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Business plans: Chart your course for success

25th Jun 2014
Head of Insight AccountingWEB
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John Stokdyk introduces a summer series looking at business plans from all angles and wonders why such important documents are so often neglected by finance managers and practitioners alike.

Thanks to TV’s Dragon’s Den, the business plan has become an icon of modern entrepreneurial life. The plan lies close to the heart of every aspiring businessperson who climbs the spooky spiral staircase to face the scaly, fire-breathing benefactors.

But just as Duncan Bannatyne invariably snarls, “Your numbers make no sense”, most business plans are fantasies cooked up to justify requests for cash and have little bearing on the day-to-day reality the enterprise is likely to face.

If the company actually gets its hands on some money, the original plan is usually tossed aside and forgotten as managers get down to squandering the windfall or revert to the muddling-through habits that got them in trouble in the first place.

The off-hand way finance managers and business advisers treat business plans is a major shortcoming. A good business plan should provide a realistic benchmark against which managers, investors and advisers can assess its progress.

This overview is the first in a series of articles on AccountingWEB in the coming weeks that will offer advice on the uses, preparation and presentation of business plans. The articles will draw on theoretical guidance from experts, practical case studies and common-sense suggestions from AccountingWEB members who make effective use of business plans in their work.

Challenges

But first it might be worth examining some of the challenges that need to be overcome.

A business plan communicates the core ideas on which an enterprise is based. It should explain what the company sells, to whom, at what price and how it will develop. These basic requirements impose some much needed discipline on the aspiring entrepreneur or manager.

But asking the right questions to compile a business plan can be difficult. To compile a robust plan, you need to find out what really drives the business and research the opportunities available and dynamics of the market in which it operates. These questions may produce answers that challenge your basic assumptions and force you to make decisions, which can be hard. And the more people involved, the harder that is to do.

For established businesses, formulating a plan depends on involving people on the front line to get good information, and subsequently getting them to buy into it. Both of these requirements can be hard to pull off, particularly if staff perceive the exercise to be a threat to existing arrangements that work in their favour.

Not everybody has the analytical, reporting and communication skills to devise and deliver a really convincing plan. This is a gap that many practitioners have stepped in to fill. Accountancy firms knock out business plans on a regular basis for their clients, but many accountants rarely follow their own advice and create a plan for their own business.

Recent research by Exact, the sponsor of this series of business planning articles, found that 48% of UK practices do not have a business plan - particularly smaller firms, where 71% of sole practitioners and 62% of firms with fewer than five staff do not have one in place.

Before he devoted himself to campaigning for tax justice, Richard Murphy was a successful practitioner and the finance director of the company that brought Trivial Pursuit to the UK. Based on his experiences in these roles, he has written previously for AccountingWEB on business planning for both practitioners and finance managers.

When it came to planning, he commented that accountants were particularly lax when it came to practising what they preach. Noting that many accountants who failed to plan properly were unhappy with their lot, he asked, “How can you be satisfied if you have set no criteria that let you recognise it, nor taken reasonable steps to ensure those criteria are both reasonable and capable of fulfilment?”

Practical pointers

Murphy’s prescription for both practitioners and business was to the point - as any plan should be. A business plan is a statement prepared by the management about:

1. Its anticipated performance

2. The means of achieving that performance

3. The time scale in which it will be achieved

4. The resources required to achieve it

5. The ways of monitoring progress to that achievement.

In Murphy’s view the first step is deciding what sort of business plan you need. A start-up faces different issues to a mature business and will need a different report. In just the same way, a plan used to support fundraising will focus on different factors than one used for internal control.

Step 2 is getting the content, style, length numbers and appendices right. “People hate numbers, so put them in an appendix. Business plans are in English, not numbers,” Murphy advised.

The next step depends on how the plan will be used. Will different parts be relevant for different types of investor, or members of staff? And will it be a paper document or delivered as part of a presentation or pitch?

Steps 4 moves on to checking outcomes against expectations. Who will be responsible for ensuring targets are met, and what milestones will they be able to measure? This is when you may start to realise things aren’t going as planned. It can help to have a good budgeting tool that allows you to incorporate actual results to develop a rolling forecast.

Particularly if things start going off track, step 5 is about starting the process all over again and re-examining what the business is trying to achieve. For practitioners, this represents a good opportunity for recurring fee income, Murphy added.

A business plan is for life, not just start-ups

The other point he emphasised is that a business plan for fundraising needs to link to the subsequent internal plan. It’s not just an ethical point, which is important to Murphy, but practical too. Unless you have a strategy founded on a real knowledge and understanding your marketplace, you’re unlikely to succeed.

Just as happens within existing businesses when they carry out annual planning cycles, the fundraising business plan is a skeleton that can be fleshed out into a detailed budget.

Ultimately business planning is a dynamic, long-term discipline rather than a one-off creative process to produce a fancy document. The majority of business plans end up being shot down in flames, like those in the Dragon’s Den. Don’t let people who know less about the business than you undermine your confidence, but be prepared to be flexible and adjust your plans around useful new evidence they can offer.

Related content:

Coming next:

  • IT Zone guide - round up commonly used tools and techniques for producing business plans
  • Business-related case study

Do you fall into the ‘do as I say, don’t do as I do’ camp when it comes to business plans? What obstacles are holding you back from doing it properly? If you are more diligent in your approach to planning, what advice would you give to other AccountingWEB members? We’ll make sure to pass on any useful tips in later articles in this series. 

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Replies (4)

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By AndrewV12
26th Jun 2014 11:03

Wasting capital investments and loans

Its not just businesses that receive money from  lenders that waste it (see below), there are loads of company's on the Alternative Investment Market (AIM) that  raise money through the sale of their shares and waste the lot, mainly miners. 

 

 

'If the company actually gets its hands on some money, the original plan is usually tossed aside and forgotten as managers get down to squandering the windfall or revert to the muddling-through habits that got them in trouble in the first place'.

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By rawa363
26th Jun 2014 11:40

Wasting Investments

Having spent many years in the business of funding SME's through loans and equity I have to agree with many of John's points. There is always a reason for a business wanting more funds, often it is to 'get us through a cash flow problem we currently have' but giving more money just 'kicks the can down the road' if the issues that got the business into the cash flow problem are not dealt with. 

Or we need a new piece of equipment/machinery etc to do this that or the other. In my experience the problem the client comes with isn't the real problem and the machinery tale is a ruse to get some money for a 'reasonable and sensible' investment. The key to funding is finding out the real reason the business wants the money. This takes some digging out. Only when the real reasons or real issues for the funds are uncovered can a sensible business plan be put together and a proper decision made by the lender. 

Business plans are as was said in many cases 'pie in the sky' and the numbers made up to justify the request, accountants in my experience are often partners in crime, juggling the numbers to help their client. As lenders we want the truth, even if it's bad, if it's the truth we can make a decision based on solid fact about the viability of the business, and if the owners/managers are prepared to make changes and work at a solution and are clearly committed then the chances of funding are higher. As lenders we have to take a view of the business plan, the management team, the market, the product/service, their sales and marketing process and ability to generate sales etc, so we can make an informed decision on us getting our money back through repayment of the loan or recovery from assets available if it goes belly up.

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By abelljms
27th Jul 2016 09:58

Great article , as ever

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By abelljms
27th Jul 2016 10:01

A review of what's available now would be good, esp. Cloudy software - as to be able to flash your plan to your mates off your phone while down the Dog & Ferret is really important nowadays .

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