Writing a business plan
This Article was posted on 26.09.11 in Starting up,Succession,Growth and Managing
Although the motivation for writing a business plan might be varied, the main aim of any business plan is to set out the strategy and action plan for the business for the next couple of years. It explains your objectives and how you will achieve them.
Putting your plan in writing will help you focus and crystallise your ideas, identify priorities and saving both time and effort. Your business plan can become a benchmark for your business, enabling you to measure your progress.
Content of the plan
Keep your plan as short as possible. Overly detailed business plans can be too cumbersome to use. Rather focus on the information the reader will need to know. Use detailed information but don’t include all the detail in the plan. Leave the finer detail for operational or marketing plans.
You can also attach additional information as an appendix. For example, market research or technical details of a product.
Involve your employees
It is important to involve your employees in the planning process. This will give you additional insight as well as help you gain their buy-in and build up a successful, committed team. Planning together will help you identify priorities and provide a useful benchmark for future performance.
Be realistic
Keep your business plan realistic. Overly optimistic sales forecasts can lead to increased overheads followed by a cash flow crisis and drastic cost cutting, all of which can seriously damage your business, and can damage your credibility as well. Lenders and experienced business people will see through overly optimistic plans that ignore weaknesses or threats.
Make the plan professional
Even if your plan is intended for internal use only, write and present it as if it is aimed at an outsider. Put a cover on the plan for a professional appearance and include a contents page, with page and section numbering.
Start with an executive summary of the key points and purpose of the plan. Use charts, if relevant, and include company or product literature as an appendix.
Get the plan proof read for spelling and grammar mistakes and then show the plan to friends and expert advisers and ask for comments to help you improve your plan.
Business and products
Explain the history of the business. When did it start trading and what progress has it made to date?
Who owned the business originally? What is the current ownership structure?
Describe your product or service but avoid technical jargon. Offer the technical detail in an appendix to the plan for people who want to know more. In general, what makes your product or service different? What benefits does it offer? What are its disadvantages? How do you plan to develop the business?
Market and competition
You should outline your market, your customers and the other businesses you compete against in that market.
Your market
Define the market in which you sell and then focus on the segments of the market in which you compete. How large is each market segment? What is your market share? What are the important trends, such as market growth or changing tastes and the reasons behind the trend? What are the key drivers affecting each important market segment?
Your customers
Describe the nature and distribution of your existing customers. Do they fit the profile of the chosen market segment? If not, why not? Are you heavily reliant on sales around one or two large customers? If so, what plan do you have to diversify your sales?
Your competitors
Outline your principal competition. What are the advantages and disadvantages of their products and services compared to your own? Cover issues such as price, quality and distribution. Then explain why customers will buy your product or service instead.
Be careful of criticising or underestimating your competitors.
Marketing and sales
In this section of the business plan you usually address these five questions:
Your position
Where do you position your product or service in the market place?
- Is it high quality and high price?
- Is it marketed as a specialist product due to a particular feature?
- What unique selling features does it have?
- Which of these features are you going to concentrate on?
Pricing policy
What is your pricing policy? Explain how price sensitive your products are. Look at each product or market segment in turn. Identify where you make your profits and where there is scope to increase margins or sales. Explain how you set your pricing accordingly.
Promotion
How do you promote your product or service? Each market segment will have one or two optimum methods, for example, direct marketing, advertising or PR. If you are considering using a new promotion method, start on a small scale to test if it works.
Distribution channels
What channels do you use, or plan to use, to reach your end user? Then compare your current channels with the alternatives and note the distribution channels used by your competitors. If they are using some channels (such as the Internet) more effectively than your business, outline any plans you may have to match them.
Sales methods
Analyse the cost efficiency of each of your selling methods. For example, telesales, a direct sales force, through an agent, or over the Internet. Include all the hidden costs of the direct sales force, such as management time.
Management and personnel
Set out the structure and key skills of your management team and key staff. Identify any skill shortages (such as marketing, accounting or IT skills) and your plans to cover this. Explain your recruitment and training plan, including timescales and costs.
Analyse your workforce in terms of total numbers and by department. Compare the efficiency ratios with competitors, or with similar industries. Useful figures might be sales, average salaries, employee retention rates and measures of productivity.
Be realistic about the commitment and motivation of the workforce and spell out any plans to improve or maintain motivation. Consider how you would survive the loss of a key worker.
Operations
Analyse the capacity and efficiency of your operations, and your planned improvements.
Do you own or lease your premises? If you lease, do you have security of tenure, or are you stuck in an unsuitable location? What are the advantages and disadvantages of the present location? Should the business expand or move?
Explain how you organise production and what equipment you use. How modern is the equipment and what is the capacity of the current facilities compared with existing and forecast demand?
Information systems
Give an overview of the management information systems you have in place, such as databases, networks, servers, and accounting reports and processes. Are your systems reliable and can they cope with any proposed expansion?
Also identify any quality or regulatory standards that the business must conform to, such as any ISO 9000 or other quality standards.
Financial performance
Your financial forecasts translate what your business plan says about your business into numbers.
Set out the historical financial information for the last three-to-five years. Break total sales figures down into component parts. For example, show sales of different types of product or to different types of customers. Show the gross margin for each component of sales.
Highlight any major capital expenditure made in the period and provide an up-to-date balance sheet, and a profit and loss account. Explain the reasons for the movements in profitability, working capital and cash flow and compare them with industry norms.
Financial forecasts
Provide forecasts for the next three years. These should reflect the complexity of your business. A small business may only need a profit and loss statement, sales and cash flow statements. A more complex asset-based business — or one with complex working capital requirements — will need balance sheet forecasts as well. Use the same format as for the historical information, in order to aid comparisons.
Clearly state the assumptions behind your forecasts. These should tie in with statements in the rest of the plan. For example, if the plan states that the market is becoming more competitive then profit margins should probably be falling. Look at the overall trends of the historical and forecast numbers. Are they believable? Do the forecasts make allowance for possible problems and delays?
If you are raising finance, use the cash flow forecast to predict your cash requirements. Add a contingency element onto the funding requirement shown in the forecast (usually 10% to 20%). Consider what the mid-month peaks might be. Include the likely interest or dividend costs of any new finance.
SWOT analysis
You might like to include a one-page analysis of strengths, weaknesses, opportunities and threats in your business plan:
- Strengths might include brand name, quality of product, or management.
- Weaknesses might be lack of finance, or dependency on a few customers.
- Opportunities might be increasing demand or a competitor going bust.
- Threats might be a downturn in the economy or a new competitor.
Be honest about your weaknesses and the threats you face. Spell out mitigating circumstances and the actions you are taking.
Driving your business forward
Finally, make sure your business plan covers the critical issues that will make readers understand how you plan to drive your business forward.
Highlight the key ingredients of your future success and how you will strengthen your position in the market. Then establish your overall business aims — where you realistically intend to be in three years’ time.
Next, decide on half a dozen objectives, each of which will make a significant difference to the future of your business. Define clear targets for these — so that you know exactly what you want to achieve, by when.
Many businesses think in terms of:
- Income — more sales, better margins.
- Customers — new customers, higher levels of customer satisfaction.
- Products — improving existing products, launching new ones.
- Human resources — recruiting new employees, developing new skills.
The next stage is to work out how you will reach these targets, by considering each aspect of your business in turn and creating a step-by-step action plan for it.
Next steps
- Recognise that a business plan is a critical element of business success.
- Download the NZTE Planning for Success PDF to make a start.
- Get help from your business adviser, partner, and key staff members.
- Search online for business planning software.
Content provided by The Small Business Company
