Writing your business plan
When you need to put it down in black and white.
When you’re starting up in business a good business plan can help you succeed. It acts as a route map to follow, showing you where you are now and where you want to be in the future, and helping you navigate your way there.
It’s a vital tool when discussing your business with your bank manager or potential investors. It shows that you’ve taken a realistic look at your prospects and you understand the environment your business operates in.
When you write a business plan it forces you to evaluate the details of your own business proposal and identify what you need to do to make it happen. It will quickly show up any flaws or potential stumbling blocks, allowing you to make your mistakes on paper rather than in your actual business.
A well-thought-out business plan will:
- set a direction for the business and help you create an action plan
- help you and your staff focus on what’s important
- show your commitment to banks, investors, colleagues and employees
- help you to spot problems early on and tackle them effectively
- set targets and evaluate your success
- help you attract better-qualified staff.
Business planning isn’t just for when you’re setting up – you should keep reviewing and updating your plan regularly. A plan is always a useful asset for persuading others to invest time, money and effort in your business, and keep your plans on track.
To write an effective business plan answer these four questions:
- What is the purpose of your business? (Your mission statement)
- What do you want to achieve with it? (Your objectives)
- How will you achieve your objectives? (Your strategy)
- How much will it cost? (Your budget)
In a few sentences, state why your business exists. Summarise what you want your business to achieve apart from generating a profit.
You may have several different objectives – some more important than others – but they should all be SMART:
- Specific – detail what you want to achieve. For example, you want to land 10 new orders each month in your first year.
- Measurable – you must be able to figure out if you are meeting your objectives so that you can take appropriate action.
- Achievable – can you meet your objectives or make changes to ensure you do?
- Realistic – are your objectives reasonable given the skills and resources you have?
- Timed – when are you aiming to meet your objectives by?
Base your strategy on good market research, but keep it flexible enough to adapt to changes in the market or the economy. Think about:
- prospective customers and potential competitors
- the condition of the economy and your market
- how trade operates in your chosen business sector
- who your suppliers will be
- the type of staff, facilities and equipment you’ll need
- which trends and emerging technologies could affect your market.
Strengths and weaknesses
Analyse your strengths:
- Why will customers buy from you instead of your competitors?
- What does your business do better than your rivals?
- What makes you stand out from the competition – your unique selling point (USP)?
And your weaknesses:
- Why would customers buy from your competitors rather than you?
- What do your competitors do better than you?
Opportunities and threats
What are the opportunities open to your business? Are you taking advantage of them? Also, what are potential changes that could adversely affect your business?
This type of SWOT analysis – Strengths, Weaknesses, Opportunities and Threats – can help you make better sense of market research.
To succeed, your business needs to make a profit, so bear in mind that your potential investors will look closely at your budget.
Cash flows in and out of a business, so you should include a 12-month cashflow forecast to make sure your business stays solvent. You’ll need to know what sort of cashflow you can expect – how much cash will be coming in and going out, who will be paying it, who needs to be paid and when?
Money being paid into your business could come from sales or investment – that includes capital you pay in yourself. Money flowing out could be for stock, equipment, salaries or tax.
Calculate your profit
Profit is the money left in your business after you’ve paid expenses, costs and taxes. Be sure to include a two-year profit forecast in your plan.
Separate your cashflow and profit into monthly figures, and show the main areas where you’re receiving income and spending money. You should also add contingencies to each area to cover any unforeseen costs. Be realistic with your projections – it’s safer to be cautious than over-optimistic.
Your business end-game
If you’re hoping to grow your business and then, maybe, sell it off and move on, you could outline your proposed 'exit strategy'. It shows you’re being thorough.
Open your business plan with a top-line summary to help readers gain a quick understanding. You can write this last.
Make sure your plan is clear and concise, free of jargon, well-researched and achievable.
If you don't have all the information you need you can still make a start, then add more as details become available.
Your business plan’s structure
Try setting out your plan into four sections:
- Your current situation. Describe the type of business you’re in and the products and/or services you provide, including details of your growth so far if relevant.
- Where you would like to be and by when – describe your vision.
- How you plan to get there (your strategies).
- What should be done by whom and by when?
In each section take a look at:
- cashflow and profit
- your business profile.
Avoid using very detailed figures as these will be more likely to change and date your plan. Remember that downloading a free copy of Sage Planning for Business software can give you some practical help.