Business

Preparing your Business Plan What is a Business Plan' A business plan can serve a number of purposes, but it is principally designed to let you set down in words and figures the factors that are most important to your business. A business plan shows how a new business will be created or perhaps how an existing business will undergo a major change. In drawing up a plan, you will discover the strengths and flaws in your business idea and the best way to tackle any basic problems before they have the chance to arise in a real life situation. When the business is up and running, a good plan will help keep you focussed on your main objectives and will allow you to check day-to-day decisions against your stated goals. A good business plan is also vital when you approach potential partners, your bank manager, government agencies or local authorities for finance, planning consent, grant aid etc. Your plan needs to be persuasive and able to "sell" your company or idea to someone who will probably know a lot about how to run a business, but may know absolutely nothing about your product or market. It will demonstrate that your idea is viable, that it has been well thought out, that you are ready to go ahead and that you will survive and prosper. Why do I need a Business Plan' Your company may run perfectly well without a formal plan, but it will be doing so in a haphazard, unstructured way. Without a plan, you will have no clear idea where your business is going, no map to help you along the way and no means of getting back on track when things go wrong. The plan really should be central to all businesses so that common goals, and the means by which they are to be reached, are clear to everyone in the organisation. You might even want to share some details of your plan with suppliers so that their role is also clear and everyone is singing from the same hymn sheet. Unfortunately, many small businesses do not plan or will prepare a plan only for the benefit of the bank manager. Such plans then languish in the bottom of a filing cabinet and a great opportunity is lost. As many as 85 out of every 100 new businesses fail within the first five years often because a good idea was not properly developed or because of difficulties which could have been overcome if the business had planned for them. Typical problems for small and growing businesses include: • Developing the product, attracting customers, reaching new markets. • Lack of sufficient working capital to manage the business into profit. • Control of cash flow and costs. • Failure to install the right checks and balances. • Employment problems - hiring, motivating and keeping the right staff. • Keeping up with regulatory and legislative changes. • Ineffective management of time. • Inflexibility - failure or unwillingness to change to meet new market conditions. • Overconfidence and over optimism - unrealistic expectations of market size and share. All of these can be overcome by taking sound professional advice and, more especially, by researching, drawing up, consulting and amending a comprehensive business plan. What will I gain' A good business plan will provide you with four main benefits: • It will help you get your thoughts on paper. In setting up a new business, there are many things to consider, especially if you have not travelled this route before. As you develop the plan, potential conflicts, ambiguities or gaps in your thinking will emerge. It is much better to resolve such issues while the idea is still on the drawing board rather than to have to deal with them in real time on a day-to-day basis. The plan clarifies all the major elements of the business and enables the project to be assessed objectively and understood by outsiders. • Most new businesses need to raise finance. A business plan plays a vital role in persuading government agencies, banks and other providers that your idea is viable and that you are likely to be capable of meeting planned repayments or other agreed obligations. Most banks provide their clients with business planning guidance as an indication of the importance, which they attach to the process. However, even if you do not need financial help, your business plan will at least help you to make best use of your own capital. • The plan enables you to establish, manage and monitor your business. The best route to achieving your personal and professional objectives will be found by going through the planning process. When you first start in business enthusiasm will carry you through and it is easy to believe that everything is going well. You are after all bound to be busy even if only with unfamiliar day-to-day tasks. At times like this, the new business owner will very often fail to notice underlying problems which can trip them up just when everything seems set for success. Cash flow problems, difficulties with staff, the emergence of new competitors and changes in the market can all bite very hard. A successful plan can be referred to regularly and will help to highlight potential difficulties or shortcomings, which can then be corrected before they become major issues. It therefore becomes a powerful ally in the fight for survival provided you refer to it regularly, analyse actual performance against your planned objectives and update the relevant parts of the plan in the light of experience. • Finally, there is the boost to personal confidence that a good plan can provide. You will have spent many hours thinking through your idea but there is always room for nagging doubts. Your business plan will show you how your objectives can be achieved and how pitfalls can be avoided. This will provide you with the confidence to sell your idea to others, to turn your idea into reality and to feel comfortable in the knowledge that you have a plan to cover most eventualities. What the plan can't do. No plan, however carefully prepared, can cover every eventuality. There is no escape from the day-to-day decisions which all businesses demand and there will be times when even the most carefully laid plans will fail to predict difficulties lying in wait just beyond the immediate horizon. With a good plan, however, such moments of crisis will be the exception rather than the rule. Always remember that the business plan is supposed to work for you, and not the other way round. There is no point in sticking rigidly to an out-of-date plan - this could be worse than having no plan at all. You will therefore need to reshape and revise the plan in light of changing circumstances so that it remains an effective guide towards your overall objectives. Regular reviews help to keep the plan in tune with new developments and may lead to a complete rewrite where there is major change or to minor adjustment for fine-tuning purposes. Make sure everyone in the company understands the plan, hold regular progress briefings, convince your staff of the plan's importance to the company's future and to their job continuity; leave no room for apathy. Above all, plan realistically. We all have shortcomings and limitations and an over ambitious plan might well doom your enterprise to failure. It will certainly cause untold frustration and unnecessary stress. Don't forget, lenders and financiers have seen it all before. Wild optimism and misplaced confidence will not impress them. You may be asked to produce evidence to support claims made in the plan and you will not obtain assistance if you are seen to have been dishonest. Where do I start' A good starting point is to gather as much background information and as many facts and figures as you can to support your ideas. Time spent on research is never wasted. The process of information gathering will almost certainly reveal something about your business proposition which you hadn't thought about and will, in the end, lead to a better plan with a better chance of success. For most businesses, a forecast three years into the future is sufficient. The first year needs to be written up in detail; the second and third in draft. In a fast-moving industry, shorter term planning is often all that can realistically be managed. Your own experience or your professional advisers will tell you which time frame best suits your business. You will establish a stronger commitment to the plan if you involve all key staff in its preparation. It will also give you access to a wide range of opinions, ideas and experience, which could well prove invaluable over time. Those who help to make important decisions are more likely to abide by them than those who simply have new policies thrust upon them. By canvassing the views of colleagues and employees, you can improve their self-esteem, get them to appreciate the contribution of others and thereby facilitate better teamwork within your organisation. The consultative process also exposes ideas to close expert scrutiny and will often prevent unworkable plans and solutions being formulated. Contents of the Business Plan. When writing your business plan, try to think of who will be reading it. Can they be expected to know anything about your industry or business' Avoid technical jargon; try to explain yourself in plain English. Be precise and concise; don't waffle or include spurious detail. Do make sure that any assumptions that appear in the plan are explained and substantiated. Not all the items in the following list are applicable to every business. If any heading is irrelevant to your business, simply leave it out. The Business. Start with the basic details such as company name, address, telephone, fax and e-mail. Indicate the legal status of the business - e.g. sole trader, partnership, Limited company. If the company already exists, give a brief history, describe its current state and say how it compares with its competitors. Summarize the current funding arrangements and the company's financial position. Profit and loss accounts, balance sheets etc. should appear as appendices. Detail any major successes to date. Your Product or Service. Avoid writing a technical treatise and do not assume that the reader understands industry jargon. Give a description of your product/service. What are its features and its benefits' What need or gap in the market does it fill' What are the unique features, which will attract customers to your offer' How does it compare with its competitors and who are they' Give details of any statutory requirements affecting your service or product and mention any patent or copyright issues. The Market. You will need to give estimates of short and long-term demand and explain how you have arrived at your figures. Does your product have a fixed and foreseeable life span' Is what you are offering completely new or just a variation on an existing theme' Are you targeting a niche market' Where will your customers come from' Who do they buy from now' What are the strengths and weaknesses of your competitors and how will you persuade customers to change' What are your competitors likely to do in future' Your Marketing Plan. Give details of your target markets and demonstrate that the markets exist. Show how you have researched your intended market and what results the research has produced. List any external publications or data sources you have used. This will show that you have prepared carefully and will appear much more professional. Indicate your present and your target market shares. Explain your approach to