Once you have honed your ideas, researched your markets
and looked at how you will sell your product and finance your business,
it is time to pull all the strands together and draw up a business plan.
The plan brings together your main business idea into
focus and defines your long-term objectives. It provides a blueprint for
running the business and a series of benchmarks to check your progress
against.
It is also crucial for convincing your bank - as well
as key customers and suppliers - to support you. This guide covers:
- How to structure a business plan.
- What information to include.
- How to present your financial forecasts.
Arranged in the following chapters:
1. Executive Summary
2. The Business and the Product
3. Markets and Competitors
4. Sales and Marketing
5. Management
6. Operations
7. Financial Forecasts
8. Financial Requirements
9. Assessing the Risks
10. Appendices
11. Presenting the Plan
1. Executive Summary
The executive summary outlines your whole business
proposal. Although it is the last section to be written, it goes on
the first page of the business plan. The executive summary highlights
the most important points. It should sum up seven areas:
- The purpose of the business plan.
- The product or service, and its
advantages.
- The market opportunity.
- The management team.
- Any track record to date.
- Financial projections.
- Funding requirements.
When deciding whether to back a start-up, bank managers
and investors often make provisional judgements based on the executive
summary. The main body of the business plan is then read to confirm
this initial decision. The appendices at the back of the plan carry
data to support the main text.
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2. The Business and the Product
Explain the background to your business idea.
- How long have you been developing
the business idea?
- What have you done about it so far?
- Who will own the business, and what
related experience do you have?
Explain in simple terms what your product is or
what your service does. Describe in enough detail so that anyone,
regardless of his or her knowledge of this type of business, can clearly
understand what you are doing. Avoid 'jargon' and technical terms.
Highlight the most important points
- What will make your product or service
stand out from the rest?
- What advantages or benefits do your
customers gain?
- What disadvantages or weak points
will the product or service have?
- Explain any unusual features, such
as special regulations.
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3. Markets and Competitors
You must be able to show there is a demand for the
product or service and that customers will want to buy from you. Focus
on the sector of the market you plan to target and ask yourself the
following key questions:
- How many direct competitors are
there?
- List your strengths and weaknesses.
- List your competitors strengths
and weaknesses.
- Indicate your unique selling point.
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4. Sales and Marketing
Marketing is identifying, anticipating and satisfying
customer needs - profitably. It is about understanding what people
want, observing changes and market trends, adapting and outmanoeuvring
the competition. Knowledge of marketing is essential to retain flow
of sales and work. The main stages:
- Target markets.
- Product.
- Price.
- Place.
- Promotion.
It is essential to consider your target markets.
Focus on answering the following key questions.
- Which type of customers are most
likely to buy your products?
- Where are they located?
- What are their reasons for buying?
- How much do they normally spend?
- Where do they buy from at the moment?
- Who makes the decisions?
- How will you promote your product
to these customers?
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5. Management
Place particular emphasis on the skills that you
have to offer and any relevant experiences you have. Include details
of those key people involved in your business. Attach copies of CVs.
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6. Operations
Explain what facilities the business will have and
how production will be organised. Key points to highlight include:
- Where will the business be located?
- What are the pros and cons of this
location?
- What production facilities will
there be?
- Do you require any special equipment?
- What limits will there be to production
capacity?
- How many employees will you have?
- What will their jobs be?
- What skills are needed?
- Who will your suppliers be?
- How have you selected them?
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7. Financial Forecasts
Your financial forecasts translate your business
plan into numbers. A small, simple business may only require a sales
forecast and cashflow projection. A larger company starting up with
20 employees would need to produce a full set of forecasts. Financial
forecasts include the following:
1. A realistic sales forecast which forms the basis
for all your other figures. This figure needs to be broken down into
its components (e.g. sales of different types of products or to different
types of customers).
2. A cashflow forecast which shows that your business
will have access to enough money to survive.
- What key factors will affect cashflow
(e.g. volume and timing of sales revenue, salaries)?
- At what stage will your business
become cash positive (more cash coming in than going out)?
3. Your profit and loss (P&L) forecast gives a clear
indication of how the business will move forward for each of the first
two or three years of trading.
- Calculate the sales you need to
break even:
£ breakeven =
£ fixed costs x 100
% gross margin
- Compare the breakeven level of sales
with the sales you are forecasting.
- Comment on your profit margins and
state whether these could be improved (e.g. by concentrating on your
most profitable activities).
Larger scale start-up plans will need to contain
projected balance sheets which show the financial state on day one
and at each year end, perhaps for the first two to three years. Be
constructively critical of your own forecasts. You may need to
revise them with the aid of consultation with business advisers who
may be able to put together your forecasts free of charge.
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8. Financial Requirements
The cashflow forecast will show how much finance
the business needs, both now and later. Your assessment of the risks
determines whether or not you need to arrange contingency financing
(see 9). Financial requirements include the following:
- How much finance you will want,
when and in what forms (e.g. you may require a fixed interest loan or
an overdraft facility).
- State what the finance will be used
for.
- Show how much will be for capital
expenditure (e.g. buying equipment) and how much for working capital
(financing stock and debtors).
- Confirm that you will be able to
afford it. For example, if you are asking for a loan, will your business
generate enough cashflow to make capital and interest payments?
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9. Assessing the Risks
Looking through your business plan, what are the
main areas where something could go wrong? Consider the following
questions:
- Could you face technical problems
in developing your product or service?
- What could you do to minimise these
risks?
Consider a range of 'what if' scenarios. For example,
what happens to your cashflow if sales are 20% lower, 40% lower or
15% higher than forecast? If there are serious risks, you can:
- Arrange contingency funding to cover
the extra financing you might need.
- Decide that the business is too
risky and abandon the whole project.
Assessing risk clearly will help you minimise problems.
It will also help you build up your credibility with any investor
or bank that is considering providing finance.
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10. Appendices
A simple business plan may not need any appendices
at all. Everything can be included in the main text. A more complicated
business plan may only summarise information in the main text, putting
detailed information - especially figures - at the back. Appendices
typically include the following contents:
- Detailed financial forecasts (monthly
sales, month-by-month cashflow, Profit & Loss, and any balance sheets).
- Detailed list of assumptions. For
example, the profit margin on each product; debtor payment period; stock
turn; exchange rates; injections of finance; and equipment purchases.
You may also want to give other relevant information
such as:
- CVs of key personnel.
- Market research data.
- Product literature or technical
specifications.
- Names of committed or target customers.
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11. Presenting the Plan
The more reliable information you can gather for
your own use, the better the business plan will be. But a banker or
other outsider will not have the time to read through all the details.
It is therefore very important to:
- Keep it short (most business plans
are far too long. Cut out the waffle and stick to the point. What does
the reader need to know?
- Make it professional. Put a cover
on the business plan, give it a title and include a contents page.
- TEST IT. Re-read it yourself. Would
reading your plan give an outsider a good feel for your business and
an understanding of the key issues? Show the plan to friends and expert
advisers and ask for comments.
The time you spend rewriting and polishing the plan
now will save you time later, when you are arranging finance and launching
your business.
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