STEP ONE: Understand why you should write a business plan
“Writing a business plan helps you think about what you are doing,” advise the team at Start-up Donut. “The plan sets out your strategy and action plan for the next one to three years, or sometimes longer. As part of the process, you set concrete objectives and plan how you will achieve them. It will help you focus and develop your ideas.” Putting the plan in writing makes it easier to spot any gaps where you may have more work or research to do, they add.
“Once written, the plan is a benchmark for the performance of the business,” the team explains. “It’s also essential if you are planning to raise finance from a bank or outside investors and it can help you attract new senior management, or business partners such as distributors and agents.” With that in mind, the team say it’s crucial to tailor it, depending on who the reader might be. “For example, you may want the plan to 'sell' the business to your bank manager or investors, so ask the intended recipient if there are any specific issues they want the plan to address or a template you should follow.”
STEP TWO: Know how to go about writing your business plan
Experts agree that while a business plan should include detailed information where possible, it’s important to know where to edit, and where to leave more specific information to the likes of marketing or operational plans. Here are some more tips to bear in mind…
Keep it short
According to the team at Start-up Donut, there are four key points to remember: “Focus on what the reader needs to know. Cut out any waffle. Make sure there are no spelling mistakes and put any detailed information (financial forecasts, CVs of key staff members and technical specifications in an appendix.)”
Like anything in business, it’s important to walk before you run. “Base your business plan on reality, or it may be counterproductive,” warn the Start-Up Donut team. “Over-optimistic forecasts can lead to increased overheads followed by a cash flow crisis and drastic cost-cutting. Be realistic, even if you are selling the business to a third party. Remember, financiers, business partners and employees will see through over-optimistic plans that ignore weaknesses or threats.”
Make it professional
Sometimes, say the Start-Up Donut team, the simplest of tweaks can make even the most basic of plans look more professional. “Put a cover on it,” they suggest. “Include a contents page, with page and section numbering and start with an executive summary. This summarises the key points, starting with the purpose of the business plan.”
It should really go without saying that all business plans should be thoroughly proof-read, but just in case you’re in need of a reminder: “Read through the plan from your target reader's point of view,” advise the Start-Up Donut team. “For example, try to imagine the impression the plan will make on your bank manager. Check the plan is realistic. Make sure it includes the evidence to back up what you say (perhaps in an appendix) or that you can provide evidence if needed. Make sure you’ve assessed the risks, including what might go wrong and what would you do about it.” Finally, pay special attention to how you round things off. “Concentrate on the executive summary,” say the Start-Up Donut experts. “People often make provisional judgements based on this. Only then do they read the rest of the plan to confirm their decision.”
STEP THREE: Explain your business and products
In terms of starting points, the Start-Up Donut team say you should begin by explaining the history of the business, and answer some important questions. “When did it start trading and what progress has it made to date? If the business is a new start-up, what is your personal industry background and what progress towards launching the business has been made? Who owned the business originally? What is the current ownership structure? Describe what your product or service is, avoiding technical jargon if possible.”
Also, think about what makes your product or service different. “What benefits does it offer? What are its disadvantages and how will you address these? What changes and improvements are you planning? Explain any key features of the industry, for example, any special regulations, or whether the industry is dominated by a few large companies or any major changes in technology.”
STEP FOUR: Identify the competition
Your market and the competition are two of the most important factors to explain in your business plan, say the Start-Up Donut team. “Make sure you highlight the segments of the market in which you compete, as well as the key characteristics of customers in each segment and what influences their purchasing decisions,” they explain. “How large is each market segment? What is your market share?
And what are the important trends, such as market growth or changing tastes? Explain the reasons behind the trend.”
You also want to take the time explaining the outlook for each segment and why your services or products might be a good fit. “Remember to explain what the competing products or services are and who supplies them,” warn the Start-Up Donut team. “What are their advantages and disadvantages compared to you? For example, price, quality, distribution. Why will customers buy your product or service instead? How will your competitors react to losing business and how you will respond?” Just remember to never openly criticise or underestimate competitors – it’s not a good look.
STEP FIVE: Outline your marketing & sales strategy
This is about positioning your product or service in the market, understanding if it has a niche and what benefits you are potentially offering your customer, say the Start-Up Donut team. It’s also your chance to explain your pricing policy and where profits will potentially come from. “Look at each product or market segment in turn,” suggests the team. “Identify where you make your profits and where it may be possible to increase margins or sales, and set your pricing accordingly. Each market segment will have one or two promotional methods that work best. For example, direct marketing, advertising or PR. If you are considering using a new marketing method, start on a small scale. A failed investment in marketing can be costly.”
