Writing a business plan


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Writing a business plan

  1. 1. Directors’ Briefing Strategy Writing a business plan Every management team should know 1.2 Sometimes the plan is aimed at people where it is taking the business, and how it outside your business. is going to get there. The purpose of the For example when you are: business plan is to outline the strategy and actions required to get the business to • Raising bank or equity finance. where it wants to be. • Disposing of a business. • Attracting new senior management. This briefing outlines the key issues to consider • Attracting business partners, such as when putting together a ‘typical’ business plan. distributors and agents. Depending on the scope of your plan, you may need to omit or combine certain sections. In this situation, the plan needs to ‘sell’ the business. The briefing covers: The plan may need to be tailored to the • The reasons for a business plan. target audience. For example, your bank • The required emphasis for a plan. manager. • The structure and content of a plan. Specific issues such as the personal track records of the directors may need to be 1 Purpose of the plan addressed. Ask the intended recipient first. Be clear about what the business plan needs to achieve. 1.1 A primary aim of any business plan is to set out the strategy and action plan for the business for the next one to three years (sometimes five years). • It explains your objectives and how you will achieve them. • By involving your employees in the complete planning process, you continue to build up a successful, committed team. • Priorities are identified. Non-priorities are discarded, saving precious time. Once written the plan is a benchmark for the performance of the business. Putting the plan in writing helps you focus and crystallise ideas, and identify priorities. England Reviewed 01/10/08
  2. 2. Directors’ Briefing 2 2 Content of the plan has it made to date? • Who owned the business originally? Base the plan on detailed information where • What is the current ownership structure? possible. But do not include all the detail in the plan. Leave the detail for operational or 3.2 Describe what your product or service is. marketing plans. Avoid technical jargon if possible. 2.1 Keep the plan short. • In general, what makes it different? • What benefits does it offer? What are its • Focus on what the reader needs to know. disadvantages? • Cut out any waffle. • What are the planned developments? • Ensure there are no spelling mistakes. • Put any substantial information, such as 4 Market and competition “ market research, in an appendix. Detailed business plans are often quickly 4.1 Define the market in which you sell. Focus There is no shelved, because they are difficult to use on on the segments of the market in which point in spending an ongoing basis. you compete. hours producing detailed financial 2.2 Base your business plan on reality, or it • How large is each market segment? forecasts if you are may be counter productive. • What is your market share? ” not going to use • What are the important trends, such as them to control the • Over-optimistic sales forecasts can lead market growth or changing tastes? business. to increased overheads followed by a Explain the reasons behind the trend. Steve Richards, cashflow crisis and drastic cost cutting, all • What are the key drivers affecting each Interflora of which can seriously damage morale. important market segment? • Be realistic, even if you are selling the • What is the outlook for those drivers and business to a third party. (See 1.2.) the market? Financiers, business partners and 4.2 Describe the nature and distribution of employees will see through over-optimistic existing customers. plans that ignore weaknesses or threats. Management credibility can be damaged. • Do they fit the profile of the chosen market segment? If not, why not? 2.3 Make the plan professional. • Is there a heavy concentration of sales around one or two large customers? • Put a cover on it. • Include a contents page, with page and 4.3 Outline the principal competition. section numbering. • Start with an executive summary. • What are the competing products or This summarises the key points, starting services? Who supplies them? with the purpose of the business plan. • What are the advantages and • Use charts, if relevant. disadvantages compared to your own? For example, price, quality, distribution. 2.4 Even if the plan is for internal use only, write • Why will customers buy your product or it as if it is aimed at an outsider. service instead? • Never overtly criticise or underestimate • Include company or product literature as an competitors. appendix. • Give details about the history and current status of the business. 5 Marketing and sales Show the plan to friends and expert In this section of the plan, you usually address advisers and ask for comments. Which these five questions. parts did they not understand? 5.1 Where do you position your product or service in the market place? 3 Business and products • Is it high quality and high price? 3.1 Explain the history of the business. • Is it marketed as a specialist product due to a particular feature? • When did it start trading and what progress • What unique selling features does it have?
