Most small businesses only draw up a business plan when they need one to support an application for business finance. But thinking though your business plan and committing it to writing can play an important role in ensuring you achieve your goals.
Before you start working on your business plan, refine your plans and goals for the business.
Involve your employees in the planning process to get their insights and buy-in to the plan. This will help build a successful, committed team and identify priorities.
Unrealistic sales forecasts could result in a cash flow crisis. They could also damage your credibility – lenders and experienced business people will quickly see through overly optimistic plans.
Write and present your business plan as if it's aimed at an outsider. Use a cover sheet and include a contents page, with page and section numbering. Get the plan proof read for clarity, spelling and grammar mistakes and then show the plan to friends and expert advisers for comments on how to improve it.
Start with a brief history of the business. When did it start trading and what progress has it made to date? Who owned the business originally? What is the current ownership structure?
Describe your product or service without using technical jargon. What makes your product or service different? What benefits does it offer? What are its disadvantages? How do you plan to develop the business? If necessary, you can offer the technical detail for people who want to know more in an appendix to the plan.
Outline your market, your customers and the other businesses you compete against in that market.
Define the market in which you sell and focus on the segments of the market in which you compete. How large is each market segment? What is your market share? What are the important trends, such as market growth or changing tastes and the reasons behind the trends?
Describe the nature and distribution of your existing customers. Give a typical customer profile for each market segment you target, for example, 'businesses with a turnover of more than £2 million', or 'first home buyers'.
Define your principal competition. What are the advantages and disadvantages of their products and services compared with yours? Cover issues such as price, quality and distribution. Then explain your competitive advantage.
Outline your proposed marketing and sales activities and include:
Explain how you position your product or service in the market place. For example:
What unique selling features does your product have and which of these features will you concentrate on?
Explain how price sensitive your products or services are. Look at each product or market segment in turn. Identify where you make your profits and where there is scope to increase margins or sales. Explain how you set your pricing accordingly.
How do you promote your product or service? Each market segment will have one or two optimum methods, for example, direct marketing, advertising or PR.
What channels do you use, or plan to use, to reach your end user? Compare your current channels with the alternatives and note the distribution channels used by your competitors. Outline any plans you may have to improve your distribution.
Analyse the cost efficiency of each of your selling methods, for example, telesales, a direct sales force, an agent, or over the Internet. If you have a direct sales force, include all the hidden costs, such as management time.
Set out the structure and key skills of your management team and staff. Identify any skill shortages, such as IT skills, and your plans to cover these.
Analyse your workforce in terms of total numbers and by department. Compare the efficiency ratios with competitors or with similar industries. Useful figures might be sales, average salaries, employee retention rates and measures of productivity.
Analyse the capacity and efficiency of your operations and your planned improvements. Do you own or lease your premises? What are the advantages and disadvantages of the present location? Should the business expand or move?
Explain how you organise production and what equipment you use. How modern is the equipment and what is the capacity of your current facilities compared with existing and forecast demand?
Give an overview of the management information systems you have in place, such as databases, networks, servers, and accounting reports and processes. Are your systems reliable, secure and can they cope with any proposed expansion?
Set out the historical financial information on your business for the last three to five years. Break the sales figures down. For example, show sales of different types of product or to different types of customers and show the gross margins.
Highlight any major capital expenditure made in the period and provide both an up-to-date balance sheet and profit and loss account. Explain the reasons for movements in profitability, working capital and cash flow and compare them with industry norms. Read How to understand key financial documents business guide to help you present your financial data.
Provide forecasts for the next three years. Use the same format as for the historical information, to aid comparisons. Clearly state the assumptions behind your forecasts. For example, if the plan states that the market is becoming more competitive, then profit margins will probably be falling. Learn more with the Benefits of cash flow forecasting interactive lesson.
Consider including a one-page analysis of strengths, weaknesses, opportunities and threats in your business plan. For example:
Be honest about your weaknesses and the threats you face. Spell out mitigating circumstances and the actions you're taking.
Include your future business plans and how you intend to drive your business forward. Define clear targets and timelines for these so that you know exactly what you want to achieve, and when.
Your business, and the market it operates in keeps changing – sometimes favourably, sometimes unfavourably. This means you should review your plan at least once a year. Revising and updating your plan will keep it relevant as a roadmap for your business.
Your business plan is a critical element to map out the route you plan to follow to create a successful business. Don't wait for external pressure to start your business plan – start working on it straight away.
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This guide is intended as general advice only, and not intended to cover specific circumstances and needs. The information in this article is also not linked to any of the products offered by Clydesdale Bank PLC.