BUSINESS START-UP: THE BUSINESS PLAN

ARTSTHREAD - BUSINESS START-UP: THE BUSINESS PLAN

Although you may not think you need a business plan yet and feel it’s only for larger-scale businesses, as you will see below, it is an essential tool to starting any business.

The business plan does not need to be overcomplicated at first – it can be just a few pages and do not feel you have to understand a business encyclopaedia to write it – simple plain English in short sentences is best.

Reproduced courtesy of Business Link*

PREPARE A BUSINESS PLAN

It is essential to have a realistic, working business plan when you’re starting up a business.

A business plan is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts. It has many functions, from securing external funding to measuring success within your business.

This guide will show you how to prepare a high-quality plan using a number of easy-to-follow steps, and includes a template business plan.

THE AUDIENCE FOR YOUR BUSINESS PLAN

There are many benefits to creating and managing a realistic business plan. Even if you just use it for yourself, it can:

  • help you spot potential pitfalls before they happen
  • structure the financial side of your business efficiently
  • focus your efforts on developing your business
  • work as a measure of your success

Many people think of a business plan as a document used to secure external funding. This is important because potential investors, including banks, may invest in your idea, work with you or lend you money as a result of the strength of your plan.

The following people or institutions may request to see your business plan at some stage:

  • banks
  • external investors – whether this is a friend, a venture capitalist firm or a business angel
  • grant providers
  • anyone interested in buying your business
  • potential partners

You should also bear in mind that a business plan is a living document that will help you monitor your performance and stay on track and will therefore need updating and changing as your business grows. Regardless of whether you intend to use your plan internally, or as a document for external people, it should still take an objective and honest look at your business. Failing to do this could mean that you and others have unrealistic expectations of what can be achieved and when.

WHAT A BUSINESS PLAN SHOULD INCLUDE

Your business plan should provide details of how you are going to develop your business, when you are going to do it, who’s going to play a part and how you will manage the finances.

Clarity on these issues is particularly important if you’re looking for finance or investment. The process of building your plan will also focus your mind on how your new business will need to operate to give it the best chance of success.

Your plan should include:

  • An executive summary – this is an overview of the business you want to start. It’s vital. Many lenders and investors make judgments about your business based on this section of the plan alone.
  • A short description of the business opportunity – who you are, what you plan to sell or offer, why and to whom.
  • Your marketing and sales strategy – why you think people will buy what you want to sell and how you plan to sell to them.
  • The people involved – your credentials and that of any people you plan to recruit to work with you.
  • Your operations – your premises, production facilities, your management information systems and IT.
  • Financial forecasts – this section translates everything you have said in the previous sections into numbers.

Download the Business Link business plan template

THE EXECUTIVE SUMMARY

The executive summary is often the most important part of your business plan. Positioned at the front of the document, it is the first part to be read. However, as a summary it makes sense to write it last.

It may be the only part that will be read. Faced with a large pile of funding requests, venture capitalists and banks have been known to separate business plans into ‘worth considering’ and ‘discard’ piles based on this section alone.

What is it?
The executive summary is a synopsis of the key points of your entire plan. It should include highlights from each section of the rest of the document – from the key features of the business opportunity through to the elements of the financial forecasts.

Its purpose is to explain the basics of your business in a way that both informs and interests the reader. If, after reading the executive summary, an investor or manager understands what the business is about and is keen to know more, it has done its job.

It should be concise – no longer than two pages at most – and interesting. It’s advisable to write this section of your plan after you have completed the rest.

What is it not?

  • A brief description of the business and its products. It’s a synopsis of the entire plan.
  • An extended table of contents. This makes for very dull reading. You should ensure it shows the highlights of the plan, rather than restating the details the plan contains.
  • Hype. While the executive summary should excite the reader enough to read the entire plan, an experienced investor or business person will recognise hype and this will undermine the plan’s credibility.

