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Planning Your Business

A quick reference guide to writing and developing your business plan.

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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