Business Plans

A business plan acts as a road map or compass; without it you will get lost in your business.

The biggest mistake is simply putting it off.

A plan contains a description of your business, an evaluation of your main competitors and several financial calculations.

But why are so many people so afraid or intimidated to write these plans of actions?

Many new business owners are so over-enthusiastic about their business concept, that they are desperately eager to begin and do not have the patience to look at the economic realities involved in their business.

Filling out the many financial forms in your plan can be an overwhelming process for any new business owner. Many are so intimidated by the financial calculations that they want to skip this process. If you recognize either of these tendencies in yourself, it is even more important that you prepare your financial calculations carefully and pay attention to what they tell you. Do not try to get out of it by telling yourself that your financial estimates will be wildly off base and yield useless results.

To alleviate this type of intimidation many have with a plan, it is imperative that Certified Public Accountants, bookkeepers, business plan or financial consultants be a part of your business support team. If you do not have these experts to assist you with your plans, you can take a course in accounting and buy the latest accounting programs.

Other resources to help you write a business plan include books, colleges and universities that work with Small Business Development Centers and counselors and mentors at the Service Corps of Retired Executives (SCORE). They provide low-cost classes on how to write business plans from $40 to $60.

Remember you are the brains of your business; your accountant is the heart and your attorney is the lungs. An accountant helps you keep track of your money and an attorney helps you protect it.

Since over 90% of start-up businesses are funded by private sources such as retirement or pension plans, unemployment insurance payments, savings accounts, divorce settlements, child support payments, etc., many people skip the business plan stage.

Even if you do not need money to start your business, writing a plan will help you see if your idea will be strong from the start. Without a plan, you leave far too many things to chance.

If you started your business without writing a plan of action and now you are close to running out of funds, then chances are you need to write an expansion business plan to look for other financing options while you move your business to the next level.

When seeking out funding for your business you need to make yourself known to financing sources well in advance of asking for financial help; approach multiple sources of financing; educate yourself on the available financing options; know which options are available to your type of service or product; determine which options to pursue at various phases of your company’s growth and always be ready to prepare your business for financing.

You definitely will need a plan if you are going to apply for a business loan, need investors, have business partners, have a management team, or are selling the business.

You can use your plan as a tool to generate interest from financiers, prospective employees and strategic partners.

Before you even start to write your plan, get copies of loan applications used by banks, commercial finance companies, and government. These applications will give you a good idea of how much financial information you will need to include in the business plan.

The most standard plan is a start-up plan, which defines the steps for a new business and the expansion plan which will take the business to the next level or to a larger market.

The plan count is not a good way to estimate how good your plan will be. Instead, measure the plan by readability. A good plan should provide a reader with a general idea of what a business owner is trying to accomplish after skimming or browsing over it for 15 minutes. 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. Never write a business plan 50 or more pages.

At a minimum, your plan should have the following sections: Executive Summary, Company Description, Product or Service, Market Analysis, Strategy and Implementation, Web Plan Summary, Management Team, and Financial Analysis.

The most important part of your plan is the Executive Summary. The Executive Summary is an outline of the entire business plan. If you do not have a good Executive Summary, chances are the SBA, bankers and potential investors will not read the entire business plan.

Just remember that the most important audience for a business plan is YOU! Only you are accountable to all of the statements, claims, stats and facts inside of your business plan.

Remember by skipping the business plan stage chances are your business will face many, many risks and you might find yourself out of business within 2 to 5 years.

Writing A Business Plan

All businesses, of whatever size or stage in its development, need to have formal business plans in place, prepared by the management and not their accountants, and fortunately there are many now many free business plan templates available on the web to help you in business planning.

Why Prepare A Business Plan?

There are four main reasons why you should prepare a business plan. These are not mutually exclusive, and as the business changes and grows the business plan should be regularly revisited and reviewed since these issues will apply equally well to an established business as to a start up.

The first is to plan in the widest sense. In preparing a business plan you are preparing first and foremost a plan and the process is one of thinking through what you are going to do in the business, how you are going to do it, what are the separate projects that will have to be completed to reach the end goal and when by, what resources you will need to have in place and when, what the risks are and how these are to be managed, and so on.

The second is that from setting out your plan of action you can then assess and understand the likely financial performance and requirements of the business. You can examine the key sensitivities involved in your forecasts and take a view on the financial risks, and potential rewards involved.

This is critical as the third reason for preparing a business plan, which is often seen by some managers, mistakenly in my view, as the real point of the exercise, is to provide it to investors or lenders in support of a request to raise funding.

The fourth reason is that that plan provides an objective benchmark and milestones against which the progress and success of the business can be checked.

So, whatever the initial reason for carrying out a business planning exercise, management should always use the process as a chance to genuinely plan the business, and not just as an exercise to produce a document that is never looked at again.

What Should A Business Plan Contain?

You can now find many examples of business plan templates on the web which will vary in the content and headers they use as there is no definitive list of contents. In general however, a business plan should cover the following items, which will provide a pack in a format that prospective lenders or investors will generally find acceptable.

  • Company details including company number and logo;
  • Contents;
  • Executive Summary a brief summary of the plan covering all areas and being no longer than say 2 pages;
  • History and Current Position;
  • Products or Services;
  • The Market;
  • Operations;
  • Management and Staff including an organisation chart where appropriate;
  • Financial Analysis a summary of the financial projections;
  • Investor or Funder Deal and Exit Plan where the plan is being used to raise finance this is where you set out the proposed support you are seeking and what is in it for the funder; and
  • SWOT Analysis a summary of the strengths, weaknesses, opportunities and threats facing the business.

The plan should also be backed up by appropriate appendices giving the financial information such as historical Statutory or Audited Accounts, up to date management accounts and three year financial forecasts, all of which should obviously tie in with the body of the plan itself. In addition there needs to be the non financial information required to support the plan which will normally include CV’s for each of the Directors and any other key personnel, examples of marketing material, details of the business’s professional advisors and any other supporting documentation that may be relevant such as significant new orders.

To What Extent Can Or Should You Vary The Format?

If you do use a business plan template, don’t hesitate to tailor it to your business’s particular circumstances. Every business has its own characteristics, and each writer will have their own style so every business plan will be different.

Whilst the headings given above are relevant for most businesses, the focus of attention will vary depending on the purpose of the plan and the intended recipients.

If the plan is being written for internal purposes then it may concentrate on tasks such as Marketing or Operations and be used to attribute tasks, set timescales, targets and rewards, and then used to help co-ordinate and monitor an agreed overall agenda.

If you are preparing the business plan to support an application for a loan then the financial and trading data, and in particular the cash flow analysis, will be critical parts of the document. Lenders will be particularly interested in the assets available as security, any other existing borrowing, and will closely scrutinise the detailed financial forecasts.

If the plan is to be shown to potential investors then you will need to be careful that you comply with the requirements of the Financial Promotions Order as failing to do so can lead to criminal penalties. Like lenders, potential investors will review the financial forecasts and proposal within the business plan, but they will also be looking to establish a potential valuation of the business at the time of the proposed exit.

What Makes A Good Business Plan?

As hopefully will be clear from the comment above, this will depends partly on what it is to be used for, however any business plan should be:

Concise – It should be short and to the point;

Comprehensive – a potential funder more likely to provide finance if they are able to clearly understand the product, market, funding requirement, opportunity, the skill sets of key personnel and the financial projections, then if they can’t;

Clear – it should be written in clear plain English, (and be properly spell checked and proof read), but the message or propositions should be clearly stated so that the target audience can understand what it is that you want from them, as well as the all important what’s in it for them;

Owned you must clearly be able to present it and answer questions on it, including on the financial projections and assumptions, from potential backers.

The last point is a critical one. All too often when potential financial backers speak to business owners about the numbers in a plan that has been presented, they receive the answer ‘Oh my accountant put the numbers together for me’, which immediately raises questions about how realistic the forecasts are.

After all, if you don’t understand what the projected financial performance of your business is, the how is a funder expected to believe that you can make it happen?