pricing and give comparisons with your competitors. What selling and distribution methods will you use' How will the product/service be promoted' Detail your advertising and sales promotion plans. Give an indication of your long-term plans and objectives however speculative they may be at this stage. Mention any orders or firm expressions of interest you may have had. Operational Matters. Where will the business be located' Describe the premises and the equipment the business has, or will need. Describe any production processes you will be undertaking. What staff requirements does the business have' Are suitable people available or already in place' Will new jobs be created during the life of the plan' Management and Organisation. Give brief CV details of all key personnel, especially yourself. Include age, education and previous commercial experience especially where relevant to the activities in the plan. What are the individual and collective strengths of the people involved in your business' What are their weak points and how do you plan to overcome or compensate for them' Financial Information. The financial information you provide is bound to contain assumptions. You are, after all, dealing with the future. Make sure that you explain how each conclusion was arrived at and give details of any source information or market research you have used. What income and expense budgets have you set for the period covered by the plan' Show the relationship between your costs and the price you intend to charge. Provide financial forecasts covering cash flow, profit and loss and balance sheet projections. Do not include any grants or loans unless they are already in place. Show your break-even point (i.e. the level and volume of sales at which the business will start to make a profit) and when you anticipate reaching it. Financial Requirements. Give details of any personal savings, which you intend investing in the company. How much income do you need to survive personally (e.g. mortgage, gas, electricity, telephone, food and drink, transport etc.)' How much money is needed to start (or develop) the business' When is it needed' Don't forget to make a generous allowance for working capital. Many new businesses trade well from the outset but find that their progress is soon reduced to crawling speed because they run short of cash. Failure to address this problem early enough can prove fatal. Will an overdraft facility be needed' How much will you need' Specify any grants or loans you have applied for or obtained. Give details of any assets that lenders may be offered as security. The Summary. In many ways this is the most important page in the plan because its role is to grab the reader's attention and persuade them to read on into the details. Although it will probably be written last, it should always appear at the beginning of the document where it can provide an overview of the whole plan. Describe the business briefly and highlight your key objectives and requirements. The Appendices. All the detailed figures, results and projections you have gathered or prepared should appear as appendices with references in the text of the plan to tie the two together. Full CVs of key personnel can be included where appropriate, along with technical descriptions and specifications, site plans, maps, market statistics and any other relevant information which would otherwise give a cluttered appearance to the main body of the plan. How much should I write' There are no hard and fast rules, but lenders who read business plans for a living will generally prefer a concise document of up to 10 pages plus appendices rather than a long rambling tome. If there is too much text, it is less likely to be read carefully. If there is too little, it will give rise to questions and may create the impression that you have not considered your proposal carefully enough. Generally speaking, the more money you want to raise, the more comprehensive your plan will need to be. Presentation. Good presentation does make a difference. A well-presented plan makes a good impression and creates a professional image for your business. Poor preparation places unnecessary obstacles in the way of your funding application and may even lead to the failure of a good idea to secure the right backing. Give your plan a cover page with the project or company's name clearly displayed. Think about having presentation copies of the plan professionally bound. Working copies are better kept in loose-leaf format to make them easier to add to and amend. Above all, check carefully for grammar, spelling and mathematical mistakes. Glaring errors can only detract from the overall image you are seeking to portray. |Items in Red Need Replacing/Comments. | |These Comments should be deleted in the final plan | Business Plan for BUSINESS NAME LOGO (if you have one) Prepared by: - (name/s and title/s) Date Prepared (Month and year) BUSINESS INFORMATION (This should include all relevant organisations that are key to your business) Business/Company Name Address Phone/Fax numbers Co. Reg. Number & date of incorporation (if applicable) Directors/Partners/Proprietor Name/Address Phone/Fax numbers Name/Address Phone/Fax numbers Name/Address Phone/Fax numbers Name/Address Phone/Fax numbers Bankers Name Branch address Contact Name (if appropriate) Phone/Fax number Accountants Name/Address Contact Name Phone/Fax numbers Legal Advisors Name/Address Contact Name Phone/Fax numbers Finance Consultants Name/Address Contact Name Phone/Fax numbers Any other relevant parties Name/Address Contact Name Phone/Fax numbers Business Plan Contents 1. Business Plan Summary 2. Business Background 3. Marketing Plan 4. Business Analysis 