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WRITING A BUSINESS PLAN 2708 words FOR
YOUR SMALL COMPANY
Robert Shove suggests how directors should
tackle the task of preparing a business plan, which is meaningful,
internally and externally. ____________________________________________________________________
As business managers, you may be asked by
outsiders for a business plan – maybe by bank managers, HP
and leasing companies, a landlord or new investors.
However, without external pressure, many
managers of small companies can live quite comfortably without
one. The plan is in their heads – they live it day-by-day.
In these circumstances, it may still be a useful exercise
to review your company as objectively as you can, think about the way forward and put some
dimensions on the future of the business.
Thus you may conclude that you do
need a business plan. How to start? As you read on, you will
be faced with a number of questions, which you should ask
yourself – you may not know the answers. But take time to find them. In the Attachment,
you will find a suggested skeleton for a plan.
Well, you must decide what the plan is for
and who will be the readership. The intended readership will
dictate the balance of the plan. For example, for financial
readers such as banks, the bias will be financial and the
plan will emphasise accounts positions and financial projections.
In practice, the plan will cover all aspects
of the business and be for a specified term ahead – say three
to five years. For an established business with an established
track, three years will be sufficient. For a new business
involving bringing new products into the market, there may
be several stages of business development and five years would
be more appropriate.
Your plan needs to be divided into discreet
sections, which lead the reader logically through your ideas:
-
the Product or the Service
-
Potential Developments of the product or service
-
the Market
-
the Marketing Plan
-
the Manufacturing Plan or delivery of the product or service
-
the Organisational Plan
-
Financial performance to-date
-
the Financial Plan.
Later in this paper, we’ll consider what
each section might contain. The Top & The Tail
Like all good stories, it needs to be “top
and tailed” – an introduction and a conclusion. The introduction
is often called an “Executive Summary”. It should in one page,
and no more than two, give the reader an over-view of all
that is contained in the report. The Conclusion should be
an honest and fair commentary on the company and the chances of it pulling off the plan.
If the plan has the purpose of raising money, the Conclusion
should confirm the need and how the company will meet the
loan repayments. If raising venture capital is the purpose,
it will confirm the planned returns to the investor.
You could, perhaps include here a SWOT analysis
– a reasoned statement of Strengths, Weaknesses, Opportunities
and Threats. Unless you can argue Weaknesses and Threats in
a balanced way – don’t do it. So many SWOT Analyses admit
to no weaknesses and no Threats – this is not credible!
One other point of presentation – funders
are quite used to reading reports which say that the company’s
products are “the best thing sliced bread” and which are written
in the glowing terms of an enthusiastic entrepreneur, full
of expansive adverbs and adjectives. They are also used to
reading “there is no competition”. Funders will discount this
– it is better only to make claims, which you can prove factually and argue the balance between benefit
and downside.
So how to start? Well, tackle the easy bit
first - get some facts down on paper.
Company Details
Tell the reader the facts about your business
- the company details.
First, how does the reader get in touch –
name, address, telephone fax numbers and e-mail address.
Second, where are you – in case the reader
has to visit? Include a map in sufficient detail to direct
the visitor to your location. Include directions from rail
and air links.
Now, decide if you one of the following:
-
a sole proprietor
-
a partnership of two or more people
-
a limited company
-
a charity
-
another type of organisation.
What is/are:
-
the name of your company
-
its registered address
-
its trading address
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its registered number
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date of incorporation
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its authorised shares
-
the share types
-
its issued shares with names and percentages held by
shareholders or its partners with holdings
-
names of directors and Company Secretary if a limited company
-
the names and addresses of its professional supporters – solicitor, accountant
-
names and addresses of your bankers with loan and overdraft
arrangements
-
names and addresses of other lenders and the arrangements
- sales invoice
factors, hire purchase and leasing companies.
-
your financial year-end.
