Business plans are a great way to set out your business goals and how you’re going to reach them. Writing a business plan helps you consider what you do, the market opportunity, the risks and your strategy to succeed.
What is a business plan and why is it important?
A business plan is important so that you know where your business is going and how it’s going to get there. You may need a business plan to inspire confidence from investors, or show lenders that your business has potential. It can also help everyone on your team stay on the same page.
A business plan is always important, and even more so if you’re just starting out. It sets out the destination and the route plan of your business. You could say it’s a bit like a satnav - it helps you know which road to take at a junction.
Your business plan helps you play to win
People think of a business plan as a set of numbers but take it from me, an accountant, that this is probably the least important part of the plan. The numbers are like the scorecard and your business is the game. Your business plan is your strategy for how you’d like to play the game - and win!
What to consider for your business plan
- Decide what outcome you want. You probably want to win this game but by how much? Or you may have just been promoted to this league and you need time to build some solid foundations. 2-1 win or £100,000 profit?
- Look at your opposition, sometimes called a competitor analysis, to see what they are doing well and where they are leaving gaps. Are there areas of the market that are underserved or that could be better served by you than your competitors?
- Team tactics. Can you see where you will sell £500,000 (or how you will score those two goals)? A few big customers or lots of smaller ones? This is the sales plan.
- Look at your own team, as well as player wages do you need to recruit or train to get the best out of them? This will have costs that need to be included in the plan.
- What other costs do you have? How much will the pitch, court or premises cost you and will you need to invest in any technology to help you win - such as a new scoreboard? Think about what kind of benefits you need to achieve (revenue gains or reduced costs to make the investment worthwhile).
- Is this likely to give you the outcome you wanted? Or do you need to review all this again?
- Do you have enough cash to pay for everything along the way or do you need to borrow?
How to structure a business plan
Once you have been through this thought process you can start to put your plans into a more formal structure. If you’re applying for loans or other finance it’s important to use the right terminology but, if the plan is only for internal use then it should be presented in a way that you and your team can understand. These are some common sections in business plans.
The overall goal
It’s tempting to start your business plan by explaining how amazing or radical your innovation or business idea is (there’s time for that later). It may be more useful to set the scene for the goal by explaining what real-world needs or problems you’re aiming to solve.
Your overall goal should be tied in to your personal goals. It’s no good building a million pound business that requires you to work 80 hours a week if what you really want is more time with your kids now.
Do some research to find out how much demand there is for your brilliant idea. Talk to your existing and prospective customers and ask questions. How many potential customers are out there? You could use a market research company, but you should still conduct your own research.
If you can use real or verifiable values, so much the better - vague terms like ‘the potential market is huge’ may not be enough to impress potential funders. Look at things like the current size of the market, its dynamics, if it’s growing or changing.
Determining the strengths, weaknesses, opportunities and threats to your business is a useful way to view the things you do well and those that you need to improve. Identifying threats early allows you to put things in place to minimise or even negate them. Spend a few minutes searching and you’ll find many free examples of SWOT templates.
How much are you going to sell and to whom? It’s normal to spread this over 12 months. Will you sell to other businesses or to individuals? Decide whether you will sell to a few, bigger customers or several, smaller ones. Your approach will depend on your product and the market and will drive a lot of decisions from marketing strategy to recruitment. You’ll find a few sites out there offering free sales plan templates.
How will you price your product and what promotion do you need to help achieve those sales? How will you attract new customers and how will you keep the ones you have? Who is your ideal customer and how will you reach them? Where do they spend time, is it on Instagram or travel websites?
What skills do you need to achieve your plan? What will the organisation chart look like? Do you need to recruit or buy in expertise? Remember that flexible working means that you don’t need to recruit full time people if you only need the expertise half the time. Do you need to recruit straight away or part way through the year?
Are there any large costs coming up as you invest in equipment, technology or a new website? How are you expecting to finance them and what benefit do you expect them to deliver?
This is what people think of when they think of a business plan but it is the last part of the game plan. Don’t forget to look at profit and loss. Draw up a profit and loss account to reflect all the numbers. If you’re also looking to raise finance with the plan - can you quantify your return on investment? It’s important to focus on your revenue model and if it’s viable in the short, medium and long term. Look at growth forecasts.
Look at the timing of money coming in and out. When will your customers pay for your sales and when will you have to pay your bills? How much money will be tied up in stock? Will you receive VAT from your customers before you have to pay it to HMRC? Are there any big costs that will need to be paid out? When are loan repayments due? Have you got enough cash set aside to pay your tax at the year end?
How long should the business plan be?
One common question is how long does the plan need to be? Three pages, a 100, something else?
The answer partly depends on if the plan’s for internal or external use. Internally, the plan can be as long as makes sense for its purpose, which could be to inform employees or keep founders on track.
If it’s external, perhaps to help raise funding, you do need enough detail to cover every section and make a compelling argument, but avoid a thick document which may lose your audience’s attention. Try to convey the key takeaways in a clear and simple way - sometimes more information isn’t better.
Don’t forget to write an executive summary to front up your plan. It should be simple, clear and specific. It needs to give a quick sense of what you do - but also why it’s valuable.
How many months or years do you need to plan for?
Business plans are usually completely in detail and fixed for 12 months and then a broader outline for three to five years. If you’re applying for finance then your plan should cover the whole period until the loan is repaid. There is no reason that you can’t update your forecasts as you progress through the year.
As you go through the year, more information will come to light so you will probably reforecast and your actions will evolve. This is the same way that your satnav changes route when you meet traffic or diversions. Both your satnav and your business rely on accurate information.
At the end of the original plan period you can compare what you actually achieved, against your targets. See where you did better and if there are any areas to learn from. Hindsight is a wonderful thing, so use it to plan an even better business in the future.