Simple Business Guide #10 - Why you really need a Business Plan
If we were to say to you "tomorrow we would like you to drive to Moscow" what would you do? You would probably go home and as a minimum get the atlas out, find Moscow on the map, and have a look which countries you would need to drive through to get there. You would probably go one step further and go online, onto something like Google maps, and print off a route plan. Ideally you would get yourself down to Halfords and buy yourself a sat nav to help you get there.
What you probably wouldn't do though, is get up tomorrow morning, get in the car, and just start driving. But amazingly this is what many people do when they start their own business. They may have a rough idea of where they want the business to go, or what they want to achieve, but they don't have any kind of real plan of how to get there and what obstacles they will face along the way. There is an old saying that goes "if you fail to plan, you plan to fail" and whilst cliched, it is true.
So what is a Business Plan?
In practice there are two types of business plans; a formal one and an informal one. A formal one is normally done when a business is first starting, or when it reaches some kind of important milestone, such as when it needs to raise finance to help it expand, or take on a new investor. The informal one is usually more fluid and can be prepared at any time, and is mainly for internal use, to help guide management towards the end goal. Most business plans cover a three to five year period.
The formal Business Plan
When you first start your business, this formal business plan is one of the most important documents you will write. There is a fairly set format for this kind of business plan, and following this format will ensure that you consider all the important factors which will affect whether or not your business is a success.
Below is a fairly standard contents table for a business plan, to show you the outline for your plan:
- Executive summary - this should be exactly what the title suggests: a high level summary, which if read in isolation, would still give the reader a good summary of all the main points they should be aware of. This is the first thing an investor, or banker, for example would read, and it would help them decide if they actually want to read the rest of the document, so it should be short and to the point. It should outline exactly what the objectives of the business are, what it is going to do, what it is going to sell, how, to whom, where, what the USP is, what investment is required, and what the chances of success are.
- Summary of the business - this should detail exactly what it is that the company is going to do. Many people who write a business plan assume that the reader will know exactly what product or service the company will provide just by the company name for example. You should cover what the product and your USP is, what stage the business is at, when the business started or will start trading, what investment has already been made, and the legal structure of the business.
- Market analysis - good research is essential when you start a business. You need to know exactly what it is your potential customers want. You need to know how and where your customers buy. You need to consider which geographical area you will cover. This section should cover all these points, and also try and quantify what the demand for your product is in your particular target area. Just how many potential customers do you have now, and how many will this be in a few years time. Yours might be a new product with very low current demand, but very high potential demand. Good research will help answer all these questions and will give you a good indication of whether or not your business is sustainable in the long term.
- Competitive analysis - this section should look at what your competitors are doing, it should detail where your business's strengths lie and it should show how you plan to either take market share away from the competition, or how you plan to avoid them altogether by differentiating yourself. You also need to think about what external factors can influence your success, such as what is happening in the economy, or what legal or environmental changes there may be which could impact your company.
- Details of the company and staff - this section should cover off who the key players in your organisation are, what their background and experience is, what areas they will be responsible for and how they will help the business achieve its' objectives. You should also look at the strengths, and possibly even more importantly, the weaknesses of the business to identify potential stumbling blocks. This section should also cover any logistical considerations, such as where the company will be based, if it needs an office, warehouse, retail outlet, factory or anything else.
- Marketing and sales strategy - it is great knowing what you are going to sell, who you want to sell to, where you want to sell, what your competition are doing, but you need a very focused sales and marketing strategy in order to actually bring those sales in. You need to think about your positioning, your pricing, how you will promote your business, how you will reach new customers, how you will physically sell your product or service, how you will deliver the product. All of these should be covered in this section.
- Financial forecasts - this is sometimes one of the scariest sections as it deals with the numbers behind your plan. As a minimum you should include a sales forecast showing how your sales will grow, a Profit and Loss forecast showing the profitability of the business, a Cash Flow forecast showing how you will manage your cash, and details of any capital needed including how much and when. It is also good to do a risk analysis, so what would happen if X happened instead of Y.
The informal Business Plan
Whilst having a formal business plan is really important it can be quite a lengthy document, and is often prepared for an external audience, bank managers or suppliers for example, so having a less formal one just for internal use can be useful as well. This plan should cover off most of the topics covered in the formal business plan, but should be prepared much more regularly, and should become a working document which changes and adapts as the business changes and adapts. We recommend that as a minimum you should have an annual business plan, which would focus on current performance and what the business plans to do in the next twelve months. This can then be broken down into key actions for key individuals, becoming an operational plan to actually do the work needed to grow the business.
How to write a Business Plan
The most important thing when writing a Business Plan is to be objective and realistic. It is pointless being over-optimistic or unrealistic as you are just fooling yourself. A good example of that is in the most recent series of The Apprentice on the BBC, where one of the candidates put in her business plan that she would make £1million profit in the first year. Really? Totally unrealistic claims like this will not fool a savvy reader and will actually do more harm than good.
Also think about your audience. If you are writing a plan to secure lending from the bank you should focus on different areas than if you are writing the plan just for the directors of the business. Be honest about the risks that are involved. Painting a picture that it will all be plain sailing is more dangerous than highlighting the risks and showing how you will mitigate them.
Conclusion
Even having a simple one page business plan is better than not having one at all. But take some time to actually write one and you will quickly see what problems you will face, giving you time to prepare how to deal with them. Show it to family and friends and ask for their honest feedback; they may see things which you have missed. But above all revisit your plan regularly and change it as and when you need to - it should be a fluid document. This should be the road map you use to make sure that your business ends up in Moscow and doesn't just get lost somewhere in Belgium.
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If you would like to discuss anything in this article, or need some help getting your business off the ground, or taking it to the next level, then please feel free to contact us. Don't forget - the first consultation is FREE.
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