It is absolutely crucial to have a business plan that is realistic when thinking about starting up a business. There are many reasons for creating and managing a business plan. It can help to:
· Measure the success of your company
· Provide structure for the financial side of your business
· Point out any potential problems before they occur
The mistake many people make is that they treat the business as a means to an end i.e. a method of obtaining financial investment. Whilst your business plan will be seen by potential investors (banks, grant providers and future buyers), it is also an ‘organic’ document that needs constant revision as your business grows and develops. It does not matter whether you are planning to use your business plan internally or externally, it should be neutral and take an unbiased view of your company. Failure to do so will lead to unrealistic expectations which could be potentially fatal for a new business.
A good business plan should include the following sections:
· An executive summary- which gives a general overview of the business. It is the first thing that potential investors see so it must not be too long and it must be clear.
· Description of the business opportunity – this will tell people who you are, what you are selling/offering, why you have chosen this and who will be selling to;
· The team and personnel – your skills and background as well as those of your staff (or potential) employees.
· Your sales and marketing strategy – Why would people want to buy what you are offering? How will you sell to them?
· Operations – Premises, management information systems, IT and production facilities.
· Financial forecasts – Your planned cash flows, projected profit and loss, future balances. There is nothing that puts an investor off more than ‘pie-in-the-sky’ figures so take your time. It is better to be slightly under than ridiculously over.
Lets look at these in more detail:
Ø The executive summary – in most cases, this is written last but it is the first to be read and it is one of the things that determine whether it is read or discarded. Do not treat it as a ‘dumping ground’ and put everything in it. It is meant to summarize the key points of the plan and should be no more than 2 pages long.
Ø The business – product(s) and / or service(s) – it is crucial to clearly convey what your business does. Include an overview of your business, what you offer, why it is different and how it benefits others. It is essential that you do your research here because experienced businesspeople can tell hype from truth.
Ø Marketing plan – this section is extremely important. It should clearly identify who your target market is, who your competitors are and how they work, what the strengths and weaknesses of your business/product is and any contingency plans should anything go awry. This area involves a high degree of market research and should not be scrimped on. Market research does not only involve staying in front of the computer crunching numbers but actually getting out there, dipping your toe in the business world and experiencing it firsthand.
Ø Sales and Promotion- this will also fall within your marketing plan. This will deal with the different methods you are planning to use to promote your product/service as well as how you will differentiate your product from what is already available. What is its unique selling point (USP)? Mention this. Ask if what you are planning is realistic and achievable.
You must ask yourself some of the following questions:
u Who are my customers and how best can I reach them?
u What sales/promotion techniques work best?
u How much should I charge for this?
Ø Management and Expertise – those that you employ must have the right skills and capabilities so that little time is wasted on the wrong people. This is in addition to specifying where YOUR strengths and weaknesses lie, be honest about this. If you have any staff, give a brief outline of their background, qualifications and relevant experience. This is something that lending and investment institutions will be watching for in addition to the commitment shown by the staff and the founder i.e. YOU. Furthermore include any subcontractors, freelancers and part-time staff that will be used.
Ø Operations – as the name suggests, this will show how your business will be run and what it will be capable of. Here are just some of the areas that you should highlight:
u Location of your business – long and short term plans. What are the pros and cons of your current location?
u Production – Do you do everything in-house or do you have to outsource?
o How good are your facilities?
o Any need for future investment?
u Management information systems and I.T – Do you have set systems in place to manage accounts, check quality and stock. What is your I.T. system like? How often will it need upgrading?
Ø Financial Forecasting – This area will examine:
u How much capital is needed?
u How much security you are able to offer the lenders
u What sources of income/revenue you have?
u Repayment options available to you
You should try to include 3-5 year forecasts but the first 12 months should be more detailed. Be sure to include any assumptions as this will help people to understand the reasons behind the figures as well as the following:
u Cash flow statement – how much money is coming into and out of the firm. This should be for the first 12-18 months. This will show if your company has enough working capital to survive.
u Profit and Loss Account – Shows the trading position of the business. This shows the level of profit you plan to make after the costs of overheads, cost of goods sold (COGs) and other administrative costs have been taken off.
u Sales Forecast – How much money you are going to be making when you sell. Again, be realistic. It is better to go slightly lower.
Ø Analysis of Risk – always assess the potential risks faced by your business and have contingency plans in place. Some of these can include competitors, legal and commercial issues, operations problems etc. As the Scouts Motto says “Be Prepared.”
In conclusion, make sure that when you are presenting your plan you observe the following points:
u Keep it as short and simple as possible
u Make sure it is professional and free of errors. Include a cover and contents page with correct numbering
u Always start with the executive summary
u Make sure it is legible.
u Check and recheck it even if it is for internal use only
u Avoid jargon where and if possible.
u Let the professionals have a look through it and provide feedback.
I hope this helps you. Take care readers….
