It is crucial to have a realistic, working business plan when you’re setting up a business. It has many functions, from securing external funding to measuring growth within your business.

Many people see the business plan as a document used to secure external funding. This is essential because potential investors, including banks, may invest in your idea, work with you or lend you money as a result of the strength of your plan. There are many other benefits to creating and managing a realistic business plan - even if you just use it in-house. It can:

• help you spot possible pitfalls before they happen
• form the financial side of your business efficiently
• focus any of your development efforts
• work as a measure of your growth

The following people or institutions may request to see your business plan at some stage:

• external investors - whether this is a friend, a venture capitalist firm or a business angel
• banks
• grant providers
• anyone interested in buying your business
• potential partners

You should also keep in mind that a business plan is a living document that will need updating and changing as your business develops. Regardless of whether you intend to use your plan internally, or as a document for external people, it should still be capable of taking an objective and honest look at your business. Failing to do this could suggest that you and others have unrealistic expectations of what can be achieved and when.

Your business plan is a statement of intent. It should offer you details of how you are going to develop your business, when and who’s going to play a part and how you will manage the money. Clarity on these issues is on the whole important if you’re looking for finance or investment. The process of building your plan will also focus your mind on how your new business will need to operate to give it the best chance of growth.

Your plan should include:

• An executive summary - this is a general idea of the business you want to set up. It’s crucial. Many lenders and investors make judgments about your enterprise based on this section of the plan alone.
• A short description of the business opportunity - who you are and what you plan to sell or offer, why and to whom.
• Your marketing and sales strategy - why you believe people will buy what you want to sell and how you plan to sell it to them.
• Your management team and personnel - your credentials and the people you plan to recruit who will work with or for you.
• Your operations - your premises, production facilities, your management information systems and IT.
• Financial forecasts - this section translates everything you have said in the previous sections into numbers.

The executive summary:

The executive summary is often the most key part of your business plan. Positioned at the front of the document, it is the first part to be read. Nevertheless, as a summary it makes sense to write it last. It may be the only part that will be read. Faced with a large pile of funding requests, venture capitalists and banks have been known to separate business plans into “worth considering” and “discard” piles based on this section alone.

The executive summary is a synopsis of the key points of your full plan. It should include highlights from each section of the rest of the document - from the key features of the business opportunity through to the elements of the financial forecasts. Its idea is to explain the basics of your business in a way that both informs and interests the reader. If, after reading the executive summary, an investor or manager understands what the business is about and is keen to know more, it has done its job.

It should be brief - no longer than two pages at most - and interesting. It’s advisable to write this section of your plan after you’ve completed the rest:

• A brief description of the business and its supplies. It’s a synopsis of the entire plan.
• An extended table of contents. This makes for very dull reading. You should ensure it shows the highlights of the plan, rather than restating the details the plan contains.
• Hype. While the executive summary should excite the reader enough to read the entire plan, an experienced businessperson will distinguish hype and this will undermine the plan’s credibility.

A short description of the business opportunity:

This part of the plan sets out your vision for your new business and includes who you are, what you do, what you have to offer and the market you want to address.

Start with a summary of your business:

• when you started or intend to start trading and the progress you have made to date
• the type of business and the sector it is in
• any related history - for example, if you acquired the business, who owned it originally and what they achieved with it
• the current legal structure
• your vision for the future

Then describe your commodities or services as simply as possible, defining:

• what makes it different
• what benefits it offers
• why customers would buy it
• how you plan to develop your products or services
• whether you hold any patents, trademarks or design rights
• the key features of your industry or sector

Bear in mind that the person reading the plan may not fully understand your business and its products, services or processes as well as you do, so try to avoid jargon. It’s a better idea to get someone who isn’t involved in the business - a friend or family member perhaps - to read this section of your plan and make sure they can fully understand it.

Your marketing and sales strategy:

In this section you should identify your market, your position in it and highlight who your competitors are. In order to do this you should refer to any market research you have previously carried out. You need to show that you’re fully aware of the marketplace you’re planning to operate in and that you know any important trends and drivers.

