The importance of a good business plan

What is a business plan? In its simplest form a business plan is a document that explains your business idea, states your long term objectives and sets out forecasts for your business. No business plan is ever set in stone. Objectives and forecasts can alter as your business develops and as you gain a better understanding of your marketplace. Instead, you should treat it as a working document and, although you’ll need it to clinch financial backing, you should never let it gather dust. It should continue to be a reference point to monitor the development of your business against the original objectives.

So why write a business plan in the first place? There are several reasons, however the most important is to show a lender or investor that there is a good market for your product or service and you have the ability to manage the business. The lender wants you to demonstrate that you understand your chosen market, that you will be able to manage the financial commitment and that you will be able to make a living from the business.  To prove your case, you’ll need to research your market and make a realistic assessment of what you aim to achieve in the business. The business plan is too important to be left to someone else to write, but you may well need to seek professional advice when you’re drafting it Whether it is your bank, accountant or Business Link, there is plenty of support available to you. Banks can provide you with business plan and forecast templates to help you.

What should the business plan include? This will vary depending on your particular business, however all business plans should cover the following areas:

Background information

• What the business does
• Your motives for starting the business
• When the business started to trade
• Summary of past performance
• The market
• Potential for business
• Review of competition
• Why your product or service is unique
• Patents, copyrights and trademarks

Management

• Curriculum vitae for each business owner or key employee
• Personal assets and liabilities statement for each business owner
• Personal income and expenditure statement for each business owner
• Current staffing requirements
• Future staffing needs
• Training and recruitment plans
• Strengths and development areas of the management team

Marketing

• How you will sell your product or service
• Advertising and promotion
• Sales and pricing
• Who your likely customers are

Operation

• Location
• Premises
• Future requirements
• Suppliers
• Health and safety
• Equipment required
• Information Technology
• Stock control
• Insurance

Financial

• Set up costs
• Your own stake
• How much you are looking to borrow
• Security available
• Profit and Loss forecast for the first twelve months of trading
• Cashflow forecast for the first twelve months of trading
• Assumptions behind the forecasts
• Financial accounts for past three years trading if applicable
• Debtor management process

SWOT Analysis

• Strengths
• Weaknesses
• Opportunities
• Threats

Objectives

• Short term objectives
• Longer term objectives

How long should my business plan be? There’s no set length for a business plan. It will depend on your business needs. If your finance requirement is small, for example, around £15,000, a business plan of three or four pages plus the forecasts would probably be sufficient. However, if you need to borrow a larger sum then a more detailed plan would be appropriate. Remember, a business plan is your sales pitch and a business plan in excess of twenty pages can tend to lose its focus. It’s also important not to neglect presentation. You should consider how you are going to present your business plan and practice the delivery before meeting the lender or investor. It is always a good idea to send a copy of the business plan to the lender in advance of the scheduled meeting, so that questions can be raised and answered at the initial meeting which will speed up the process of assessing the finance. If you are looking to raise a large sum of money from the lender then it would assist if two copies of the business plan were made available, in case sanction needs to be referred to the bank’s lending department, who would also wish to review a copy of the business plan.

If you are looking to raise finance for your business you will need to produce a well presented, carefully researched business plan to support your request. Preparing the plan will clarify your thoughts about your business venture and will serve as an important tool to monitor your ongoing business performance. The business plan should help establish that the business idea is workable and that there is a market for your product or service. It should prove that you have the skills to run the business. And ultimately it should serve as a guide, to help you ensure your business idea is a continuing success.