Role of business planning for a new business• To set the objectives for the business• To ensure the business idea can be delivered profitably• To raise finance (if required) from third parties• To help control / manage the business
Key questions a startup business plan must answer• What is the product and how is it different or unique?• What is the target market segment and who are the potential competitors?• Who are the customers; how much will they buy and at what price?• What will it cost to produce and sell the product?• At what stage will the business break-even and what are the likely profits?• What investment is required to launch and establish the business?• Where will the finance come from and what type of finance is required?
How business planning helps• Provides a focus on the business idea - is it really good and why?• Helps clarify thoughts and identify gaps in information• Provides a logical structure to thinking about the business• Encourages the entrepreneur to focus on what the business is really about• Helps test the financial viability of the idea - can the business achieve the required level of profitability• The plan provides something which can be used to measure actual performance• Nearly always required if raising finance from outside providers - particular investors and banks
Limitations of planning for a start-up• Time is the main constraint – the business planning process should be kept simple and focused• Easy to produce an over-optimistic plan on paper• The written business plan should be long enough for purpose – it doesn’t have to be a bible!
Contents of a simple business plan• Where the idea came from and why it is a good one• Key targets for the business - sales, profit, growth (gives a sense of direction for the business), ideally for the next 3-4 years• Finance required - how much from the founder, how much to be loaned over how loan and from who• Market overview - main segments, market size (value, quantity), growth, market shares of main competitors (if known)• How the business will operate (location, premises, staff, distribution methods)• Cash flow forecast (important) + trading forecast
Contents of a detailed business plan (1)Executive Brief 1-2 page summary – the key issuessummaryMarket Profile of the target market segment based on market researchProduct What it is and how it is differentiated from existing products in the market (the "unique selling point")Competition Honest description of the competition in the target market - strengths / weaknesses and likely responseProtecting the How the product and business can be protected from competition -idea e.g. patents, trademarks, branding etcManagement Crucial area. Who is involved in the start-up and what will they beteam doing? What experience and expertise do they bring? Which management roles will need to be filled as the business grows?Marketing Key elements of the marketing mix should be explained here. Remember that for a start-up the marketing budget is likely to limited, so the strategy should be credible
Contents of a detailed business plan (2)Production Explains what is involved in the production process, what/operations capacity is needed, who will supply the business, where it will be located etc. A reader of the plan will want to know that the detailed operational issues have been considered carefully, and that the cash flow forecast takes account of all operational requirementsFinancial Summary of the cash flow and trading forecasts. This sectionprojections should highlight the key assumptions that have been made and also outline the main risks and opportunities in the forecasts (i.e. what might go wrong, or where things might prove better than forecast). The detailed projections would be included in the appendices.Funding Proposals for where the funding needs to come from (founder,requirements banks, investors etc).Exit strategy How the entrepreneur expects investors to get a return on their investment. Who might eventually buy the business, when, and for how much?