YOUR BUSINESS, ITS PRODUCTS AND SERVICES

You must be able to clearly describe what your business does, whether you are writing the business plan for your own purposes or if you want other people to provide funds through investments or loans.

This part of the plan sets out your vision for your new business and includes who you are, what you do, what you have to offer and the market you want to address.

Start with an overview of your business:

  • when you started or intend to start trading and the progress and investment you have made to date
  • the type of business and the sector it is in
  • any relevant history – for example, if you acquired the business, who owned it originally and what they achieved with it
  • the current legal structure
  • your vision for the future

Then describe your products or services as simply as possible, defining:

  • what makes it different
  • what benefits it offers
  • why customers would buy it from you instead of your competitors
  • how you plan to develop your products or services
  • whether you hold any patents, trade marks or design registration
  • the key features and success factors of your industry or sector

Remember that the person reading the plan may not understand your business and its products, services or processes as well as you do, so try to avoid jargon. It’s a good idea to get someone who isn’t involved in the business – a friend or family member perhaps – to read this section of your plan and make sure they can understand it.

YOUR MARKETS AND COMPETITORS

In this section you should define your market, your position in it and outline who your competitors are. In order to do this you should refer to any market research you have carried out. You need to demonstrate that you’re fully aware of the marketplace you’re planning to operate in and that you understand any important trends and drivers.

You should also be able to show that your business will be able to attract customers in a growing market despite the competition.

Key areas to cover include:

  • your market – its size, historical data about its development and key current issues
  • your target customer base – who they are and how you know they will be interested in your products or services
  • your competitors – who they are, how they work and the share of the market they hold
  • the future – anticipated changes in the market and how you expect your business and your competitors to react to them

It is important to know your competitors’ strengths and weaknesses as compared to your own – and it is good practice to do a competitor analysis of each one. 

Remember that the market is not static – your customers’ needs and your competitors can change. So, as well as showing the competitor analyses you have undertaken, you should also demonstrate that you have considered and drawn up contingency plans to cover alternative scenarios.

MARKETING AND SALES

This section should describe the specific activities you intend to use to promote and sell your products and services. It’s often the weak link in business plans so it’s worth spending time on it to make sure it’s both realistic and achievable.

A strong sales and marketing section means you have a clear idea of how you will get your products and services to market.

Your plan will need to provide answers to these questions:

  • How do you plan to position your product or service in the market place?
  • Who are your customers? Include details of customers who have shown an interest in your product or service and explain how you plan to go about attracting new customers.
  • What is your pricing policy? How much will you charge for different customer segments, quantities, etc?
  • How will you promote your product or service? Identify your sales process methods, eg direct marketing, advertising, PR, email, e-sales, social marketing.
  • How will you reach your customers? What channels will you use? Which partners will be needed in your distribution channels?
  • How will you do your selling? Do you have a sales plan? Have you considered which sales method will be the most effective and most appropriate for your market, such as selling by phone, over the internet, face-to-face or through retail outlets? Are your proposed sales methods consistent with your marketing plan? And do you have the right skills to secure the sales you need?

YOUR SKILLS AND THOSE OF ANY OTHER PEOPLE INVOLVED IN THE BUSINESS

Your business plan needs to set out your own background and skills and the key skills of any others involved in the business and their role. Spell out what work you plan to do internally and if you plan to outsource any work. The plan should identify the strengths in your team and your plans to deal with any obvious weaknesses.

Include a CV or paragraph on each individual, outlining their background, relevant experience and qualifications. Include any advisers you might have such as accountants or lawyers.

If you’re looking to satisfy your bank manager or other investors, you need to demonstrate that your team has the right balance of skills, drive and experience to enable your business to succeed. Key skills include sales, marketing and financial management as well as production, operational and market experience.

Your investors will also want to be convinced that you and your team are fully committed. Therefore it’s a good idea to set out how much time and money each person will contribute – or has already contributed – to the business and the salaries and benefits you plan to draw.