  3. 3. Directors’ Briefing 3 • Which of these features are you going to • Compare your current channels with the concentrate on? alternatives. • Note the distribution channels used by your 5.2 What is your pricing policy? competitors. • Look at the positive and negative trends in • Explain how price-sensitive your products your chosen distribution channel. are. • Look at each product or market segment in 5.5 How do you do your selling? turn. Analyse the cost efficiency of each of your Identify where you make your profits and selling methods. For example, telesales, a where there is scope to increase margins or direct sales force, through an agent or over “ sales. Set your pricing accordingly. the Internet. 5.3 How do you promote your product or • Include all the hidden costs of the direct Start with service? sales force, such as management time. your distinctive Each market segment will have one or two capabilities — what optimum methods. For example, direct do you do that 6 Management and personnel your customers marketing, advertising or PR. recognise as • If you are considering using a new method, 6.1 Set out the structure and key skills of the ” being different or start on a small scale. A failed investment in management team and the staff. Identify better than the marketing can be costly. any areas of deficiency, and your plans to competition? cover this weakness. Richard Holloway, 5.4 Through what channels do you reach your Aditum end user? • Explain your recruitment and training plan, including timescales and costs. 6.2 Analyse the workforce in terms of total Driving your business forward numbers and by department. Compare the efficiency ratios with competitors, or with Start by identifying what makes you better similar industries. than the competition. Think also about what the key ingredients of your future success • Useful figures might be sales, average will be and how you will strengthen your salaries, employee retention rates and position in the market. measures of productivity. Then establish your overall business aims 6.3 Be realistic about the commitment and — where you realistically intend to be in motivation of the workforce. Consider how three years’ time. you would survive the loss of a key worker. Next, decide on half a dozen objectives, • Note any unusual upward pressure on each of which will make a significant remuneration. difference to the future of your business. • Spell out any plans to improve or maintain Define clear targets for these — so that you motivation. know exactly what you want to achieve, by when. 7 Operations Many businesses think in terms of: Analyse the capacity and efficiency of your • Income — more sales, better margins. operations, and the planned improvements. • Customers — new customers, higher levels of customer satisfaction. 7.1 What premises does the business have? • Products — improving existing products, launching new ones. • What are the long-term commitments to • Human resources — recruiting new property? employees, developing new skills. • What are the advantages and disadvantages of the present location? The next stage is to work out how you will Should the business expand or move? reach these targets, by considering each aspect of your business in turn and creating a 7.2 What production facilities are there and step-by-step action plan for it. how is production organised?
  4. 4. Directors’ Briefing 4 • How modern is the equipment? • The sophistication of your forecasts should • What is the capacity of the current facilities reflect the sophistication of your business. compared with existing and forecast A small business may only need profit demand? and loss, sales and cashflow statements. A more complex asset-based business 7.3 What management information systems — or one with complex working capital are in place? requirements — will need balance sheet forecasts as well. • Are they reliable? • Use the same format as for the historical • Can they cater for any proposed information, in order to aid comparisons. expansion? • Clearly state the assumptions behind the forecasts. These should tie in with A financier would be very concerned if statements in the rest of the plan. management information systems were For example, if the plan states that the inadequate. Management of a business market is becoming more competitive, then is always limited by the quality of the profit margins should probably be falling. information available. Look at the overall trends of the historical IT is a key strength (or weakness) of your and forecast numbers. Are they believable? business. The reliability of your IT and the Do the forecasts make allowance for the development of IT systems to help your possibility of problems and delays? business are usually important issues. 8.3 If you are raising finance, use the cashflow Identify any quality or regulatory standards that forecast to predict your cash requirements. the business must conform to (eg ISO 9000 or CE approval). • Add a contingency element on to the funding requirement shown in the forecast. (This is often 10 to 20 per cent.) Consider 8 Financial performance what the mid-month peaks might be. • Include the likely interest or dividend costs Your financial forecasts translate what you have of any new finance. said about your business into numbers. • Carry out sensitivity tests on the cash required by reducing key items, such as 8.1 Set out the historical financial information sales or margin. Note the outcomes. for the last three to five years, if available. • State why the cash is required. • Break total sales figures down into component parts. 9 SWOT analysis For example, sales of different types of product or to different types of customers. 9.1 Set out a one-page analysis of strengths, • Show the gross margin for each weaknesses, opportunities and threats. component of sales. List what costs are included as direct costs for each • Strengths might include brand name, component. quality of product, or management. • Show the movement in the key working • Weaknesses might be lack of finance, or capital items of stock, trade debtors and dependency on a few customers. creditors. • Opportunities might be increasing demand Use ratios such as stock turnover (in or a competitor going bust. months), debtors period (in days), and • Threats might be a downturn in the © BHP Information creditors period (in days). economy or a new competitor. Solutions Ltd 2008. • Highlight any major capital expenditure ISSN 1369-1996. All rights reserved. No made in the period. 9.2 Be honest about your weaknesses and the part of this publication • Provide an up-to-date balance sheet, and a threats you face. may be reproduced or profit and loss account. transmitted without the written permission of the • Spell out mitigating circumstances and the publisher. This publication Explain the reasons for the movements in defensive actions you are taking. is for general guidance profitability, working capital and cashflow. only. The publisher, expert contributors and distributor Compare them with industry norms. disclaim all liability for any errors or omissions. 8.2 Provide forecasts for the next three (or Consult your local business support organisation or your even five) years. professional adviser for help and advice. Published by BHP Information Solutions Ltd, Althorp House, 4-6 Althorp Road, London SW17 7ED Tel: 020 8672 6844, www.bhpinfosolutions.co.uk