-
What does your company do? You should be
able to summarise this in one or two sentences. Decide if
you fit one of the following:
-
design products for others to make and sell
-
manufacture products for others to sell
-
sell products made by others
-
design, manufacture and sell your own products
-
combinations of above
-
import and export
-
distribute products made by others
-
provide services
-
sell the skills of your professional staff.
The Government identifies industries by a
Standard Industrial Classification – SIC – determine your
industrial code.
Describe your products and services, how
you deliver them and what benefits they offer your customers
– in as much depth as you can.
Explain how they were developed to their
current state.
If it is an invention or new design, have
you taken out a copyright or applied for a Patent?
You may have sales leaflets or brochures,
which can usefully support this part of the plan. Potential Developments
How much further can you develop your product
or service? How long will it take and how much will it cost?
Write down details of the markets in which
you sell your products or service.
Who are the customers? Are you selling to
the general public, to an industrial or commercial end-user
Who are the competitors ? How big are they?
Can you get their brochures
and price list? Do they advertise?
How big is your market –in
units or value? Is the market local, regional, national
or international ?
What is the market doing – growing, is static
or in decline?
What is the market structure? Is it already
being reached by direct selling, via wholesalers or distributors,
commissioned sales agents, stocking agents?
The Marketing Plan
This is about how your company is going to
enter the market (or has entered it.
If you are already trading, what do you think
your market share is and what share are you aiming for?
Who are your present customers and who are
your target customers – by name, by sales or potential sales,
over a period of time
How will you generate orders – by advertising,
using the web, by telesales, by using sales people on the
road?
Get across your key selling points.
What is the conversion time from enquiry
to order, the lead-time from order to delivery and invoicing
the sale.
What are your sales terms, are they clearly
specified on your quotation or tender?
How do you price your product and quote your
prices - on a price list, by quoting on each enquiry? How
should the customer pay – on delivery,
within a specified time of delivery, in staged payments?
What are the warranty or guarantee arrangements
against early product failure?
How will you provide maintenance, hardware
and software support?
Then the crunch question – what are your
annual sales targets, how many units, what will the turnover
be?
This is about how you produce your product
or service.
Taking a product-manufacturing scenario,
you will need to describe:
-
the premises you are in or plan to be in
-
the different departments or process stages in manufacture
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factory lay-out
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the equipment needed to produce the products
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manpower considerations
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planning and control procedures
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inspection and quality control procedures
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packing and packaging, shipment facilities.
An overall site plan will give the reader
orientation and a sense of scale. A process flow chart is
a useful pictorial aid. Brochures of the major pieces of equipment
will be meaningful to a reader not familiar with your processes.
This treatment can also apply to service
companies with office layouts.
This part of the plan is about resources:
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people
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premises
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equipment
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systems.
You should describe your present organisation
and proposed future changes. An organisation chart is the
best way of presenting this. It should not suggest that one sub-ordinate
reports to two superiors, even though, in practice, this is
how it really happens. Preferably there should be only one
Chief Executive.
Split the organisation into functions, maybe:
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Sales and Marketing
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Technical
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Manufacturing or Sourcing
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Administration
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Finance
and describe them in some detail.
Include in the report the Curricula Vitae
of your key managers and staff and describe their roles within
the organisation. If the organisation Chart has a position
as yet unfilled by a name, include the Job Description and
Recruitment Specification in the report.
Give details of your current premises, type
of ownership or lease, rent and rates, potential rent hikes.
Provide an inventory of company equipment
and state the equipment which you plan to purchase – a Capital
Expenditure Plan.
State how you use, or intend to use systems
to administer and control your company. You should mention
if these include standard, specialised or bespoke software
packages.
Past Performance
If you are already trading, are there non-financial
milestones, which prove the business is going in the right
way?
Your financial performance can be demonstrated
by offering statutory or audited accounts. If you are in your
first year of trading, what are the results to-date?
If you have more than one set of annual accounts,
link them together by producing tables of trends. For example,
if you have three years of accounts, summarise the key figures
in a table to show trends:
-
Sales
-
Cost of Sales – breaking the down into Direct Labour and Direct
Materials
-
Overheads – breaking these down into Salaries (or Payroll) and other key
expenditure groupings – Premises, Marketing, Manufacturing,
Technical, Administration, Finance Costs and depreciation.
