A business plan is a mere formality if you want to secure funding. Simply another document that you’ll rush to complete, then forget about as it gathers dust. Right?
Forgot your business plan?
This is a trap that many small business owners fall into – and, if you’re one of them, you’re doing yourself, and your business, a great disservice. The reality is that you do need a business plan, and it can be one of the most vital steps you take in the running of your company.
Failing to Plan…
The old adage holds that failing to plan is planning to fail. This is especially apt when it comes to your business plan. Rebecca McNeil, Managing Director for Business Lending and Enterprise at Barclays, says: Having a business plan is fundamental for a small business. It defines exactly what you want to achieve, how you plan to achieve it across a set time period, and is a sure fire way to ensure growth targets and plans are being met. A business plan, then, is like a roadmap – or GPS, if you prefer. It reminds you of your destination and the route that will take you there most effectively and efficiently. You can continually refer back to it for guidance. Developing a codified plan helps you:
- Clarify your vision and mission.
- Anticipate capital needs.
- Guide spending and hiring.
- Set expectations for yourself, investors and employees.
- Establish priorities and goals – and methods by which to measure them.
- Achieve and support sustainable growth.
- Get back on track if you run into trouble spots.
And last but certainly not least:
Banks, venture capitalists, and even crowdfunding sources demand a solid plan. Even if friends and family are your primary investors, they don’t want to throw their money away willy-nilly. They need to see that you have a clear vision and direction, and a viable strategy to get there. A study by Babson College found that new companies with a business plan raised twice as much capital as those without in the first year.
Many UK Businesses Failing to Plan
Despite the clear benefits, many small UK businesses do not use business plans. Research from Barclays finds that:
- 23 percent of small businesses do not have a strategy to support business growth.
- Only 47 percent have a formal, written/recorded business plan, while a quarter have an informal, verbal plan. (A non-written plan does not help with financing, nor is it easy to pass on to stakeholders and employees.)
- 66 percent of businesses established 35+ years ago have a formal plan, compared with just 35 percent of those established between 6-10 years ago. (A positive note: 44 percent of businesses established 5 or fewer years ago have plans. Perhaps they’re coming back into style!)
Creating a Business Plan
First, don’t panic! Writing a business plan needn’t be the most stressful part of starting a business. In fact, it’s a great opportunity to think about what you hope to accomplish and how. And another reason not to panic: there are loads of (free) resources and templates to help you create a solid plan.
Typically, a business plan includes:
1. Executive Summary.
This section outlines your proposal: Describe your product/service and its benefits.
- Explain your opportunity in the market.
- Introduce your management team.
- Recount any successes your business has had in the past (or you as an entrepreneur).
- Project your finances.
- Explain your funding requirements and expected returns.
Essentially, the executive section explains who you are, what your business is and how you plan to make it a success.
The executive summary is just that… a summary. Now, delve into more detail about your business and how it will:
- Differentiate itself from competitors’ products/services.
- Deliver value to customers.
- Respond to customers’ needs as they change.
- Overcome any obstacles or disadvantages it faces. (Don’t skimp here; investors want to know you have anticipate trouble spots and have a plan to deal with them.)
- Comply with legalities, regulations, technology and other industry features.
3. The competitive landscape.
Here, discuss the market segment(s) that you want to target. Market research is a must. Questions to answer:
- How large is each segment?
- Identify trends in your industry and market segment. What’s driving them?
- What are the demographics of each segment (educational level, age, gender, income etc.)?
- Do you have customers in the pipeline? Have you had any sales yet?
- Who are your chief competitors? What are the advantages/disadvantages of their products/services?
- Why should their customers switch to you?
4. Sales and Marketing.
This is an important section for investors and stakeholders. It explains how your products/services will meet your targets’ needs. Explain how:
- You will position your product.
- Your price, quality and service compare with competitors.
- Long you think each sale will take.
- You will be able to make repeat sales.
- You will promote your product (email marketing, PR, adverts, website etc.).
- Each product line will contribute to total profits (if applicable).
Who will you structure your organisation and management? In this section, talk about:
- Each management role and who you want to fill it.
- The experience and background of each member.
- Management procedures (e.g. the process for quality control).
- Any mentors or consultants from whom you can solicit advice and/or support.
- Salaries and benefits for each team member, as well as an idea of how much time they will commit to the business.
Your business will need facilities from which to center operations and deliver product/services. Here, explain:
- Your location, including pros and cons.
- What equipment you need. (It might only be a computer!)
- Employees you need and the skills they need.
- How you selected your suppliers.
- How soon you can start selling, how often, and what you need to accomplish these targets.
- How long it will take you to collect payment for products/services.
7. Finances. You’ll include your forecasts. Include:
- A viable sales forecast.
- Cash flow forecast.
- Profit and loss (P&L) forecast.
- Projected balance sheets (for larger startups).
- Your finance requirements and how they will be applied.
8. Risks. What could go wrong?
Try a bit of scenario planning – or what if. What if a key supplier goes out of business? What if your sales are 20 percent lower than anticipated? Or higher? Identify possible and likely risks to your business and develop contingency plans. You can find resources and templates at GOV.UK.
If you want to start a business – or ensure sustainable growth for the one you’ve already established, get started on a business plan today.