WRITE A BETTER BUSINESS PLAN – by Carole Hildebrand – Firebird Business Consulting Ltd. – Saskatoon
I encourage everyone to have a business plan whether you are a start-up or have been in business for several years. Writing a plan will help you to understand what’s going on in your business and where it is going, and if it even can grow based on your projections. I completely understand that writing a Business Plan is an intimidating process, but one that can be enlightening and really is not that difficult. Writing your plan will assist you to focus your mind to clarify your business idea as well as help secure financial support if you need it. It will also greatly assist you in defining your long-term goals. This will become your blueprint for creating benchmarks to check your progress as your business grows. These are vital for convincing your financial institutions as well as key customers and suppliers to support you.
We have done many plans and this is some of the information you will need to gather for yours:
1. The Executive summary:
The executive summary outlines your business proposal. This is the last section to be written, but will feature on the first page of your business plan. It will be read by people who are unfamiliar with your business, so avoid jargon and acronyms.
The executive summary is just that, a summary. It highlights the most important points and should cover the following areas:
- Your product or service and its advantages to your customer.
- Your prospects or opportunities in the market.
- Who your management team is.
- What your track record is to date.
- Your financial projections.
- The funding that is required and your expected returns.
When deciding whether to back a start-up, bank managers and investors often make provisional judgments based on the executive summary. The main body of the business plan is then read to confirm the initial decision. The appendices at the back of the plan carry detailed information to support the main text.
2. Your Business:
- Explain the background to your business idea, including:
- The length of time you have been developing your business idea.
- How much work have you done thus far?
- Any related experience you have.
- The proposed ownership structure of the business.
Explain, without using tech or industry jargon, what your product or service is.
Your Business or Business Idea must be clear how:
- It will stand out as different from other products or services
- your customers will gain through buying your product or service.
- the business can be developed to meet customers’ changing needs in the future. You must be candid about any disadvantages or weak points you feel the business may have. Your honesty about the pitfalls will inspire confidence that you are prepared for the worst should it occur.
- Explain any key features of your industry such as any special regulations, associations or any major changes in the technology.
3. Markets and Competitors “SWOT Analysis”:
Briefly defined SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal to your company—things that you have some control over and can change. Examples include who is on your team, your patents and intellectual property, and your location.
Opportunities and threats are external—things that are going on outside your company, in the larger market. You can take advantage of opportunities and protect against threats, but you can’t change them. Examples include competitors, prices of raw materials, and customer shopping trends.
Research your market well.
- The focus here is on the segments of the market that you plan to target (local customers, particular age group).
- Indicate how large each market segment is and whether it is growing or declining.
- You must Illustrate the important trends and the reasons behind them.
- Outline the key characteristics of buyers in each segment (age, sex or income).
- Mention customers you have already lined up and any sales you have already achieved.
- Describe any competing products and the suppliers who sell them?
List the advantages and disadvantages of all your competitors and their products.
Explain why people want to purchase from you rather than established competitors.
Show you understand what your competitors’ reaction to losing business will be and demonstrate how you will respond to it.
Sales forecasts produced for start-up businesses are often overly optimistic. You must perform a reality check at this point:
a) How soon can you start?
b) How often will you be able to sell?
c) How many days can you spend selling?
d) How long will each lead take to line up?
e) What is a reasonable percentage of sales?
f) What will be the true value of each sale?
g) Will you achieve repeat business?
h) Are you certain of your products valuation?
i) How much income can realistically be achieved?
Unless there is a viable market and you know how you are going to beat the competition, your business will be vulnerable. You must show you have done the market research needed to justify what you say in the plan.
4. Sales and marketing:
This section is vital to the success of your plan. It will be a good indicator of your business’ chance of success.
- Describe how your product or service will meet your customers’ needs?
- How will you position your product?: This is where you show how your price, quality, response time and after-sales service will compare with competitors.
- How are your sales achieved? (phone, via the web, in person or through an agent): List the sales points for your product or service. Show how long you predict each sale will take. Many new businesses underestimate the time involved in winning each order. In year one you may spend up to 80 per cent of your time making contacts and selling. Will you be able to make repeat sales? If not, it will be hard to build up volume. Explain who your first customers be?
- Show which customers have expressed an interest or promised to buy from you and the sales they represent.
- How will you identify potential customers? Unless you can demonstrate that you have a clearly defined pool of potential customers, starting your business is likely to be a struggle: What is your marketing strategy? How will you promote your product?
- State what contribution to your profit that each part of your business will make
Don’t Be a One Trick Pony
List the products and services that your company will be doing. Most businesses need more than one product or service, more than one type of customer and more than one distribution channel.
