You can access a library of dozens of complete business plan samples and templates for inspiration
- You get a professional business plan, formatted and ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
If you're interested in using this type of solution, you can try The Business Plan Shop for free by signing up here.
Hiring a business plan writer to write your desalination plant's business plan
Outsourcing your desalination plant business plan to a business plan writer can also be a viable option.
Business plan writers are skilled in creating error-free business plans and accurate financial forecasts. Moreover, hiring a consultant can save you valuable time, allowing you to focus on day-to-day business operations.
However, it's essential to be aware that hiring business plan writers will be expensive, as you're not only paying for their time but also the software they use and their profit margin.
Based on experience, you should budget at least £1.5k ($2.0k) excluding tax for a comprehensive business plan, and more if you require changes after initial discussions with lenders or investors.
Also, exercise caution when seeking investment. Investors prefer their funds to be directed towards business growth rather than spent on consulting fees. Therefore, the amount you spend on business plan writing services and other consulting services should be insignificant compared to the amount raised.
Keep in mind that one drawback is that you usually don't own the business plan itself; you only receive the output, while the actual document is saved in the consultant's business planning software. This can make it challenging to update the document without retaining the consultant's services.
For these reasons, carefully consider outsourcing your desalination plant business plan to a business plan writer, weighing the advantages and disadvantages of seeking outside assistance.
Why not create your desalination plant's business plan using Word or Excel?
Using Microsoft Excel and Word (or their Google, Apple, or open-source equivalents) to write a desalination plant business plan is a terrible idea.
For starters, creating an accurate and error-free financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
As a result, it is unlikely anyone will trust your numbers unless - like us at The Business Plan Shop - you hold a degree in finance and accounting and have significant financial modelling experience in your past.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
And with the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Also, using software makes it easy to compare actuals vs. forecasts and maintain our forecasts up to date to maintain visibility on future cash flows - as we discussed earlier in this guide - whereas this is a pain to do with a spreadsheet.
That's for the forecast, but what about the written part of my desalination plant business plan?
This part is less error-prone, but here also software brings tremendous gains in productivity:
- Word processors don't include instructions and examples for each part of your business plan
- Word processors don't update your numbers automatically when they change in your forecast
- Word processors don't handle the formatting for you
Overall, while Word or Excel may be viable options for creating a desalination plant business plan for some entrepreneurs, it is by far not the best or most efficient solution.
- A business plan has 2 complementary parts: a financial forecast showcasing the expected growth, profits and cash flows of the business; and a written part which provides the context needed to judge if the forecast is realistic and relevant.
- Having an up-to-date business plan is the only way to keep visibility on your desalination plant's future cash flows.
- Using business plan software is the modern way of writing and maintaining business plans.
We hope that this practical guide gave you insights on how to write the business plan for your desalination plant. Do not hesitate to get in touch with our team if you still have questions.
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