It will take time but the benefits of writing a good business plan can be immense. Preparing a business plan forces you to focus on every element of your operation and include strategies for all possibilities that may arise in the future. The two most important words when starting up in business are “Risk” and “Enthusiasm”. If we have minimal risk and loads of enthusiasm the chances are you will be successful.
Identify The Risks
Preparing a business plan in effect forces you to consider every aspect of risk within your proposed business. If, after this thorough examination you remain 100% enthusiastic then you can go ahead with full confidence. If you have unearthed some areas that put your success at risk then you have the chance to seriously reconsider these areas. Rushing into an ill-conceived business idea is an all too familiar cause of failure.
Regular viewers of Dragon’s Den will recognize the need for participants to present a brief yet precise outline of their products, the market they are competing in, their gross margins and costs, the finances required, their marketing methods and projections for future sales and expansion of the business. You enter the Den without a good and comprehensive business plan at your peril.
That Dragon’s Den TV programme presentation is the initial “Executive” summary of the business, designed to woo the dragons. Following a successful pitch the dragon(s) will spend time with the business owners delving into every aspect of their business plans and revising those plans to reflect the new management and expertise that the dragon brings.
Heart or Head?
Starting a business, be sure that your heart is not ruling your head. Most of us have the ambition to run our own business or maybe see this as the answer following a redundancy or financial difficulty. Step back and take the time to write your business plan, this will force you into considering every aspect (some of which you may have overlooked) and only then, with everything thoroughly considered and down on paper should you make your decision.
As an example I refer to John who was made redundant when a large manufacturing business closed down. John was offered funding to learn skills in either plumbing or tiling. Relatives were prompting him towards plumbing as they “have high earnings” and “there is a shortage”.
I argued the case for tiling on the basis that following the course he could offer his services for floor and wall tiling and build a long-term business. My argument against plumbing included the price of all the tools he would require, he would need a van, jobs would be restricted as he would not be registered for work involving gas, he would need to take out more insurances (risks of water damage, use of blow torches etc.) and some jobs done by plumbers are physically demanding (working in loft or laying pipework beneath flooring, drilling through walls for waste pipes, connecting to and clearing sewer runs).
These are some of the disadvantages that would have been highlighted if John had prepared a plan for his future in plumbing. John took the plumbing course and followed that, some weeks later, by funding the tiling course himself.
In this article I cover the areas you need to delve into (those that relate to your business venture) and at the end of the article I have included a link to a website with over 500 sample business plans, listed under different business activities.
Your Product or Service
- Why have you chosen your selected product or service?
- Do you have experience with the service you offer?
- Are you qualified in that field?
- Will you be offering anything different to established businesses?
- Is there a shortage of these skills in your area?
- What are the advantages that you can offer?
Just as important, what disadvantages will you encounter compared to your competitors and how will you overcome them? Have you plans for the future?
Your business plan should cover 3 years (in some cases 5 years)
- Is your product unique?
- Has your product advantages over those already on the market?
- Why will customers buy your product as opposed to others?
- What advantages do you offer and are there any disadvantages you might encounter?
- What are your planned developments for the next 3 years?
- Is your product likely to be superseded?
- Are there industry regulated standards you need to meet?
Write about the nature of your business, include a mission statement, a values statement and a vision statement. What are your business capabilities and what resources do you bring to the business?
Be sure you can describe your business and it’s benefits in one, maximum two sentences.
The Market You Will Be Entering
- Will you be attracting customers from differing age ranges/segments?
- What are these differing markets and how large is each one?
- What market share do you expect to gain in each segment?
- How are the segments trending (changing tastes, technology etc.) and for what reason?
- Will you be able to adapt to the changes?
Knowing Your Intended Customers
- Will you have a wide range of customers or will you be concentrating on a few large buyers?
- What are the competing products or services and who supplies them?
- Why do you expect the customers to buy from you, what extra do you offer to attract their purchases?