5. Operational Review 6. Financial Analysis 7. Sensitivities 8. Appendices 1. Business Plan Summary (it is easier to complete this section after the full business plan has been completed) The Business Newco was formed in …………. and is involved in ……(the manufacturing and sales of ……/ provision of consultancy services in ………etc) The Objectives The objective of this business plan is …… (to raise sufficient capital to fund the future development plans ……. / to provide the Management Team with a clear focus on the development plans of ..etc) The Personnel The key personnel of the company are ………….. (David Smith Managing Director, Robin Brown Financial Director and Clive Simmons Sales and Marketing Director ..) The Market Our target market is …………. (the financial services sector / domestic end users of cleaning services ….etc) This market sector is ……….. (currently worth £ million and predicted to grow at / 2 million household within a 10 mile radius of Liverpool city centre ….etc) Financial Summary financial projections show: | |Year 1 |Year 2 | |Turnover |228,000 |272,000 | |Gross Profit |121,000 |141,000 | |Net Profit |26,000 |53,500 | |Net Assets |45,000 |79,000 | The total capital requirement is £XX,000, comprising:- Capital equipment £ X,000 Start-up costs X,000 Working capital XX,000 XX,000 This will be funded by:- Directors’ capital £ XX,000 Bank loan (SFLGS) X,000 MSIF loan XX,000 Grant X,000 XX,000 The Bank and Merseyside Special Investment Fund are asked to extend a ''' year repayment term. 2. Business Background (this section is a narrative of your business and sets you in the market context by covering some or all of the following issues) 2.1 Business description status (sole/partnership/company) size (sales/turnover) products /services employee numbers where you propose trading and why any key assets (e.g. property) 2.2 Management Of The Business (This section deals with how you, the management, go about controlling the business) What is the management structure' Brief profiles of the directors/owners highlighting relevant skills & experience (formal CVs of the principals should be included as Appendices). Who does what i.e.- responsibilities' 2.3 Business Objectives (This section should detail the key issues that will in a fundamental way effect the success of your venture) 3) Marketing Plan (your narrative will no doubt require a detailed assessment to enable you and any reader of your business plan to identify if a market exists to support your aspirations and how you propose to access your customers. Part should be historical to support any decisions for development and part should be judgement of the future based upon as much research as you can reasonably carry out on the market and your potential customers) 3.1 General Where do you operate' What do you make/provide' Unique selling proposition/competitive advantage' Who are your customers' Any key customers' Who are your competitors' are any posing a threat' any role models' what makes you different' what are their products' 3.2 Market trends size of market growth and total market specific market trends what share are you aiming for' 3.3 Sales & marketing strategy how will you market your product/service analysis of what it will cost advertising/value for money customer care targets for customer growth 4. Business Analysis (Your business should be analysed in terms of strengths, weakness, opportunities, and threats. You should describe how the weaknesses will be controlled and the threats countered) Strengths unique product protected by Patent vastly experienced management team etc. etc. Weaknesses lack of market recognition working capital restrictions etc. etc. Opportunities growing market for widgets ability to respond quickly to customers’/market needs etc. etc. Threats changes in legislation may effect product design aggressive competition etc. etc. 5. Operational Review (This section should explain, in easily understood terms, the way your business operates from a practical point of view. It serves to underline the control of day to day issues to ensure the business remains profitable) Premises access traffic control maintenance issues any special features any environmental issues. Plant and Equipment what is used and how condition and replacement policy manning and maintenance process involved Quality issues are you intending to be ISO9000 accredited' customer complaints quality improvements product guarantee insurance Business Systems Use of Information Technology Accounting Systems and Financial Controls Health and Safety issues safety policy cossh assessments liaison with H&S executive Human Resource issues recruitment special training requirements compliance with HR legislation Environmental Considerations (you should high risk any environmental regulations applicable to your business and deal with how you propose to manage any risks minimise the environmental impact of your business). 5. Financial Analysis Comments upon:- sales forecasts & assumptions cost of sales & stock levels gross profit margins overhead items net profit Capital expenditure planned eg property plant and equipment vehicles 6. Sensitivities (This must deal with the possible negative factors which may face the business should things not go to plan.) What if sales forecasts are not met • What if interest rates increase substantially • Are labour rates/material costs in danger of rising etc APPENDICES (This section must include any documents referred to in the narrative together with any which you believe will enable the reader to better understand your business) a) Trading forecasts b) Cashflow forecasts c) Balance sheet forecasts d) Key staff CV’s e) Any other appropriate documents