YOUR OPERATIONS

Your business plan also needs to outline your operational capabilities and any planned improvements. There are certain areas you should focus on.

Location

  • Do you have any business property?
  • What are your long-term commitments to the property?
  • Do you own or rent it?
  • What are the advantages and disadvantages of your current location?

Producing your goods and services

  • Do you need your own production facilities or would it be cheaper to outsource any manufacturing processes?
  • If you do have your own facilities, how modern are they?
  • What is the capacity compared with existing and forecasted demand?
  • Will any investment be needed?
  • Who will be your suppliers?

Management-information systems

  • Have you got established procedures for stock control, management accounts and quality control?
  • Can they cope with any proposed expansion?

Information technology

  • IT is a key factor in most businesses, so include your strengths and weaknesses in this area.
  • Outline the reliability and the planned development of your systems.

FINANCIAL FORECASTS


As part of your plan you will need to provide a set of financial projections which translate what you have said about your business into numbers.

You will need to look carefully at:

  • how much capital you need if you are seeking external funding
  • the security you can offer lenders
  • how you plan to repay any borrowings
  • sources of revenue and income

You may also want to include your personal finances as part of the plan at this stage.

Financial planning
Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business. However, the first 12 months’ forecasts should have the most detail associated with them.

Include the assumptions behind your projection with your figures, both in terms of costs and revenues so investors can clearly see the thinking behind the numbers.

What your forecasts should include:

Sales forecast – the amount of money you expect to raise from sales.

Cashflow statements – your cash balance and monthly cashflow patterns for at least the first 12 to 18 months. The aim is to show that your business will have enough working capital to survive so make sure you have considered the key factors such as the timing of sales and salaries.

Profit and loss forecast – a statement of the trading position of the business: the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads.

Your forecasts should cover a range of scenarios. New businesses often forecast over-optimistic sales and most external readers will take this into account. It is sensible to include subsidiary forecasts based on sales being significantly slower than you are actually predicting, with one for sales starting three months later expected, and another forecasting a 20 per cent lower level of sales.

Risk analysis
Alongside your financial forecasts it is good practice to show that you have reviewed the risks your business could be faced with, and that you have looked at contingencies and insurance to cover these. Risks can include:

  • competitor action
  • commercial issues – sales, prices, deliveries
  • operations – IT, technology or production failure
  • staff – skills, availability and costs
  • acts of God – fire or flood

PRESENTING YOUR BUSINESS PLAN

To make sure your business plan has maximum impact, there are a number of points to observe.

Keep the plan short – it’s more likely to be read if it’s a manageable length. Think about the presentation and keep it professional – even if you only intend to use the plan in-house. Remember, a well-presented plan will reinforce the positive impression you want to create of your business.

Tips for presenting your plan:

  • Include a cover or binding and a contents page with page and section numbering.
  • Start with the executive summary.
  • Ensure it’s legible – make sure the type is ten point or above.
  • You may want to email it, so ensure you use email-friendly formatting.
  • Even if it’s for internal use only, write the plan as if it’s intended for an external audience.
  • Edit the plan carefully – get at least two people to read it and check that it makes sense.
  • Show the plan to expert advisers – such as your accountant – and ask for feedback. Redraft sections they say are difficult to understand.
  • Avoid jargon and put detailed information – such as market research data or balance sheets – in an appendix at the back.
  • You may have detailed plans for specific areas of your business, such as a sales plan or a staff training plan, but it is best not to include these, though it is good practice to mention that they exist.

While it is sensible to seek advice from external advisers, it is not a good idea to get them to write the plan for you. Investors and lenders need to have confidence that you personally understand your business plan and are committed to the vision for the business.

Make sure your plan is realistic. Once you have prepared your plan, use it. If you update it regularly, it will help you keep track of your business’ development.

Further help and advice

Your accountant, if you have one, or your bank can offer support.
*This information is reproduced courtesy of Business Link © Crown copyright 2011