The importance of business plans
Why you need a business plan
Having a business plan is recommended for every start-up, no matter it's size – but why are they important?
From objectives and forcasts to market research, we discuss what you should include and consider when writing yours.
Focus your thoughts
A business plan helps to focus all thoughts, ideas, dreams and aspirations relating to your start-up, and allows you to translate them into facts, figures and projections. It's a written document that describes your business, objectives, strategies, financial forecasts and the marketplace you’ll be entering.
A good business plans is comprehensive, but don't let this task overwhelm you. Your plan needs to be good enough to do the job without becoming a full-time job in itself.
The paybacks of planning
‘If you've never completed a business plan, it might seem a little daunting,’ says start-up business coach Judith Flowerday. ‘Yet thoughtfully and realistically completing a plan is the only truly effective way of getting an accurate overview of where you are right now, and to clearly identify the desired outcome for your business. If it seems difficult, think of the difficulties you could suffer if you don't complete one. These difficulties will be more costly, time-consuming and infinitely more painful than sitting down and being realistic about your business now.’
What should your business plan include?
An executive summary
This is listed first as it's an overview of all the key points that appear in your plan, but you should write it last. It should be a concise summary (2 pages at most) of the entire plan – interesting, explanatory and informative. It shouldn't be an extended contents list or full of jargon. It may be the only part of your plan that a potential investor reads before deciding if you’re worth their money, so make it good.
A summary of the business opportunity
Who you are, what product or service you will sell, and to whom. This is where you give a short history of the business to date. When did you intend to start trading? If you acquired it, who owned the business previously, and what did they achieve with it?
You should also set out your vision and outline what makes your firm different. How will you develop your business? What benefits do you offer over your competitors? This is your opportunity to show your understanding of the key market features and any patents, trademarks or similar you hold.
Your sales and marketing strategy
Why people will buy from you, how you will promote, price and sell your idea. This is often the weakest link in a business plan. Don't let it be your downfall. Put in the research to make your strategy strong and believable. Identify precisely your market position, your customers, how much you’ll charge for different market segments and quantities and why. How will you make use of the different types of advertising? What PR methods and sales channels will you pursue?
Bindu de Stoppani and husband Alex Miller set up vintage VW campervan hire company Our Happy Campers back in April 2011. ‘I'd had previous experience of starting up small film and theatre companies, but without proper business plans or outside investment,’ says Bindu, ‘and Alex had never run a business before.
‘When we sat down to complete a formal plan for the campervan business, it really made us reassess our entire idea and approach for the better. It forced us to properly research the market, where we would position ourselves and how we'd stand out from the competition. It gave us the impetus to call up our competitors and dig around to find out as much as we could, a stage we might have glossed over if we weren't using the plan to attract finance.
‘I wish now we'd done more to research unforeseen costs as that has held us back – specifically as we decided to offer the option of our vans being taken abroad as a unique selling point, but hadn't thoroughly researched the insurance costs, which hit our profits. If we launch another business, I will use the business plan as the absolute basis for every aspect of the planning stage. They are invaluable.’
You and your team
Here you can detail the skills and experience that you possess to head the business. Describe your strengths and those of your key employees, but also any obvious weaknesses and how you’ll mitigate them. You could include a CV for each team member and explain how the team fits together. Outline any advisers you have on board (eg accountants and lawyers) to add weight and experience to the mix. Demonstrate that, between you, there’s the right mix of drive, skills and experience in sales, marketing, financial management, production, operational and marketing experience. Detail any outsourcing of expertise if necessary.
Premises, management systems, suppliers and IT. Explain clearly if you own or lease any premises or work from home, what your financial or contractual commitments are, and the advantages and disadvantages of your location. If relevant, outline your production facilities or outsourcing arrangements. What is your capacity? Will any investment be needed, and who will be your suppliers? You also need to reassure investors (and be sure yourself) that you have good stock, quality control and finance management in place. IT is an essential part of most businesses, so detail your systems and any strengths and weaknesses. For all of the above, you’ll also need to show you have allowed for future expansion.
Your future in numbers. This is the numerical details of all the above. You need to show your cash flow projections in detail for at least the first 12 to 18 months, but ideally for 3 or more years. Include a profit and loss forecast (don't be over-optimistic) for various scenarios based on slower-than-expected sales. The sophistication of your projections should reflect the sophistication of your business. This is where you state how much capital you need (if you are seeking funding), the security you’re offering against it and how you’ll repay it. You should include your personal financial circumstances here if they’re relevant.
To look efficient, show that you have thought of contingencies and insurances for internal and external risks, such as competitor action, operations failure, staffing problems and disasters (eg fire or flood).
Your business plan's not just for launch
It's for the lifetime of your business. It should be a living, breathing document that you return to as your idea comes to life, trading flourishes and you take your new business to the next level. Adjust it, refine it, grow it and treat it as your blueprint for success.
Contains public sector information licensed under the Open Government Licence v3.0.