You should also be able to explain that your business will be able to attract customers in a growing market despite the competition. Key areas to cover include:

• your market - its size, historical data about its development and key current issues
• your target customer base - who they are and how you know they will be interested in your products or services
• your competitors - who they are, how they work and the share of the market they hold
• the future - anticipated changes in the market and how you expect your business and your competitors to react to them

You also require knowing how your competitors’ advantages and disadvantages relate to your own. Portray any competitive analysis you have carried out and include some what-if scenarios that show how your business would deal with customers’ changing needs or any other market changes. 

Marketing and sales:

This section should illustrate the specific activities you intend to use to promote and sell your products and services. It’s often the weak link in business plans so it’s worth spending time on it to make sure it’s both realistic and achievable.

A strong sales and marketing section means you have a clear idea of how you will get your products and services to market.

Your plan will need to provide answers to these questions:

• How do you plan to position your product or service in the market place?
• Who are your customers? Include details of customers who have shown an interest in your product or service and explain how you plan to go about attracting new customers.
• What is your pricing policy? How much will you charge for different customer segments, quantities, etc?
• How will you promote your product or service? Identify your sales methods, eg direct marketing, advertising, PR, email, e-sales.
• How will you reach your customers? What channels will you use? Which partners will be needed in your distribution channels?
• How will you do your selling? Do you have a sales plan? For example, will you sell by phone, via a website, face-to-face or through retail outlets?

Your management team and personnel:

Your business plan required to set out the structure and key know-how of both your management team and your staff. It should categorize the strengths in your team and your plans to deal with any obvious weaknesses.

The management team: If you’re looking for external funding, your management team can be a decisive factor. Give details of who is involved, their role and how it fits into the organisation. Include a paragraph on each of the individuals, outlining their background, relevant experience and qualifications. Include any advisors you might have such as accountants or lawyers. If you’re aiming to satisfy your bank manager or other investors, you need to show that your management team has the right balance of know-how, drive and experience to enable your business to succeed. Key know-how include sales, marketing and financial management as well as production, operational and market experience. Your investors will also want to be convinced that you and your team are fully committed. For that reason it’s a good idea to set out how much time and money each person will contribute to the business and the salaries and benefits you plan to draw.

Your people: Give details of your workforce in terms of total numbers and by department. Spell out what work you plan to do internally and if you plan to outsource any work. Other helpful figures might be sales or profit per employee, average salaries, employee retention rates and productivity. Your plan should also outline any recruitment or training plans, including timescales and costs. It’s vital to be realistic about the commitment and motivation of your people and spell out any plans to improve or maintain staff morale.

Your operations:

Your business plan also required you to outline your operational capabilities and any planned improvements. There are certain areas you should focus on.

Location:

• Do you have any business property?
• What are your long-term commitments to the property?
• Do you own or rent it?
• What are the advantages and disadvantages of your existing location?

Production facilities:

• Do you need your own production facilities or would it be cheaper to outsource any manufacturing processes?
• If you do have your own facilities, how modern are they?
• What is the capacity compared with existing and forecasted demand?
• Will any investment be needed?

Management-information systems:

• Have you got established procedures for stock control, management accounts and quality control?
• Can they cope with any proposed expansion?

Information technology (IT):

• IT is a key factor in most businesses, so include your strengths and weaknesses in this area.
• Outline the reliability and the planned development of your systems.

Financial forecasts:

As part of your plan you will need to provide a set of financial projections which translate what you’ve said about your business into numbers. You will need to look carefully at:

• how much capital you need if you are seeking external funding
• the security you can provide lenders
• how you plan to repay any borrowings
• sources of revenue and income

You may also want to take account of your personal finances as part of the plan at this stage.

Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business. Nonetheless, the first 12 months’ forecasts should have the most detail associated with them.

