smallbusiness.co.uk: Helping your business think big

In the second part of our guide on starting a business in 2010, we show you how to write a business plan and where to get funding.



Business Plan

If you have an idea for a business, the first thing you will need to do is write a business plan. Not only is this essential in order to convince lenders and investors that you are serious, but it should also help you to refine your ideas.

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Ask yourself who the plan is for. If it is for investors, for example, they will want to see clear explanations detailing the proposed return on their investment and timeframes for getting their money back. 
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Without market research, no one is going to take your plan seriously. You will need to ensure that the plan includes reference to the market size, its predicted growth path and how you intend to exploit market opportunities. 

• Once you’ve completed your plan, show it to a third-party. Feedback from friends and family is useful but try to get from someone with business experience, such as an entrepreneur, an accountant or a consultant at government agency Business Link.
  

The pitch

If you are seeking third-party investment, make sure you can talk clearly about what you are trying to achieve with your business and why it is worthy of funding.

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For Alan Gleeson, manager of Palo Alto Software, the most important part of the plan is the summary, usually contained at the beginning. ‘It should have a “wow factor” that entices [your potential investor] to read further,’ he says. Communicate in plain English why you think your idea will work. No one will want to plough through pages of charts, facts and figures.


• You will also need to do a presentation or ‘elevator pitch’ to sell your idea. Keep this succinct, as you’ll only be able to hold their attention for a short amount of time (think Dragons’ Den). It’s important to make a good impression, because they will be investing in you as much as your idea. Practice in front of friends and family, as you’ll feel more confident with plenty of preparation.

For more information visit Writing a business plan: the basics, and My first business plan.

Access to funding

With bank funding no longer easily available, securing finance remains one of the biggest concerns for most start-ups.

Familiar faces

Friends and family are a good place to start when looking for funding, but you should still make a written agreement specifying when the loan will be repaid and any interest payable.

Bank loans

The first port of call for most would-be entrepreneurs tends to be a dead end if assets are lacking. Without collateral, the chances of securing finance are minimal if you're starting a business.

Government grants

The availability of grants will vary depending on your region and sector. The average amount available is usually around £200, but you may be eligible to apply for more than one. For more advice, contact your local Business Link office.

Using plastic

Many start-ups use credit cards to fund expenses, for items such as travel, stationery, and petrol. This can be a good way to fund the early stages of a business. However, the risks of getting into serious debt – look at the government –  are obvious and well documented and don't forget that interest charges are much higher than other forms of funding.

Charities

If you are between 18 and 30 and unemployed, The Prince’s Trust offers loans of up to £4,000 for a sole trader as well as grants of up to £1,500 for people wanting to set up a business. For people over 50, an organisation called Prime can also provide help with starting up.

Angels

These investors provide risk capital, so-called because – unlike debt finance – they have no security and are last in line for repayment if the company becomes insolvent. In exchange, they will take a an equity stake in the company, typically between 10 to 30 per cent. The majority of angel investments will be under £100,000. For more information visit the British Business Angels Association website.

Community Development Finance Initiatives

There are more than 60 of these organisations in the country, which provide loans and support to businesses and individuals. For more information go to the Community Development Finance Association’s website.