Prepare a business plan

It is essential to have a realistic, working business plan when you're starting up a business.

A business plan is a written document that describes a business,its objectives, its strategies, the market it is in and its financial forecasts.

It has many functions, from securing external funding to measuring success within your business.

There are many benefits to creating and managing a realistic business plan.

Even if you just use it in-house, it can:

• help you spot potential pitfalls before they happen
• structure the financial side of your business efficiently
• focus your development efforts
• work as a measure of your success

Many people think of a business plan as a document used to secure external funding.

This is important because potential investors, including banks may invest in your idea, work with you, or lend you money as a result of the strength of your plan.

Who might want to see your business plan

The following people or institutions may request to see your business plan at some stage:

• Banks
• External investors - whether this is a friend, a venture capitalist firm or a business angel
• Grant providers
• Anyone interested in buying your business
• Potential partners

Update your business plan regularly

You should also bear in mind that a business plan is a living document that will need updating and changing as your business grows.

Regardless of whether you intend to use your plan internally, or as a document for external people, it should still take an objective and honest look at your business.

Failing to do this could mean that you and others have unrealistic expectations of what can be achieved and when.

Your business plan should provide details of:

• how you are going to develop your business
• when you are going to do it
• who's going to play a part
• how you will manage the finances

Clarity on these issues is particularly important if you're looking for finance or investment.

The process of building your plan will also focus your mind on how your new business will need to operate to give it the best chance of success.

Your plan should include:

• An executive summary
  This is an overview of the business you want to start. It's vital. Many lenders and investors make judgments about your business based on this section of the plan alone.
• A short description of the business opportunity
  Who you are, what you plan to sell or offer, why and to who.
• Your marketing and sales strategy
  Why you think people will buy what you want to sell and how you plan to sell to them.
• Your management team and personnel
  Your credentials and the people you plan to recruit to work with you.
• Your operations
  Your premises, production facilities, your management information systems and IT.
• Financial forecasts
  This section translates everything you have said in the previous sections into numbers.

Template

A free business plan template is available from GOV.UK: Write a business plan.

The executive summary is often the most important part of your business plan.

Positioned at the front of the document, it is the first part to be read. However, as a summary it makes sense to write it last.

It may be the only part that will be read.

Faced with a large pile of funding requests, venture capitalists and banks have been known to separate business plans into 'worth considering' and 'discard' piles based on this section alone.

What it is

The executive summary is a synopsis of the key points of your entire plan.

It should include highlights from each section of the rest of the document - from the key features of the business opportunity through to the elements of the financial forecasts.

Its purpose is to explain the basics of your business in a way that both informs and interests the reader.

If after reading the executive summary, an investor or manager understands what the business is about and is keen to know more, it has done its job.

It should be concise - no longer than two pages at most - and interesting.

It's advisable to write this section of your plan after you have completed the rest.

What it is not

• A brief description of the business and its products. It's a synopsis of the entire plan
• An extended table of contents. You should make sure it shows the highlights of the plan, rather than restating the details the plan contains.
• Hype. While the executive summary should excite the reader enough to read the entire plan, an experienced investor or business person will recognise hype and this will undermine the plan's credibility.

You must be able to clearly describe what your business does, whether you are writing the business plan for your own purposes or if you want other people to provide funds through investments or loans.

This part of the plan sets out your vision for your new business and includes:

• who you are
• what you do
• what you have to offer
• the market you want to address

Start with an overview of your business

• When you started or intend to start trading and the progress you have made to date
• The type of business and the sector it is in
• Any relevant history - for example, if you acquired the business, who owned it originally and what they achieved with it
• The current legal structure
• Your vision for the future

Describe your products or services as simply as possible

You should define:

• What makes it different
• What benefits it offers
• Why customers would buy it
• How you plan to develop your products or services
• Whether you hold any patents, trade marks or design rights
• The key features of your industry or sector

Remember that the person reading the plan may not understand your business and its products, services or processes as well as you do, so try to avoid jargon.

It's a good idea to get someone who isn't involved in the business to read this section of your plan and make sure they can understand it.

In this section you should:

• define your market
• define your position in the market
• outline who your competitors are

To do this you should refer to any market research you have carried out.

You need to show that:

• you're fully aware of the marketplace you're planning to operate in
• you understand any important trends and drivers
• your business will be able to attract customers in a growing market, despite the competition

Key areas to cover

• Your market
  Its size, historical data about its development, and key current issues.
• Your target customer base
  Who they are and how you know they will be interested in your products or services.
• Your competitors
  Who they are, how they work and the share of the market they hold.
  The future
  Anticipated changes in the market and how you expect your business and your competitors to react to them.

It is important to know your competitors' strengths and weaknesses as compared to your own.

It's good practice to do a competitor analysis of each one.

Remember that the market is not static - your customers' needs and your competitors can change.

As well as showing the competitor analyses you have done, you should also show that you have considered and drawn up contingency plans to cover alternative scenarios.

This section should describe the specific activities you intend to use to promote and sell your products and services.

It's often the weak link in business plans, so it's worth spending time on it to make sure it's realistic and achievable.

A strong sales and marketing section means you have a clear idea of how you will get your products and services to market.