- Look at each in turn. Examine your likely sales, gross profit margins and costs.
- Identify where you expect to make your profits and where there may be scope to increase either margins or sales?
- Services and intangible products like software are more difficult to market. If you are a start-up then you must pay special attention to marketing in your business plan.
Lenders and investors reading the business plan need to be given an idea of why they should have faith in the management of your start-up. Outline the management skills within your team:
- Define each management role and who will fill it.
- Show your strengths and outline how you will cope with any weaknesses.
- Describe the background and experience of each team member.
- Clarify how you intend to cover the key areas of production, sales, marketing, finance and administration.
- Management information systems and procedures should be outlined. For example, management accounts, sales, stock control and quality control.
- Show how many ‘mentors’ and other supporters you will have access to. If you want investors to give you something you need to show that you are committed?
- Banks and any other potential investors will want to be sure you are committed to the business. Show how much time and money each of the management team will contribute, and what your salaries and benefits will be.
- In your plan you must explain what facilities the business will have and how it will deliver the product or service to the customer. Show the pros and cons of the location. Indicate the facilities you will need to start (e.g. equipment and machinery). Some start-up businesses only need a desk and a phone.
- Consider any potential limits to production capacity. If you are going to manufacture or distribute products, show how and where you are going to warehouse them and for how long.
- Provide a list of employee roles you need to fill and the skills required to fill them.
- Show how you selected your suppliers.
7. Financial forecasts:
Your financial forecasts translate what you have already said about your business into numbers. A realistic sales forecast forms the basis for all your other figures.
- Break the total sales figure down into its components (eg different types of products or sales to different types of buyer).
- Your cash-flow forecast shows how much money and when you expect it to be coming into and out of your bank account. You need to show that your business will have access to enough money to survive.
- Demonstrate that you have considered the key factors that will affect your cash-flow such as wages.
- Show when there will be more money coming in than going out (‘cash-positive’).
- Your profit and loss (P&L) forecast will give a clear indication of how the business will move forward. Summarize the annual P&L forecast for each of the first two or three years of trading.
Calculate the turnover you need to break even:
If your gross margin is 25 per cent, your sales must be four times as large as fixed costs to break even.
- Compare the breakeven level of sales with the sales you are forecasting.
- If you are launching a larger start-up, you will also need projected balance sheets. These will show you the financial state of your business on day one and at year end, perhaps for the first two or three years.
- Do not get too protective about your forecasts. You may need to revise them.
For every forecast, list all your key assumptions (eg prices, sales volume, timing). Small business advisers at banks and your local business support organisation will often help you put together your forecasts free of charge.
8. Financial Requirements:
- The cash-flow forecast will show how much finance the business needs. Your assessment of the risks will determine whether or not you need to arrange contingency financing. Say how much financing you will want, when and in what forms. For example, you might want a fixed-interest loan and an overdraft facility.
- State what the financing will be used for.
- Show how much will be for buying equipment and how much for working capital (financing stock and debtors).
Most importantly you will need to confirm that you will be able to afford it.
9. Assessing the risks.
- Look at the business plan and isolate areas where something could go wrong (eg if your main supplier closes down). Ask yourself “What would you do if it actually happens?”
- Consider a range of what-if scenarios (eg what happens to your cash-flow if sales are 20 per cent lower or 15 per cent higher than forecast). If there are serious risks:
- you can arrange contingency funding to cover the finance you may need.
- or you may decide that the business is too risky and abandon the whole project.
Assessing risk will help you minimize problems and help build up your credibility with any investor or bank.
- Detailed financial forecasts (monthly sales, monthly cash-flow, P&L) should usually be put in an appendix. Include a detailed list of assumptions. For example, the profit margin on each product, debtor collection period, creditor payment period, stock turn, interest and exchange rates, equipment purchases.
- You may want to give other relevant information.
- Detailed CVs of key personnel (essential if you are seeking outside funding).
- Market research data.
- Product literature or technical specs.
- Names of target customers.
- A list of external data sources used in your research will add credibility to the information.
11.Presenting the plan:
The more solid information you can gather for your own use, the better the business plan will be. But a banker or other outsider will not have time to read through all the details.
- Keep your business plan short. Most business plans are too long. Focus on what the reader needs to know.
- Make it professional. Put a cover on the business plan and give it a title and include a contents page.
- The best favor you could do for you and your business plan is to test your plan.
- Re-read it and ask yourself would your plan give an outsider a good feel for your business and a grasp of the key issues?
- Show the plan to friends and expert advisers and ask them for comments.
If you still need some help structuring your business plan or if you need help growing your company talk to us here at Firebird Business Consulting. Your success is our success.