Writing a business plan can seem a daunting challenge. However, this skill is a vital requirement for any entrepreneur or business seeking to increase their chances of survival.
What is the purpose of the plan and who are you writing it for?
This is the starting point for any business plan. The purpose of the plan will determine for whom it is written. If it is to serve more than one purpose, the writer should tailor the plan for different audiences, as they will each have very specific and perhaps different requirements.
If it is to secure bank funding they will be looking for evidence of the ability of the business to repay any loans. Cautious UK Banks will also look to the Directors' ages and experience, not just to confirm their qualification to run the business but to increase the possibility of evidence of worth with relation to the taking of security either by charges over directors’ assets or by taking directors’ guarantees.
Any potential investors will seek clear explanations detailing the proposed return on their investment and time frames for getting their money back.
How long should it be?
Page count is not the ideal way to measure length. A plan with dense text and no graphics just seems much longer than a plan broken up into readable bullet points, useful illustrations of locations or products, and business charts to illustrate important projections.
A good business plan should leave a reader a good general idea of its main contents even after only a quick skimming, browsing the main points, in 15 minutes. Format, headings, white space, and illustrations make a big difference as do summaries. Main points should show up quickly in a business plan.
The more standard start-up and expansion plans developed for showing outsiders normally run 20-40 pages of text – easy to read, well-spaced text, formatted in bullets, illustrated by business charts and short financial tables – plus financial details in appendices (see ‘Business Plan Financials’ below).
Don’t ever shorten a plan by taking out useful graphics. Page count matters far less than readability. Use business charts to illustrate numbers so your projections are easier to absorb. Use photographs and drawings to show locations, products, sample menus, product pictures, and other illustrations as much as possible.
Make sure all Key Areas are covered in the Plan
Include sections on the Company, Product/Service, Market, Competition, Management Team, Marketing, Operations and Financials.
Attention to Detail
Make the plan clear and concise, but include enough detail to ensure the reader has sufficient information to make informed decisions. Given that the plan’s writer usually has a significant role to play in the running of the business, the plan should reflect a sense of professionalism, with no spelling mistakes, realistic assumptions, credible projections and accurate content.
Research the market thoroughly
The entrepreneur should undertake market research and ensure that the plan includes reference to the market size, its predicted growth path and how the business will gain access to this market.
Understand the competition
An integral component to understanding any business environment is understanding the competition, both its nature and the bases for competition within the industry. Is it a particularly competitive environment, or one that lacks competition? How are the incumbents competing-–is there a price leader evident? Include a thorough understanding of the basis on which you intend to compete.
Focus on the Opportunity
If you are seeking investment in your business, it is important to clearly describe the investment opportunity. Why would the investor be better off investing in your business rather than another business? What is the Unique Selling Proposition (USP) for the business? Why will people part with their cash to buy from you?
Make sure you do all the Sums
The numbers will be subject to particular scrutiny. Costs should be documented in full and sales predictions should be both conservative and realistic. The level of sales is all important but more unpredictable and less certain than costs. The sales are however a crucial factor in the success or failure of the business.
These figures will determine how much financing you must raise to start up successfully. Remember, at the beginning, there are a lot of start-up expenses in a period of uncertain sales volumes. If sales are on credit (including via credit card) it may take up to 4 weeks for you to receive the cash.
Business Plan Financials - What you should include in your plan
Cash flow: The most important, as businesses run on cash. No business plan is complete without a cash flow plan.
Profit and loss, incorporating sales, cost of sales, operating expenses, and profits. This is also a pro forma income statement. In most cases it should show sales less cost of sales as gross margin, and gross margin less operating expenses as profit before interest and taxes (also called gross profit, and contribution to overhead). Normally there is also a projection of interest, taxes, and net profits.
Pro-forma balance sheet: Aside from cash and income, there is the balance of assets, liabilities, and capital.
Sales forecast: The form may vary to suit the business, in the simplest of plans, the sales forecast might be a single line in the pro-forma income statement.
Personnel plan: Personnel costs are so intimately related to fixed costs that they should often be set aside and discussed. In some simple plans, they too, like the sales forecast, can be just a line or two in the income statement.
Business ratios: The numbers are there, when there is pro-forma income, cash, and balance sheet, so the ratios can be calculated. This isn’t as necessary for an internal plan as for one for bankers and investors, but some key ratios are almost always a good idea. They should probably include some profitability ratios like gross margin, return on sales, return on assets, and return on investment; plus some liquidity ratios such as debt to equity, current ratio, and working capital.
Break-even analysis: Most of the break-even analyses included with business plans have little value but most bankers and analysts like to see them.
Market forecast: Aside from the sales forecast, which is essential, a market forecast is also a good idea. How many potential customers are there? How does market growth stand to impact the business? You might have to undertake some quality research but it will impact well with potential lenders and investors.
Executive Summary
Arguably the most important component of the plan is the executive summary. This is a summary of the entire plan and is usually contained at the start of the plan. As first impressions count it can be make or break if the objective of your plan is to raise funding. It should be completed at the very end of the business planning process and should have a ‘wow factor’ that entices them to read further. Alongside this, the writer should also prepare a short overview of the key benefits of the new product or service.
All of the documents can be obtained from us in a word format, so that they can be personalised and edited to suit your company or business. This service is free of charge, on request or phone 01908 262662.
Webvans is a trading style of LVC Central Ltd. | Tel: 01908 262662