Your forecasts should include:

• Cashflow statements - your cash balance and monthly cashflow patterns for at least the first 12 to 18 months. The aim is to explain that your business will have enough working capital to survive so make sure you have considered the key factors such as the timing of sales and salaries.
• Profit and loss forecast - a statement of the trading position of the business: the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads. 
• Sales forecast - the amount of money you expect to raise from sales.

Presenting your business plan:

To make sure your business plan has maximum impact, there are a number of points to examine.

Keep the plan short - it’s more likely to be read if it’s a manageable length. Think about the presentation and keep it professional - even if you only aim to use the plan in-house. Remember, a well presented plan will reinforce the positive impression you want to create of your business. Make sure your plan is realistic. Once you’ve prepared your plan, use it. If you update it regularly, it will help you keep track of your business’ development.

• Include a cover or binding and a contents page with page and section numbering.
• Start with the executive summary.
• Ensure it’s legible - make sure the type is ten point or above.
• You may want to email it, so ensure you use email-friendly formatting.
• Even if it’s for internal use only, write the plan as if it’s intended for an external audience.
• Edit the plan carefully - get at least two people to read it and check that it makes sense.
• Show the plan to expert advisers - such as your accountant - and ask for feedback. Redraft sections they say are difficult to understand.
• Avoid jargon and put detailed information - such as market research data or balance sheets - in an appendix at the back.

Tags: business plan

 Your business plan is crucial

A business plan is essential for your enterprise. Whether your business is starting up or established, the business plan is the roadmap for future development. It is a key document when you are looking for business funding - whether applying for a simple overdraft or looking for new investment or capital.

This guide explains how to present your business plan to a variety of people, including potential investors, shareholders and your bank.

The business plan helps a variety of people, including potential investors, shareholders and your bank to understand your vision and goals for the business, how you are going to spend the invested or borrowed money, and how this will benefit the business and potential funding providers. It is the first source of information that most providers of funding see about a start-up company and is crucial in getting their attention and interest. This guide sets out the key elements that they will be looking for.

The elements

Potential investors and lenders will examine your business plan closely to determine whether to risk their money.

There is no standard format but most plans include:

• An executive summary highlighting the main points - to catch people’s attention.
• Details of key personnel with an organisational chart showing individual responsibilities.
• Details of competitors and how your product or service fits into the market - eg who your potential customers are and why you think they will buy your product or service.
• Your marketing plan - how you are going to get your product or service in front of potential customers, together with any assumptions made when setting your targets.
• Financial information - eg key ratios. These can be used to compare your business’ performance against industry benchmarks. It’s also a good idea to give details of any major expenditure you’ve made on long-term assets and explain the reasons behind any changes in working capital items, such as stock, debtors and creditors. Remember to include balance sheet and profit and loss account details. Many lenders ask for three years’ financial information. If this is not available, supply details about trading to date.
• How you will manage credit, expenditure, stock planning and control, and debtors and creditors.

When seeking funding, include:

• A cashflow forecast indicating the amount of funding you need and why. For a start up include estimates of how much finance you will need for two to three years or until you start to make a profit. Indicate contingency funds that might be needed for rough patches. This is usually between 10 and 20 per cent of the total funding requirement.
• Financial forecasts for a three to five year period. Try to present this information in the same way as historical financial information, so that straightforward comparisons can be made.
• How a loan will be repaid, how investors can get their money back, and when.

Target audience

A business plan serves a number of purposes and you may have to modify information depending on your target audience.

Your bank will be interested in:

• how you intend to repay a loan or overdraft
• what you are going to do with the money
• how the loan will help the business to grow
• what other loan or debt commitments you have

Most lenders operate a credit-scoring system. Make sure you give up-to-date and relevant information. A good relationship with your bank manager will not influence the credit score - the manager may have discretion to negotiate terms but not to change the decision itself.

Tell potential investors about:

• what you are going to do with the money
• when and how you are going to pay it back
• the expected return
• your other sources of funding
• your management’s track record

Include a detailed forecast of your profits and cashflow.

