Business Plans

What is a Business Plan?

A Business Plan is a statement that outlines the way that the business will achieve its aims and objectives.

i.e. What the owners want to do and how they intend to do it

-It is a forecast of business operations, including a statement of business objectives, a cash flow forecast, a plan of staffing needs and marketing methods. 

-Research shows that start up businesses which have prepared a business plan are more likely to survive 

Purpose of a business plan

1.To provide focus on the business idea and a sense of direction and purpose

-A business plan helps the business to look logically and methodically at the steps needed to achieve its aims and objectives

2.To assess the strengths and weaknesses of the business venture

3.To convince creditors that they have a good chance of being repaid, by providing details of the market and financial information such as profit forecasts, so they have a good chance of receiving a return on their investment

-This will allow the business to raise finance

4.The plan can be compared to actual progress to see whether deadlines, costs and profits are as predicted in order to measure performance. 

Business Plan should include:

1.Executive summary / Overview of the Business

2.The marketing plan

3.Operations Plan

4.Personnel / HR plan

5.Financial Plan

1. Executive summary / Overview

•Overview of business

•Describe the business opportunity / idea that is to be exploited •Business aims / objectives

•Vision and Mission statements

•SMART objectives

•Strategies – including how finance will be obtained

•Legal structure / type of organisation

•Sole trader, partnership, etc.

•Name & address of business

2. The marketing plan

•Details of the product / service and its USP

•Results of market research

•Details of targetmarket – who is the business aiming at?

•Needs of the market

•Size of the market - expected number of customers

•Is the market growing?

2. The marketing plan

•Is there potential for extension of diversification?

•Is it a luxury item or a necessity?

•Competitors - Who are the competitors?

•Marketing Plan

•Method of promotion eg Advertising (eg radio, leaflet), PR, price promotions

•Price- How much is being charged for the product?

3. Operations plan

•What is being produced

•What quantities will be produced

•Method of production

•Job, batch, flow

•Equipment required

•Cost of production

•Suppliers to be used

•Location of business

4. Personnel / HR Plan

•Who is involved in the business

•Staff – number of employees

•Skills and qualifications of personnel

•What skills are not in the businesses that will need to outsource or acquire

•What skills are missing e.g. admin, accounts, I.T, sales, etc.

5. Financial Plan

•Sales forecast indicating potential revenues

•Likely profit (Profit = Revenue – Costs)

•Breakeven analysis

•Cash Flow Forecast

•How much cash enters and leaves the business per year (positive or negative)

•e.g. - £10,000 in year 1, £5,000 in year 2, £10,000 in year 3

•Where money comes from(sources of finance)

5. Financial Plan

•Loans from bank, grants from government, family & friends, investors, venture capitalists, etc.

•How much money is borrowed

•How much finance have the owners put in - Own money or savings invested into the business

The overview or executive summary

•Overview of business / idea / opportunity

•Aims and objectives

•Summarise business strategies and how finance will be obtained

The marketing plan

•Results of market research

•Target market

•Size of market

•Is market growing? 

•Competitors

•Methods of promotion; price

The operations plan

•Where the business will be located

•Production methods

•Equipment needed

The human resources plan

•Who is involved in the business 

•Skills and qualifications of personnel

The financial plan

•a sales forecast indicating potential revenues; 

•a cash flow forecast for the first 12 months; 

•a profit and loss and balance forecast for the end of the first year;

 •a break even analysis.

Pros and Cons of Business Plans

Advantages of business plans

-Planning is important for setting objectives and laying out a strategy.

-Forces the entrepreneur to look at all aspects of the proposed business, allowing them to identify and address any weaknesses before the business starts to trade

-Essential for convincing lenders that the business will be able to repay loans  therefore without one, obtaining finance from banks, etc is less likely

-Financial forecasts can act as a monitoring tool as actual figures can be compared to forecasted ones to ensure the business is on course to meet its objectives.  

Pros and Cons of Business Plans

Disadvantages of business plans

-Could be poorly constructedor based on inaccurate information possibly from poor research

-Figures must be realistic and kept up to date

-A business plan cannot account for all eventualities and exogenous shocks

Evaluation of Business Plans

-Overall a business plan should reduce the risk of failure;

-However no business plan regardless of how comprehensive it is will guarantee success. -Exogenous shocks can occur which a business plan cannot predict and the external environment changes meaning business plans can quickly lose relevance.large amount of finance to start up and they may gain work based on recommendations. These factors reduce the need for a business plan.

-For some small businesses a detailed plan may not be necessary where minimal finance is required to set up.

-For example a window cleaning business consisting of one person may not require a  -There are examples of businesses that set up and prosper without a business plan – an excellent product or service in an expanding market.(Examples of this are, however, limited).

Business Plans - Evaluation

—Overall: There is likely to be a greater chance of success with a well-constructed business plan but they do not guarantee success

 —Main Reason Being: It helps form an overall strategy for a business and assists with gaining finance

—It Depends On: If plans have been properly researched – an unrealistic plan will be of limited value. Furthermore for a very small start up (e.g. a window cleaner) it may not be necessary or worth the time spent preparing it. 

Top reasons why new businesses fail

-Vague business ideas

-Lack of planning

-Overestimating demand

-Underestimating the competition

-Poor market research and therefore lack of knowledge of the customer

-Cash flow issues

Business Plans

-The business plan makes clear the objectives of the business and how the business intends to achieve these objectives.

-Business plans are not to be written and forgotten, they are ongoing.

-The objectives that are set – whether financial, sales, marketing or production – are there for future guidance and not to be ignored.

-Start-up businesses that develop and follow a business plan are more likely to survive than those who do not.

Sources of information & Guidance

•Family, friends, work colleagues

•Bank managers

•Accountants

•Small business advisors

•Local enterprise agencies

Banks

üSupport

üloans

üUseful business tools eg business plan templates

üHelpful advice

üSeminars on how to start a business or how you can improve your marketing and ultimately increase your sales.

üNetwork with other small business owners.

üOnline banking

üOverdraft

üSpecial business rates

Small Business Advisors

-Independent advice for SMEs '

-Support – how to start your business, employing people

-Mentoring – help with recruitment and selection, financial advice

-Business contacts – suppliers/potential customers

Accountants

-Support with business plan writing and setting appropriate targets

-Taxes

-Yearly financial accounts

-Expert insight

(1) To make predictions about the future;

(2) To help businesses make more effective commitments of time, energy and money to attract customers and deliver goods and services at a larger and more efficient scale; and

(3) To measure and reassess progress, so can reward and encourage profitable behaviors, report progress to third parties, and change directions when necessary

Local enterprise agencies

-Offer impartial and independent advice, support and training on starting or developing a small business

-Grants/funding available

-Help with business growth

-Continual professional development (CPD)

-Networking events

-Joint purchasing

-Business development

-Policy papers

-Research and quality assurance.