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Preparing a business plan

28 April 2005
Preparing a business plan

The catalyst for preparing a firm's first business plan is often the need to present a business proposal to a bank. While a well-drafted business plan is crucial when raising finance or trying to attract investment, it is also an essential tool for the successful management of a business.

Business plans should aim to give more than a snapshot of the future. Because circumstances, people and opportunities change, a good business plan should try to portray the ever-evolving situation.

The benefits

There are many benefits from planning ahead. For example, you can:

  • Step back from day-to-day work and consider the overall direction of the business.
  • Make better-informed judgements.
  • Ensure that business decisions drive the company in the right direction.
  • Ensure that there are adequate resources and working capital to achieve business goals.

Additionally, a properly documented business plan should:

  • Provide the necessary vision and direction to focus the business
  • Inspire confidence and belief in the firm's potential.
  • Provide a document recognised by lenders as a basis for lending decisions.
  • Enable key staff to participate in the long-term future of the organisation by setting out clear business objectives.

There is no definitive guide as to the precise form and content of a successful business plan as its structure is largely determined by its particular purpose. However you should ensure your plan is:

  • Focused - on your firm's needs
  • Relevant - to the reader's interests
  • Accurate - be prepared to justify
  • Realistic - information must be credible

General

Explain the importance of the service and its market potential, avoiding technical language and detailed specifications. Focus on the real issues, giving projections for sales, costs and cash-flow, for example, but reserving financial detail for the appendix. Explain assumptions.

Executive summary

This overview should cover the whole business plan and ideally fit on one page. It is normally written after the main sections are finished and focus the reader's attention to the important elements of the business plan.

The business and key people

Describe the legal status of the business, its history, facilities and organisational structure, while also stating its strategy, vision and mission statement. It is particularly important to outline the skills of partners, directors, managers and key staff.

The product/service

Clarify the range of products/services and state what is special about those offered and any that are under development. It's similarly important to note any niche markets. If the firm is responsible for any innovations, achievements or has won competitions, these should be mentioned.

Business market

Analyse turnover by market segment, indicating the profitability of each area. Note whether each segment is declining/static/growing and why, besides giving the organisation's current and projected market share. An overview of economic conditions or legislation relevant to the business is also useful.

Clients

Briefly describe the organisation's major clients, and analyse turnover by client, where appropriate. This section will highlight any dependency on a small number of customers and highlight the risks. It may be good to elaborate on the individual customers and the business relationship with the organisation in order to deal with any concerns over business concentration.

Marketing and advertising

Outline your marketing activities to demonstrate how you identify and develop new business.

Competitors

Note major competitors, their strengths, weaknesses and market share. Consider how vulnerable the organisation may be to any particular competitor.

SWOT analysis

The organisation's major strengths, weaknesses opportunities and threats should be analysed. Don't avoid weaknesses and threats as these can be only be dealt with once identified!

Premises and facilities

Report whether the premises and plant are owned or leased, whether they fulfil existing and future needs, and summarise any major commitments. Outline future capital expenditure and indicate the current state of facilities, including obsolescence and the impact of technological advancements.

Personnel requirements

Include the number of employees, anticipated employment needs and note the skills that are generally available. Give an indication of the firm's training, recruitment and promotion policies.

Financial Information

This is normally provided as an appendix and may include a summary, together with a clear indication of funding requirements. The following should be covered:

  • Five-year summary of the profit-and-loss account
  • Key ratios to demonstrate the firm's strength (eg, gross profit, return on capital employed)
  • Profit and loss projections
  • Cash-flow projections
  • Forecast balance sheet
  • Detailed explanation of any assumptions
  • "What if" scenarios (eg, the impact of changes in interest rates and break-even analyses)
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