If you’ve ever contemplated setting up your own business then this new series could be just what you need to get the cogs turning. In the coming weeks we’ll be exploring all aspects of going it alone – from determining a clear proposition and plan, sourcing premises, sorting equipment, making decisions on hardware and software, marketing and promotion, finances and staying on the right side of employment law. Our aim being to help you consider what’s important before you realise in your enthusiasm you haven’t properly considered something or that the decisions you’ve made have boxed you into a corner.
This time, writing a business plan.
What is a business plan?
With a viable business idea starting to crystalise there’s benefit in gathering your ideas together all in one place, however embryonic they might be.
A business plan should describe your business and its plans over a specific timeframe (typically one to three years). It should document what the business does or will do, explore the market for your product or service, and include financial forecasts. These forecasts should show that the business will be viable and document the finances available and those that will be required to support your plans.
In a nutshell the business plan is a ‘blueprint’ for your business and plots the ‘way ahead’ for your ideas. As well as being a document for you to refer to, it’s likely that funders, lenders and business partners will also expect you to have a formal plan too to help them get up to speed with your company.
The business plan isn’t a “get it right first time” document - it’s something that should evolve over time - you’ll likely get through a few iterations before your business gets up and running and look to update it perhaps one a year once you’re underway. Your plan should reflect your growing experience and allow you to compare actual results with those you’d hoped and planned for.
What is the plan used for?
The business plan should ideally act as a framework that will ensure that everyday activities happen in a structured way, helping to ensure that any ‘surprises’ or ‘opportunities’ are manageable.
Your planning process will likely be summarised as a list of key objectives and a budget. However, the business plan has a broader remit than just this core summary – for many it will likely be the main method of convincing prospective investors that the proposal is viable and that those behind the plan have the determination to make it real.
What kind of things should I include?
Information for your plan will likely come from a wide variety of sources.
At the start of the planning process, a SWOT analysis is a good way of getting a feel for the environment in which your business will operate. The following questions will provide a starting point to assessing the strengths, weaknesses, opportunities and threats you will encounter in getting established…
- What do you see as your business?
- Who requires your services?
- What sets your business apart?
- Who else is competing in the same (or similar) area?
- Where do you have skills, talents or connections and how can you put these to good use?
- Which areas will you have to bolster?
Answering these questions should help you get a clear idea of what your business is doing, the direction of travel and how you will get to where you want to be.
This, in turn, will inform the resources you’ll need to support you on your journey (everything from premises and equipment to staff and funding) and how you’ll utilise them.
How should a business plan be structured?
Your plan needs to be quickly and easily understood – eight to 10 pages with any supporting appendicies – is probably manageable and maintainable as a working document.
As well as presenting the ‘facts’ your plan also needs to serve as something of a marketing tool. You should be honest but look to present yourself in the best possible professional light.
When it comes to structure, make it as easy as possible for the time poor to extract the key information they need. Make good use of headings, summaries and a table of contents to signpost the key components. These sections might include:
Summary – A description of the business and its purpose and how that purpose will be realised by the owner.
This section should appear upfront but will likely be written last allowing you to draw on material from the wider business case. You should look to highlight strengths of the business and put a case for why you should be supported. You should be clear about how much money you need to raise and where you expect this to come from.
If already up and running, you need to describe your history to date with a focus on major achievements and turnover and profitability in recent years and how this compares to competing firms.
The Business – The purpose and goals of the company. Is the company up and running and what was the impetus to create it? What is the legal structure of the business (company, sole trader or partnership)?
Existing businesses should include summary financial data (turnover, profitability and net worth) and give details of how the business has been funded. A detailed profit and loss account and balance sheet should be provided as an appendix.
The Product or Service – Describe your product or service in plain English, avoiding jargon and overly technical information wherever possible. Talk about the need your product fulfills, and don’t just focus on features – talk about the benefits that a customer would buy into.
The Market – Drawing on the primary and secondary research you have undertaken show that a market for your product or service exists. Give an indication to the overall size of the market and what this means over time for your product or service? This will help determine an estimate for sales turnover. You also need to give a considered appraisal as to the extent of competition you will face in the market. Why will customers choose your product or service over a rival?
The Marketing Plan – The marketing plan translates the purpose of your company into marketing objectives and goals. These should be quantifiable, measurable and challenging yet achievable and might include sales growth, diversification, profitability and improved market share. When pulling together a plan you should consider the 4 P’s - Product, Place, Price, Promotion and how a fifth, your Positioning of both your business and its products will impact.
Management and Organisation – Your business plan should give the reader confidence that you have the ability and determination to carry out the necessary tasks to make the business work. Consider the people involved – highlighting strengths and showing how weaknesses will be addressed, as well as the production process from start to end, highlighting particular advantages.
Break-even analysis – With a clearer idea of likely costs and the potential to generate income from your product or service you can start to explore how much you need to sell to cover your costs. This estimate might be expressed in terms of hours worked or units sold. When sales exceed costs you have reached break-even point and can set out on the road to generating a profit.
Financial forecasts – Your forecasts need to show that you can cover costs to suppliers and staff as they fall due and go on to generate a profit. You should include forecasts for at least the year ahead. If profitability in the year ahead is unlikely or substantial cash needed you may need to provide figures over the next two to three years. You should include forecasts for the profit and loss account, a cash flow forecast and a forecast of the balance sheet.
Sensitivity or risk analysis – What would happen if key costs increased by 20% or sales fell by 25%? By considering these kind of questions – their likelihood and their impact - you make it easy for the reader to understand how robust your operating model is.
Financial requirements – You should be clear about the investments that you (and any partners) are making in the business. Where funding is sought from third parties explained whether it is required as overdraft for working capital, loans or equity or as a combination. Give details of what securities are available. Securities serve as a demonstration of your commitment and confidence to the business and as an indication of your willingness to take risks.
Appendices – Carefully consider what information gets added. Some may be helpful as a way of expanding on points in the main body of the business case but somethings are better left out and made available on request.
By addressing all these areas you have started to flesh out the realities of your new business – what it will do, where you want it to be and how you intend to get there. The business case will change and develop over time, acting as a wayfarer of your progress and a useful mechanism for ensuring you don’t get blown off course.
Previous: Starting out in practice: The proposition
Next: Starting out in practice: Premises
To keep up-to-date with future articles in this series - why not sign up to the NBS eWeekly newsletter? Get the latest content from theNBS.com carefully crafted into a handy weekly email.
