A decent business plan can add value and focus to a small businesses looking to reach its full growth potential. Getting it right is something of an art; Robert Lovell runs through some basic pointers on putting a plan together.
A business plan should help identify long-term objectives, provide a blueprint of how you will go about achieving those goals and provide metrics to check progress.
It should join up the dots between sales, HR and finance and provide a holistic analysis of a company as well as its marketplace. A business plan is much more than forecast, cashflow and profits cooked up for the sole purpose of securing investment. It should also drive your company in the right direction and provide a benchmark for ongoing evaluation.
Key content and measures
A business plan should cover objectives, strategies, sales, marketing and financial forecasts. The best business plans aren’t long or complex, but explain only the most important information – what you want to achieve, how you will get there and the things you need to do along the way.
First, consider who will be the audience for the business plan. Is the plan needed to secure finance/investment or will it just be used for internal purposes?
All the major banks have business plan templates on their websites; however every business has different requirements and will vary depending on the type of operation and the return that you hope to realise.
Below is some general guidance on what to include in a business plan for a small or start-up business.
1. Executive summary
This should be brief and to the point, and summarise the contents of the plan. The executive summary outlines the proposal and will be read by people unfamiliar with the business, so it’s important to avoid jargon.
It highlights the most important points and should sum up the product or service and its advantages; market opportunity; management team; track record to date; financial projections; funding requirements and expected returns.
2. The business
This section should expand on the executive summary and explain in more detail what the business is, what it does, what its advantages are, what makes it different.
Explain the background to the business, including the length of time spent developing it, work carried out, the founder's relevant and the proposed ownership structure of the business.
It’s also important to be frank about any disadvantages or weak points the business may have and explain any key features of the industry in which it will operate.
3. Markets and competitors
Focus on the segments of the market that are being targeted, how large each segment is and important trends.
Speaking to potential customers will give a real world perspective on the idea or business, so ask what they would like to see included.
Outline competing products and their strengths and weaknesses. Explain why people will buy from the new business and show an understanding of how competitors are likely to react to losing business. This section demands some proper market research.
4. Sales and marketing
Explain how the product or service will be sold and how it will meet the consumers' specific needs, plus how the product or service will be positioned and how will it reach the end customer.
Show how it will compare on price, quality, response time and after-sales service with competitors.
Demonstrate how you will sell to customers, how long you predict each sale will take, and whether repeat sales are on the agenda.
Show that you have a clearly defined pool of potential customers or ones that have expressed an interest.
You should also outline how you intend to promote the product or service. Then make it clear what contribution to profit each part of the business will make. Examine likely sales, gross profit margins and costs.
5.Management
You’ll need to give an idea of why they should have faith in the company's management.
Outline the skills within the team by defining each management role, background and experience of team members, plus strengths and weaknesses.
You should also outline management information systems and procedures, for example management accounts, sales, stock control and quality control.
Make a note of how many mentors and supporters you will have access to, demonstrate how committed you are, and show how much time and money the management team will contribute.
Even if you’re not seeking investment you still need to ensure that your business has the right leadership to ensure success.
6. Operations
Explain what facilities the business has and how it will deliver the product or service.
Include information on location, facilities, employee roles and suppliers, and also consider any potential limits to production capacity.
Outline a realistic sales process – when will you start selling, how often, how much and how long after a sale it will be before you collect payment.
7. Financial forecasts
This is the most important area of the plan, so devote plenty of attention on it.
Financial forecasts translate what you have already said about the business into numbers. A realistic sales forecast will form the basis for all your other figures.
Break down the total sales figure into components such as different product types or sales to different buyers.
A cashflow forecast is essential to demonstrate that the business will has access to enough money.
Demonstrate you’ve considered key factors affecting cashflow: level and timing of sales revenue; wages and so on; and show when the company will reach a cash-positive position.
The P&L forecast, summarised for each of the next three years of trading, should show how the business will move forward. You’ll need projected balance sheets for the next three years.
For every forecast you’ll need to list key assumptions, such as prices, sales volume and timing.
8. Financial requirements
The cashflow forecast will show how much finance the business needs and your assessment of the risks will determine whether or not you need to arrange contingency financing.
Outline how much finance you will want, when and in what forms. State what the finance will be used for and confirm that you will be able to afford it.
9. Assessing risks
Isolate areas where something could go wrong. To build up credibility explain what the management would do if it happened and consider a range of “what if” scenarios.
If there are serious risks you can arrange contingency funding to cover the finance you’ll need.
Alternatively you may decide to abandon the whole project at this stage. Going through this whole process can be a lot more important than the report itself.
10. Appendices
This is the place for detailed financial forecasts such as monthly sales, cashflow and P&L.
You should also include a detailed list of assumptions, such as profit margin on each product, debtor collection period, creditor payment period, stock turn, interest and exchange rates, and equipment purchases.
You should also consider including CVs of key personnel, market research data, product literature/technical specs, target customers and a list of external data sources used in your research.
For more detailed guidance tale a look at the GOV.UK section on how to ‘write a business plan’. Also see the links at the end of this article
Presenting the plan
An investor or bank will not have time to read through all the details in the business plan, so make sure you have used solid information.
Focus on what the reader needs to know keep it short.
Make it a professional-looking document by putting a cover on it, including a contents page and title.
Test it out on friends and expert advisers, and then re-read it yourself, many times over.
Ask yourself if an outsider would get a good feel for your business and grasp the key issues.
Tools: Pros and cons
On the design and presentation aspects of putting together business plans, AccountingWEB member Glennzy sought advice from the accounting community.
He always found the numbers party easy, but struggled with all the “bumf that goes with them”.
“Do you guys use Word to formulate the report and drop the financials into it to produce the full pack or do you use something else? I am not the best at design with inserting graphs etc. for a professional look so wondered if there is any software that does the job,” Glenzy posted.
He also asked whether it was worth putting some time into developing his own master proforma in Word and just amending it each time he had to do one.
AccountingWEB members were quick to come forward with suggestions, including Sheepy306 who said they always used WinForecast for the figures, put them in the appendix and then tailored a standard plan in Word.
“I've never had a batch of similar ones to do though, have tended to be ad hoc specific ones. Kept it short and simple. Have looked at some software and found it either far too extensive or far too American.”
Further reading
This article forms part of a comprehensive Business planning series sponsored by Exact. For further advice on constructing a compelling business plan, also see:
