All businesses need to have a formal business plan in place, whatever their size or stage of development, and one that has been prepared by the management and not their accountants. 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, irrespective of the original reason for preparing the business plan, you should always use the process as a chance to genuinely plan the business. Treating it simply as an paper exercise in producing a document that is never looked at again is such a waste of the time that should have gone into the project.
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, registered office address and logo;
– 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;
– 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 use a business plan template it is important to tailor the contents to your business’s particular circumstances as every business has its own characteristics, and each writer has their own style.
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 the business plan is being prepared to support a borrowing application then the financial and trading data, 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 – if a potential funder clearly understands the product, market, funding requirement, opportunity, the skill sets of key personnel and the financial projections, then they are more likely to consider lending or investing;
– 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?
Source: Business Ideas