smallbusiness.co.uk: Helping your business think big

Writing a business plan is merely encapsulating your longer-term objectives, estimates and forecasts on paper. Once you have put down your plan, do not necessarily accept that it is set in concrete. Forecasts and objectives change as new bits of information and your better experience emerge. The important point is to incorporate your best estimate, given your current state of information. There is nothing like writing something down to help clarify your mind and reveal your uncertainties and weaknesses.

The two most important reasons for producing a written plan are:

⢠to show to outsiders to help raise money
⢠to use within the business to keep yourself on your planned course or to alert you to things which are not going according to your strategy.

To persuade someone to lend or invest enough money in your business enabling you to achieve your strategy, you will need to:

⢠show that the lender or investor stands a good chance of being paid back or getting a good return on the investment
⢠instil confidence about your abilities to manage the business and, if applicable, show that you already have the beginnings of an experienced management team
⢠demonstrate that there is a good market for your product or service.

To achieve these objectives you must bring out what is exciting about the prospects of your business, combined with a thoroughly prepared presentation of the back-up figures and research.

Beware of filling your plan with nothing but turgid facts and figures; you must allow the reader of your plan to see instantly what is so interesting about your business. You need to do this to persuade your reader that it is worthwhile studying the detailed forecasts, which can be very time-consuming. Lenders and investors can be presented with so many plans for consideration that unless yours grabs the reader’s attention it could be consigned to the bin before your carefully prepared figures are looked at.

How many plans?
As there are two reasons for having a written plan, will one plan suffice? The answer to this depends on who is advising you. A bank manager, or other financial backer, may say there should be only one plan, as they would like to know the absolute truth about what is happening in your business. But some small businesses adopt a different strategy and have two plans. One is for outsiders; this plan must be one which will not fail and so it will be fairly conservative about projected sales and costs. The reason for adopting a conservative approach with outsiders is that you must not be seen to fail as this can erode confidence in you and your judgement. This could make it difficult to keep the support of your bank manager when you need it later. Of course, if your plan is being used to raise money, your figures must achieve a balance between optimism and realism if you are to persuade banks and others that your business will be successful and so worthy of a loan or an investment. You must always remain confident that the figures are achievable; if you are misleading the lenders and investors, you are also misleading yourself.

The second plan is for your own use and will set higher targets, although you must believe you can do that level of business. If you pitch the figures too low, you might not achieve as much as is possible. The well-known fleas-in-the-box analogy applies to your plan; if you put a lid on the box, the fleas learn to jump to that height only, but, if there is no lid, they jump as high as they are capable of doing. Your plan should set that lid higher.

Who should do the plan?
It is your job. You will know the product and the market better than anyone else. You have to be prepared to present the plan to banks or other sources of finance, so you need to be fully confident about all the statements and forecasts. You will have that confidence if you have provided the data.

However, as it is so important for your plan to look professional, consider seeking advice and help on its production. This is available from:

⢠Business Links and training courses. Many counsellors can help you put your plan together. This help is often free
⢠accountants or financial advisers can help you prepare the figures.

Use a computer program to help you to produce forecasts and to examine the effect changes will have on the results. Computerised spreadsheets can make short work of a lengthy task and let you investigate different scenarios.

What should be in the plan?
1. Summary of your plan (one to two pages)
Highlighting the attractions of your business
a) What is the business?
b) What is the market?
c) Potential for business
d) Forecast profit figures
e) How much money is needed?
f) Prospects for the investor/lender

2. The past (one page plus an appendix)
a) When the business started.
b) Summary of past performance (last three years’ accounts in Appendix).
c) Indication of how relevant or not past performance is to future progress.

3. Management (as many pages as needed)
This is the crucial section
a) Your past employment and business record. Identify achievements, not just a chronological statement
b) The record of other people working with you.
c) If there are obvious weaknesses in management, how you’ll deal with them.

4. The product or service (two pages plus an appendix)
a) A simple description of what it does. Avoid technical words â“ if essential, technical descriptions can go in the appendix.
b) Why the product is unique or distinct.
c) Brief survey of the competition.
d) How the products will be developed, what new products are being considered, when replacement will be needed for the existing product range, what competitive products may emerge.
e) Any patents applied for.

5. Marketing (three or four pages with detailed statistics in an appendix)
The market:
a) Its size, its past and future growth.
b) Analysis of market into sectors; identify sector your business is aimed at.
c) Likely customers: who, type (industrial or consumer), size, how they buy.
d) Your competitors: who, their size, position in market, likely response to your challenge.
Selling:
a) How you will sell (internet, direct mail, phone, intermediaries, and so on).
b) Who will sell.
c) Some idea of your sales pitch (for example, benefits of your product).
d) How you will price.

6. Operational details (length depends on nature of business)
a) Where you will be based â“ location, premises.
b) Suppliers.
c) Manufacturing facilities.
d) Equipment needed.
e) Information technology strategy.

7. Financial analysis (two to three pages; data in optional appendix)
a) Summary of forecasts.
b) Monthly profit and loss forecast for two years.
c) Profit forecast for further three years.
d) Monthly cash flow forecast for two years.
e) Cash flow forecast for further three years (optional).
f) Forecast balance sheet for two years.
g) Audited accounts for last three years (if available).
h) The assumptions behind your forecasts.
i) What are the principal risks which could affect figures?
j) SWOT analysis â“ strengths, weaknesses, opportunities and threats.

8. The prospects (one or two pages)
a) Your objectives â“ short-term, long-term.
b) The finance needed and what it is needed for.
c) Shareholdings suggested (if appropriate).
d) Prospects for the investor or lender (if appropriate, including possible value of business if floated on the stock market or sold, so investors may cash in).

The length of the plan
In the outline above, suggested maximum lengths for each section are given. If your need for finance is small (£25,000, say) and your business simple, these would be too long. Probably all you will need for your bank manager is two or three pages plus the financial forecasts â“ a bit more if it is not your own bank manager. However, if you need a large sum of money, you may need to put rather more in than the above suggestions. But keep at the forefront of your mind that you need to get across to your reader what is interesting about your business.

One possible way around the conundrum of giving all the necessary information without boring a potential investor would be to include a note of what other figures and data are available, if requested.

Presenting your plan
Financiers will assume that if your presentation to them is unsatisfactory, your presentation to customers is equally unsatisfactory. So while it may seem obvious, your plan will look better if it is given a clear layout and presented in a smart folder. The information will also be more understandable if you do not try to cram too much on one page.

For more on business plans click here.

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