Indicate to shareholders:

• the prospects for the share price
• how they may be able to sell their shares
• what dividend they can expect on their shares
• your management’s track record
• what say they might have in the business

Demonstrate how they can exit with positive returns within three to five years.

Many businesses with growth potential fail to raise funds because they lack investment readiness, ie they do not understand the expectations of investors, cannot turn proposals into attractive opportunities or are unaware of financing sources.

Common reasons why business plans and loan applications fail include:

• a weak management team
• a flawed marketing plan
• unrealistic forecasts
• incomplete and poor presentations

Commitment to the business

If you want to attract outside funding, it is important to invest your own money in your business. If you are not prepared to risk your own capital a lender is unlikely to want to risk theirs. If you are looking for funds, the business plan needs to show the extent to which you are committing your own resources. It should list all the cash and assets that you have put into the business. You can demonstrate strong commitment to your business by:

• reinvesting profits from the business rather than taking dividends yourself
• putting in more cash of your own
• using personal borrowings (eg a mortgage) and guarantees to raise funds
• finding funds from family, friends and existing investors

It is always helpful to detail the backing you already have from banks and other investors - especially independent investors. Remember that money attracts money. The more backers you have, the easier it is to attract new ones.

Because your commitment and track record in meeting your obligations are so important, lenders and investors will want to know your personal credit history. Credit references will be taken up for sole traders and each partner in a partnership. A credit reference agency will discover if you, or any partner or co-director of the business, have a poor credit history or county court judgments. If you have poor credit rating, use the notes supporting the business plan to state the facts and give your own version of how the poor credit history arose. This is much better than having the new investor find out without any explanation. You should also state what you are doing to repair your credit history.

Key considerations

Your business plan is a tool you can use to attract new funds or use as a strategy document. Give yourself the best chance of success by following these suggestions.

Before presenting the plan ensure that you:

• check that the help you are applying for is still available - you may no longer qualify
• back up any assumptions in the plan with thorough research
• find out your own credit rating by applying to Experian or Equifax for your credit file - a small charge is payable
• get someone to read the plan to spot spelling and typing errors, and to ensure that it makes logical sense

Write your plan in a way that demonstrates your commitment to the business. Give it a professional feel by limiting the use of graphics, colours and font types. Above all, make sure that your plan is always honest and realistic.

Things to avoid:

• Being overly ambitious - make sure you can justify any assumptions or projections.
• Ignoring financial difficulties - warn your bank or lender if you anticipate that you may not be able to meet a repayment. There is every chance you will be able to come to some arrangement.
• Failing to devise and implement effective cashflow arrangements, eg. have clear procedures for chasing up any accounts receivable.

Once you have presented the plan, ensure you review and revise it as your business grows. If you are refused investment or a loan, take the criticism on board and consider how you might improve the plan.

Tags: business plan

It is crucial to have a realistic, working business plan when you’re setting up a business. It has many functions, from securing external funding to measuring growth within your business.

Many people see the business plan as a document used to secure external funding. This is essential because potential investors, including banks, may invest in your idea, work with you or lend you money as a result of the strength of your plan. There are many other benefits to creating and managing a realistic business plan - even if you just use it in-house. It can:

• help you spot possible pitfalls before they happen
• form the financial side of your business efficiently
• focus any of your development efforts
• work as a measure of your growth

The following people or institutions may request to see your business plan at some stage:

• external investors - whether this is a friend, a venture capitalist firm or a business angel
• banks
• grant providers
• anyone interested in buying your business
• potential partners

You should also keep in mind that a business plan is a living document that will need updating and changing as your business develops. Regardless of whether you intend to use your plan internally, or as a document for external people, it should still be capable of taking an objective and honest look at your business. Failing to do this could suggest that you and others have unrealistic expectations of what can be achieved and when.

Your business plan is a statement of intent. It should offer you details of how you are going to develop your business, when and who’s going to play a part and how you will manage the money. Clarity on these issues is on the whole important if you’re looking for finance or investment. The process of building your plan will also focus your mind on how your new business will need to operate to give it the best chance of growth.