Also, take the time to lay out which sales channels you plan to use to reach your target customers. “For example, do you sell directly to the customer, or through retailers or agents?” asks the the Start-Up Donut team. “Do you sell online? Compare your current channels with the alternatives. Note the distribution channels used by your competitors, too, and look at the positive and negative trends in your chosen distribution channels.” Finally, don’t forget to include all the hidden costs, such as management time and how long or likely it is until customers make repeat orders.
STEP SIX: Confirm the management & personnel structure
By setting out the structure and key skills of the management team and the staff, you’ll be able to clarify how you cover the key areas of production, sales, marketing, finance and administration. “Address any areas of deficiency, and your plans to cover this weakness,” advise the Start-Up Donut team. “Explain your recruitment and training plans, including timescales and costs and analyse the workforce in terms of total numbers and by department.” You can also compare this with competitors, or with similar industries by using figures like sales targets, average salaries, employee retention rates and measures of productivity. “Just be realistic about the commitment and motivation of the workforce,” warn the Start-Up Donut team. “Show how committed you and other members of the management team are. For example, how much you have invested in the business? Consider how you would survive the loss of a key worker and take note of any unusual upward pressure on pay levels.”
STEP SEVEN: Explain the operations
This is where you spend time looking at the capacity and efficiency of your operations, and any planned improvements, explain the Start-Up Donut team. For example, what premises does the business have? Do they meet your current and future needs and what are your long-term commitments to the property? It’s also the time to explain your management systems in appropriate detail. “A financier will be very concerned if management information systems are inadequate,” warn the Start-Up Donut team. “Management of a business is always limited by the quality of the information available, so are your IT systems reliable? Is IT a key strength (or weakness) of your business? The development of IT systems to help your business is usually an important issue.”
STEP EIGHT: Forecast your finances
Think of it this way – your financial forecasts translate what you have said about your business up until this point into numbers, something investors will be keen to read. “Set out historical financial information for the last three to five years, if available,” suggests the Start-Up Donut team. “Break total sales figures down into component parts – for example, sales of different types of product or to different groups of customers. Then, show the gross margin for each sales component and list what costs are included as direct costs for each component.”
You might also want to show the movement in the key working capital items of stock, trade debtors and creditors, or highlight any major capital expenditure. “Always provide an up-to-date balance sheet, and a profit and loss account,” advise the Start-Up Donut team. “Explain the reasons for movements in profitability, working capital and cash flow and compare them with industry norms. Then, try to provide forecasts for the next three (or even five) years, to a level of detail appropriate for the age and life of your company.”
Just remember to be realistic about forecasts in new markets. “For example, how much resource can you devote to selling, what success rate can you expect and how long will it take to convince new customers?” asks the Start-Up Donut team. “Look at the overall trends of historical and forecast numbers. Are they believable? Do the forecasts allow for the possibility of problems and delays in payments that could affect cash flow? Consider the 'what-if' scenarios. For example, consider what will happen to your cash flow if sales are 20% lower than forecast (or 15% higher).” Beyond this, any especially detailed financial information is ideally included in an appendix.
STEP NINE: Consider SWOT analysis
A SWOT analysis will show you really understand your business and the key external factors that you need to deal with. “Set out a one-page analysis of strengths, weaknesses, opportunities and threats,” explain the Start-Up Donut team. “Strengths might include brand name, quality of product, or management experience. Weaknesses might be lack of finance, or reliance on just a few customers. Opportunities might be increasing demand or a competitor going bust. Threats might be a downturn in the economy or a new competitor. Be honest about your weaknesses and the threats you face and spell out any mitigating circumstances and the defensive actions you are taking.”
STEP TEN: Nail the executive summary
The executive summary actually goes at the beginning of your business plan, but because it’s a snapshot of your plan, experts will tell you it’s often best to write it last. Its aim is to hook readers with your idea, give an overview of your plan – including what makes you different, how you’re going to market your ideas, and how much money you expect to make (and spend) – and make a good first impression.
To begin, capture your reader’s attention right from the start by including an attention-grabbing statistic or research finding in the first line. If you’re making claims about your business or project, make sure they are backed up elsewhere in the plan. Keep it brief and ultimately, positive. Any challenges or threats should be dealt with properly elsewhere – you don’t want to put people off. It’s also a good idea to stick to the number of paragraphs as mirrored by sections of the plan i.e. a paragraph on the business history, one on marketing, one of finance and so forth. Just don’t go into too much detail – that’s what the rest of the document is for.
To download a free business plan template visit Princes-Trust.org.uk or for financial help, visit TheBusinessFinanceGuide.co.uk. You can also find more support and resources on the government website here.