Then,
explain the trends, particularly the out-of-trend figures
– e.g.
“this was a poor sales year because of foot and mouth hitting
the
sales of our pub customers” – “in this year, we deliberately
spent
more on sales costs because we were setting up our web
The Financial Plan
Well, here is another tip, which you may
or may not like – whenever you can, work in thousands of units,
thousands of pounds, thousand of units. If this is not realistic,
go to one place of decimals. Funders are quite unimpressed
by entrepreneurs calculating future annual sales to the nearest
penny! After all the computer will do this unless you tell
it otherwise. Use projected figures, which are realistic in
relation to your ability to estimate.
You must chose the term of the financial
plan - say four years. Are the plan years going to
coincide with your company’s financial years? You may choose
not because you are unsure when funding will become
available – you might then chose future years starting at
the point of funding.
The first year of your plan should be a monthly-phased
budget and following years should be annual projections.
So, you sit down to do your projections and
you will quickly arrive at the point where you say to yourself
“ This will happen providing this happens” You have arrived
at an assumption - all projections should be accompanied by
Assumptions and you should list them in support of the financial
tables you are about to produce.
Clearly “cash is king” for the small business
and many financial software packages take you straight through
to Cash Forecasting. But in financial planning, the Profit &
Loss Account is where you decide if you are profitable or
not. In new companies, negative cash flow arises from a combination
of trading losses, start-up or pre-formation costs, and capital
investment. An investor will wish to know how long a new start
company will make trading losses before the company breaks
into profitability and what is the break-even point. My advice
is to start your financial planning with a P & L Account and derive the Cash Flow Projection from
that. This will also force you into thinking clearly about
assumptions on debtor and creditor payment timings.
The Balance Sheet projections are also important.
You will need to register if your business has a positive
Net Worth, now and projected – a negative figure means that
you are insolvent and should not be trading. You should look
at the Trade Debtor/Trade Creditor ratio, now and projected,
to assess how tight the cash position is going to be.
If your business plan is written for a bank
or other lender, it
should show the loan repayment and interest as separate items
in the projection to prove to the lender that you can honour
the deal.
If your plan is directed at an equity investor,
it will need to prove the return or capital growth that he
seeks.
These are key issues for your financial plan
but there is not space here to advise further on the development
of your financial plan.
We have discussed the contents of your plan
and now you must decide a logical sequence for presenting
them, after Executive Summary and before Conclusion.
For example, if you have had some spectacular
financial results and the plan is for a funder readership,
you might put the Past Performance section very early in the
report.
It is better to have a cover to the plan
– it can carry your company logo, or a photograph of your
product. Whilst we are talking about photographs, sprinkle
them liberally throughout your report – on curricula vitae,
of factory premises and products.
On the attached Appendix,
you will find suggested sections to a report and Appendix
Titles. You will of course decide contents for yourself but
you should ensure that the reader detects your company’s ethos
and your own personality shining through the report’s pages.
Generate your business plan, even if you
are not required by external influences. Get all your managers and staff
to participate in it – make them feel that they are its owners.
Cut out the flowery stuff – keep it factual and balanced.
Make it an attractive presentation and an interesting read.
A Suggested Format For Your Plan.
Front Cover – name of your company or project,
contact details, report
title, maybe a photograph
Report Contents – titles of Sections with page numbers – see below.
List of
Appendices – put your detailed information, particularly
figure-work into appendices so that the main script flows
– see below.
_____________________________________________________________________ Report Contents
Section
Title Page Nos (Recomd Page Length)
1.
Executive Summary 1-2
2
The Product/Service
2
3.
The Market 2
4.
Marketing Plan
2
5.
Manufacturing Plan 2
6.
Organisational Plan 2
7.
Past Performance
1
8.
Financial Plan 2
9.
Conclusion 2
( About
16-17 pages)
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