Your plan should include:

• An executive summary - this is a general idea of the business you want to set up. It’s crucial. Many lenders and investors make judgments about your enterprise based on this section of the plan alone.
• A short description of the business opportunity - who you are and what you plan to sell or offer, why and to whom.
• Your marketing and sales strategy - why you believe people will buy what you want to sell and how you plan to sell it to them.
• Your management team and personnel - your credentials and the people you plan to recruit who will work with or for you.
• Your operations - your premises, production facilities, your management information systems and IT.
• Financial forecasts - this section translates everything you have said in the previous sections into numbers.

The executive summary:

The executive summary is often the most key part of your business plan. Positioned at the front of the document, it is the first part to be read. Nevertheless, as a summary it makes sense to write it last. It may be the only part that will be read. Faced with a large pile of funding requests, venture capitalists and banks have been known to separate business plans into “worth considering” and “discard” piles based on this section alone.

The executive summary is a synopsis of the key points of your full plan. It should include highlights from each section of the rest of the document - from the key features of the business opportunity through to the elements of the financial forecasts. Its idea is to explain the basics of your business in a way that both informs and interests the reader. If, after reading the executive summary, an investor or manager understands what the business is about and is keen to know more, it has done its job.

It should be brief - no longer than two pages at most - and interesting. It’s advisable to write this section of your plan after you’ve completed the rest:

• A brief description of the business and its supplies. It’s a synopsis of the entire plan.
• An extended table of contents. This makes for very dull reading. You should ensure it shows the highlights of the plan, rather than restating the details the plan contains.
• Hype. While the executive summary should excite the reader enough to read the entire plan, an experienced businessperson will distinguish hype and this will undermine the plan’s credibility.

A short description of the business opportunity:

This part of the plan sets out your vision for your new business and includes who you are, what you do, what you have to offer and the market you want to address.

Start with a summary of your business:

• when you started or intend to start trading and the progress you have made to date
• the type of business and the sector it is in
• any related history - for example, if you acquired the business, who owned it originally and what they achieved with it
• the current legal structure
• your vision for the future

Then describe your commodities or services as simply as possible, defining:

• what makes it different
• what benefits it offers
• why customers would buy it
• how you plan to develop your products or services
• whether you hold any patents, trademarks or design rights
• the key features of your industry or sector

Bear in mind that the person reading the plan may not fully understand your business and its products, services or processes as well as you do, so try to avoid jargon. It’s a better idea to get someone who isn’t involved in the business - a friend or family member perhaps - to read this section of your plan and make sure they can fully understand it.

Your marketing and sales strategy:

In this section you should identify your market, your position in it and highlight who your competitors are. In order to do this you should refer to any market research you have previously carried out. You need to show that you’re fully aware of the marketplace you’re planning to operate in and that you know any important trends and drivers.

You should also be able to explain that your business will be able to attract customers in a growing market despite the competition. Key areas to cover include:

• your market - its size, historical data about its development and key current issues
• your target customer base - who they are and how you know they will be interested in your products or services
• your competitors - who they are, how they work and the share of the market they hold
• the future - anticipated changes in the market and how you expect your business and your competitors to react to them

You also require knowing how your competitors’ advantages and disadvantages relate to your own. Portray any competitive analysis you have carried out and include some what-if scenarios that show how your business would deal with customers’ changing needs or any other market changes. 

Marketing and sales:

This section should illustrate the specific activities you intend to use to promote and sell your products and services. It’s often the weak link in business plans so it’s worth spending time on it to make sure it’s both realistic and achievable.

A strong sales and marketing section means you have a clear idea of how you will get your products and services to market.

Your plan will need to provide answers to these questions:

• How do you plan to position your product or service in the market place?
• Who are your customers? Include details of customers who have shown an interest in your product or service and explain how you plan to go about attracting new customers.
• What is your pricing policy? How much will you charge for different customer segments, quantities, etc?
• How will you promote your product or service? Identify your sales methods, eg direct marketing, advertising, PR, email, e-sales.
• How will you reach your customers? What channels will you use? Which partners will be needed in your distribution channels?
• How will you do your selling? Do you have a sales plan? For example, will you sell by phone, via a website, face-to-face or through retail outlets?

