4. Why you need a business plan
Every business, no matter how small, needs a working plan for the future detailing where you are now, where you want to be and your strategy for growth.
A business plan is a blueprint of the steps you need to take to build that business.
If you are not using the plan to seek funding, the document can be more informal. In this instance you may use it just to set objectives and to map out the resources needed to achieve those goals within the time you specify. The objective of allowing you to monitor progress is still very relevant however. The basic headings for a more informal plan should be Sales & Marketing Strategy and a cashflow forecast.
Why do you need a business plan:
- To focus your efforts, set objectives and company direction.
- To enable you to spot potential pitfalls before they happen.
- To set realistic targets that allow some flexibility - without steering away from core objectives - for some 'fine tuning' along the way.
- To enable you to track your growth.
- To structure the financial side of your business.
- To raise finance.
Potential investors will look at the strength of your plan to reach a decision. Your business will not be considered without a sound, well thought out business plan that sells the company, not the product. (You may have come up with the idea but is your company the right one to turn a good idea into profit, and a healthy return for investors?)
Your accountant should be able to suggest names of organisations that invest in small firms such as yours (or grants that may be applicable).
If you are worried about sending out the entire document of confidential information you may consider just sending the summary in the first instance, marking it 'Private and Confidential' and indicating that the document is copyright material. Alternatively, you may wish to consider asking them to sign a short confidentiality agreement.
How to structure a business plan
- Company name, contact details (phone, fax and email).
- Company logo.
- An executive summary: a synopsis of the entire plan and a 'snapshot' of your business. Write this section last as it should include key selling points and highlights from all the other sections - the 'who, what, where, when, how and why' of your business. Your executive summary should be no more than two pages.
- Presentation is everything, so invest time in layout as well as clarity of written information. Potential investors often stop reading at this point if you don't.
- Ask several people to read your business plan - those who know your business and those who do not - before presenting it to a potential investor. Your reader should have a good understanding of your business just from this section alone.
- Use the summary to inform the reader of the basics of your business and make it interesting.
Table of contents
- Amount requested.
- Include: purpose of financing, use of funds (e.g. start-up costs, fixed assets, safety margins) description of security, working capital (funding received by other means e.g. savings/family loans or other commercial loans etc.).
- Include copies of quotations for any equipment etc you wish to use the funding for.
Sales and Marketing Strategy
- Subheadings: business description, target market, competition, positioning, (sales distribution if relevant) and marketing.
- What type of business are you proposing to establish? How will it be run (limited company? Sole trader?).
- Who are your potential customers? What research do you have to back up potential demand for your product/service? Do you have evidence of potential offers of work?
- What is the current competition? How do you know there is room for a newcomer?
- What advantage over that competition do you have? What are your strengths and weaknesses and those of your competition? Could another business undercut your offering or is your product/service unique? What is your Ultimate Selling Point? Key areas to consider are: price, quality, delivery, customer service, terms of business, other features or services.
- How will you promote your business? What, where, when, how and why are you going to market your service to your potential customers to best effect (and how much will it cost?).
Your management team
- Your credentials and those of any staff you plan to later recruit: any prospective lender is going to want to know who you are - your experience, skills and planned role in the business. Who will supply any expertise you lack? Will extra resources come in the form of hired freelancers?
- You should give evidence of your commitment to building your own business. Include your CV as an appendix.
- Your premises (evidence of landlord approval if applicable).
- Your management information systems, production facilities/equipment, and IT.
- Security of property, insurance cover purchased.
- Details of suppliers (and backup suppliers).
- If trading from business or retail premises: Lease details (rent, rate and repair obligations, insurance. Size, condition and location of premises. Security).
- What are the major risks which could threaten your business? What will you do to minimise those risks?
- Detail your preparedness for those risks. For example - What are your contingency plans if you are too sick to work? What plans do you have in place for other adverse circumstances such as a downturn in sales?
- What are your plans if the company grows beyond expectation?
- Financial projections and assumptions/cashflow forecast. What are your expected sales for the first five years, and at what price? Translates everything you have said in the plan into hard facts, i.e. numbers.
Schedule of major assets and liabilities;
Financial status of owners; and
Annexes and supporting documentation.
- Market research.
- Quotations for any equipment etc.
- Letters of potential offers of work.
- Your terms of business.
If your plan is to be used to raise finance, remember that this document is a marketing tool; the aim is to effectively and clearly communicate to the time-strapped potential investor. Include photographs, maps or other images to help demonstrate your case if needed.
- Use layman's language.
- Don't cram too much on each page, make it easy to read.
- State the facts in the most favourable light without exaggerating.
- Give priority to selling the company, keeping the product/service description concise.
- Make sure your product and market knowledge can stand up to rigorous questioning by sceptical lenders.
- Remember that you are talking to a finance expert, numbers - your bottom line - are all important and need to be as accurate as possible.
- The order of events in your business plan should be consistent throughout (you can add a separate sub header 'implementation schedule' if required).
- Invest in accountant to verify the figures you are presenting.