- How will the competition react to your entry to the market – by offering additional discounts, lower prices etc.?
- How price sensitive is the market?
- Could you maintain good margins in a competitive market?
Compile a Promotional Plan
Concentrating on your products or services you should look to develop a BRAND IDENTITY Can you identify a unique feature around which you can create your brand? What methods of advertising will you use (direct marketing, advertising, social media etc.)? Many startups now use professionals to construct a social media strategy. How do your chosen methods compare to those used by your competitors and what are the advantages and disadvantages associated with each?
Product and Services Sales
Prepare a marketing plan based on substantive research of your market. Forecast your sales in each product range/segment and quantify the potential demand. Prepare a budget for your marketing activities and a growth plan over three years.
Will you be producing your own products in which case who will manage the production side of your business? Who will be out there winning orders and who will be controlling the financial, IT, administration and distribution? Do you have the key management personnel in house? Are these people prepared to take additional responsibilities and what would happen if any of them left? An appendix to your business plan should include career resumes of your key staff.
Will you be controlling all of these tasks yourself, in which case have you taken time to familiarize yourself sufficiently in each discipline?
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Your business plan should include your sales figures broken down into product ranges to show expected sales and gross margins. Compute your stock levels and the finance required for working capital. From your sales figures estimate the time you expect to wait for payment and calculate your trade debtors. This is another area that ties up your working capital. Together with expenses and items of capital expenditure you can calculate and provide Balance Sheets throughout your three year plan. Add Profit and Loss accounts for the full picture, from which you will see the capital requirements as the business expands.
Explanations of the reasons for movements in profitability, working capital and cash flow will show your full understanding of your business finances. The Admin Advice article Prepare A Business Budget will assist you through this task.
Ensure your financial statements reflect the statements made elsewhere in your business plan. For example, if you have highlighted that the market will become more competitive your financials will have to reflect the possibility of lowering gross margins.
Within a business cash flow is critical and including a contingency of perhaps 10% to 20% will be seen as prudent. Where will your working capital come from – your own finances, long term loans, short term overdrafts etc.? a statement should be included showing what finance is required and what it will be used for.
Ensure your financial statements are 100% credible and consistent with other content in your plan.
Some of these headings will not apply to your business so writing your business plan need not be too scary. Being meticulous in your planning should prevent a last minute hitch. By going through the issues one by one you prevent someone asking a question that you cannot answer with any certainty. Had you not been thorough with your business plan that question may be something you had thought of earlier but had taken no further action.
Using A Business Plan To Raise Capital
Present Samples And Visuals
Include samples of your products or services. Screenshots and videos, laptop presentations, sample adverts, show your website and Facebook page, copies of brochures and a copy of your proposed management accounts. Anything that will impress including ratings and endorsements.
Financiers will be looking for credible financial and sales projections. They will need to see the benefits your product or service offers and have confidence in your route to market. They will need to be sure you have a full understanding of the competition you face. Going in with an inbuilt disadvantage can be fatal. They will be looking for your unique selling point. Any inconsistency in your business plan will render it a non-starter so have your plan independently checked as thoroughly as possible.
A large proportion of finance applicants are rejected or have their plan sent back for re-working.
Other Questions From Financiers
Other questions you must be prepared for from financiers include:
- How prepared are you if things turn out better than you have predicted?
- How would you cope with extra demand?
- How will running this business affect your social and family life?
- How would you manage major traumas including injury, illness, divorce, failure of a business partnership or death?
- How will you finance set-backs or lean times?
- Do you have exit strategies?
Adjust Your business Plan as Your Business Progresses
Take your business plan into the future, adjust it as changes arise and keep extending it to track your financial needs for the next three years. Make notes of the reasons for any enforced changes and look for clues as to why things are going wrong should this be the direction of the business.
Sample Business Plans
To assemble your business plan in an accepted order we suggest visiting the website of Bplans where there are over 500 free sample business plans.
Should you have any comments or questions on this article please leave them below and I will be very pleased to reply.