Your management team and personnel:

Your business plan required to set out the structure and key know-how of both your management team and your staff. It should categorize the strengths in your team and your plans to deal with any obvious weaknesses.

The management team: If you’re looking for external funding, your management team can be a decisive factor. Give details of who is involved, their role and how it fits into the organisation. Include a paragraph on each of the individuals, outlining their background, relevant experience and qualifications. Include any advisors you might have such as accountants or lawyers. If you’re aiming to satisfy your bank manager or other investors, you need to show that your management team has the right balance of know-how, drive and experience to enable your business to succeed. Key know-how include sales, marketing and financial management as well as production, operational and market experience. Your investors will also want to be convinced that you and your team are fully committed. For that reason it’s a good idea to set out how much time and money each person will contribute to the business and the salaries and benefits you plan to draw.

Your people: Give details of your workforce in terms of total numbers and by department. Spell out what work you plan to do internally and if you plan to outsource any work. Other helpful figures might be sales or profit per employee, average salaries, employee retention rates and productivity. Your plan should also outline any recruitment or training plans, including timescales and costs. It’s vital to be realistic about the commitment and motivation of your people and spell out any plans to improve or maintain staff morale.

Your operations:

Your business plan also required you to outline your operational capabilities and any planned improvements. There are certain areas you should focus on.

Location:

• Do you have any business property?
• What are your long-term commitments to the property?
• Do you own or rent it?
• What are the advantages and disadvantages of your existing location?

Production facilities:

• Do you need your own production facilities or would it be cheaper to outsource any manufacturing processes?
• If you do have your own facilities, how modern are they?
• What is the capacity compared with existing and forecasted demand?
• Will any investment be needed?

Management-information systems:

• Have you got established procedures for stock control, management accounts and quality control?
• Can they cope with any proposed expansion?

Information technology (IT):

• IT is a key factor in most businesses, so include your strengths and weaknesses in this area.
• Outline the reliability and the planned development of your systems.

Financial forecasts:

As part of your plan you will need to provide a set of financial projections which translate what you’ve said about your business into numbers. You will need to look carefully at:

• how much capital you need if you are seeking external funding
• the security you can provide lenders
• how you plan to repay any borrowings
• sources of revenue and income

You may also want to take account of your personal finances as part of the plan at this stage.

Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business. Nonetheless, the first 12 months’ forecasts should have the most detail associated with them.

Your forecasts should include:

• Cashflow statements - your cash balance and monthly cashflow patterns for at least the first 12 to 18 months. The aim is to explain that your business will have enough working capital to survive so make sure you have considered the key factors such as the timing of sales and salaries.
• Profit and loss forecast - a statement of the trading position of the business: the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads. 
• Sales forecast - the amount of money you expect to raise from sales.

Presenting your business plan:

To make sure your business plan has maximum impact, there are a number of points to examine.

Keep the plan short - it’s more likely to be read if it’s a manageable length. Think about the presentation and keep it professional - even if you only aim to use the plan in-house. Remember, a well presented plan will reinforce the positive impression you want to create of your business. Make sure your plan is realistic. Once you’ve prepared your plan, use it. If you update it regularly, it will help you keep track of your business’ development.

• Include a cover or binding and a contents page with page and section numbering.
• Start with the executive summary.
• Ensure it’s legible - make sure the type is ten point or above.
• You may want to email it, so ensure you use email-friendly formatting.
• Even if it’s for internal use only, write the plan as if it’s intended for an external audience.
• Edit the plan carefully - get at least two people to read it and check that it makes sense.
• Show the plan to expert advisers - such as your accountant - and ask for feedback. Redraft sections they say are difficult to understand.
• Avoid jargon and put detailed information - such as market research data or balance sheets - in an appendix at the back.

Tags: business plan