Your plan will need to provide answers to these questions:

• How do you plan to position your product or service in the market place?
• Who are your customers? Include details of customers who have shown an interest in your product or service and explain how you plan to go about attracting new customers.
• What is your pricing policy? How much will you charge for different customer segments, quantities, etc.
• How will you promote your product or service? Identify your sales methods, eg direct marketing, advertising, PR, email, e-sales.
• How will you reach your customers? What channels will you use? Which partners will be needed in your distribution channels?
• How will you do your selling? Do you have a sales plan? Have you considered which sales method will be the most effective and most appropriate for your market, such as selling by phone, over the internet, face-to-face or through retail outlets? Are your proposed sales methods consistent with your marketing plan? Do you have the right skills to secure the sales you need?

Your business plan needs to set out your own background and skills and the structure and key skills of both your management team and your staff.

It should identify the strengths in your team and your plans to deal with any obvious weaknesses.

The management team

If you're looking for external funding, your management team can be a decisive factor.

Explain who is involved, their role and how it fits into the organisation.

Include a CV or paragraph on each individual, outlining their background, relevant experience and qualifications.

Include any advisers you might have such as accountants or lawyers.

If you're looking to satisfy your bank manager or other investors, you need to show that your management team has the right balance of skills, drive and experience to allow your business to succeed.

Key skills include:

• sales
• marketing
• financial management
• production experience
• operational experience
• market experience

Your investors will also want to be convinced that you and your team are fully committed.

It's a good idea to set out how much time and money each person will contribute to the business and the salaries and benefits you plan to draw.

Your people

Give details of your workforce in terms of total numbers and by department.

Show what work you plan to do internally and if you plan to outsource any work.

Other useful figures might be:

• sales or profit per employee
• average salaries
• employee retention rates
• productivity

Your plan should also outline any recruitment or training plans, including timescales and costs.

It's vital to be realistic about the commitment and motivation of your people and spell out any plans to improve or maintain staff morale.

Your business plan also needs to outline your operational capabilities and any planned improvements.

There are certain areas you should focus on.

Location

• Do you have any business property?
• What are your long-term commitments to the property?
• Do you own or rent it?
• What are the advantages and disadvantages of your current location?

Producing your goods and services

• Do you need your own production facilities or would it be cheaper to outsource any manufacturing processes?
• If you do have your own facilities, how modern are they?
• What is the capacity compared with existing and forecasted demand?
• Will any investment be needed?
• Who will be your suppliers?

Management-information systems

• Have you got established procedures for stock control, management accounts and quality control?
• Can they cope with any proposed expansion?

Information technology (IT)

• IT is a key factor in most businesses, so include your strengths and weaknesses in this area
• Outline the reliability and the planned development of your systems

As part of your plan you will need to provide a set of financial projections which translate what you have said about your business into numbers.

You will need to look carefully at:

• How much capital you need if you are looking for external funding
• The security you can offer lenders
• How you plan to repay any borrowings
• Sources of revenue and income

You may also want to include your personal finances as part of the plan at this stage.

Financial planning

Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business.

The first 12 months' forecasts should have the most detail associated with them.

Include the assumptions behind your projection with your figures, both in terms of costs and revenues so investors can clearly see the thinking behind the numbers.

What your forecasts should include

• Sales forecast
  The amount of money you expect to raise from sales.
• Cashflow statements
  Your cash balance and monthly cashflow patterns for at least the first 12 to 18 months. The aim is to show that your business will have enough working capital to survive so make sure you have considered the key factors such as the timing of sales and salaries.
• Profit and loss forecast
  A statement of the trading position of the business: the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads.

Your forecasts should cover a range of scenarios.

New businesses often forecast over-optimistic sales and most external readers will take this into account.

It is sensible to include subsidiary forecasts based on sales being significantly slower than you are actually predicting, with one for sales starting three months later expected, and another forecasting a 20 per cent lower level of sales.

Risk analysis

Alongside your financial forecasts, it is good practice to show that you have:

• reviewed the risks your business could be faced with
• looked at contingencies and insurance to cover these

Risks can include:

• Competitor action
• Commercial issues - sales, prices, deliveries
• Operations - IT, technology or production failure
• Staff - skills, availability and costs
• Acts of God - fire or flood

To make sure your business plan has maximum impact, there are a number of points to observe.

Keep the plan short - it's more likely to be read if it's a manageable length.

Think about the presentation and keep it professional - even if you only intend to use the plan in-house.

A well presented plan will reinforce the positive impression you want to create of your business.

Tips for presenting your plan

• Include a cover or binding and a contents page with page and section numbering.
• Start with the executive summary.
• Make sure it's legible - make sure the type is ten point or above.
• You may want to email it, so make sure you use email-friendly formatting.
• Even if it's for internal use only, write the plan as if it's intended for an external audience.
• Edit the plan carefully. Get at least two people to read it and check that it makes sense.
• Show the plan to expert advisers, such as your accountant, and ask for feedback. Re-draft sections they say are difficult to understand.
• Avoid jargon and put detailed information, such as market research data or balance sheets in an appendix at the back.
• You may have detailed plans for specific areas of your business, such as a sales plan or a staff training plan, but it is best not to include these. It is good practice to mention that they exist.

While it is sensible to get advice from external advisers, it is not a good idea to get them to write the plan for you.

Investors and lenders need to have confidence that you personally understand your business plan and are committed to the vision for the business.

Make sure your plan is realistic.

Once you have prepared your plan, use it. If you update it regularly, it will help you keep track of your business' development.

Further help and advice

Your accountant (if you have one) or your bank can offer support.

Alternatively, there are a number of Enterprise Agencies that can provide help and advice, see starting a business: Useful links and information.