Last week was about Due Diligence. Continuing with the theme, this post is about building a business plan.
A business plan is a road map helping a business to define and achieve its objectives. Using a business plan template ensures all the bases are covered; defining the project or business strategy and teasing out any weaknesses; providing an opportunity to resolve the issues before presenting to third parties.
A cornerstone to any good business is referencing all points of fact to their source. This gives credence to the integrity of the business plan and to the authors.
On this occasion we are just looking at the construction of a business plan when starting, buying or disposing of a business.
For the first impressions people generally read the executive summary and the numbers. When building the business plan detailed analysis and plans must be drawn up.
These have to include:-
- Description of the business and opportunities
The general points to consider are what is the industry sector, and what are the products and services on offer. It’s also a chance to give an insight into future developments and opportunities. Include the legal status of the organisations, sole trader to listed company? Depending on the circumstances, it may be necessary to explain the reasoning for the structure.
- 2. Marketing
For the reader of the plan, this must be the most important element of the business. It reveals the author’s understanding and viability of the business.
Areas to cover:-
I. Market Research
Detailed analysis of the arena the business will operate in. Demographics, market size, trends, even government legislation, tax breaks for particular industries.
II. Customers’ Profile
Profile the current customer, not overlooking who the future customers will be
III. Competitors’ Profile
Know who they are, their products, services and pricing. Complete a SWOT analysis. Get their financial data obtained from public records. If UK based, Companies House is an excellent source. Don’t forget Google searches.
IV. Managing Market Risks
Barriers to entry and exit. What is the shelf life of the products and services? How would the competition react to new entrants?
The Holy Grail. Many an hour has been spent agonising on deciding what to charge. In the end it comes down to subjectivity, in one form or other. Only premium products command premium pricing, inferior products lower pricing, margin is profit. So get the margin right.
Consider the position of your product in relation to its product life cycle. Is it a “Star” or is it a “Dog”?
VI. Promotion and Advertising
If the customer doesn’t know the product, how can they buy it? Be open to new opportunities; don’t forget social media even if your market is relatively local.
- 3. Running the Business
This is about keeping the plates spinning. The Business Plan needs to demonstrate knowledge of the costs from raw materials to operational. Cheapest is not always best. Look at all contracts and read the small print.
Identify all key suppliers and confirm terms in writing.
Define what skills and staff are required. Over the evolution of the business this may be built over a period of time.
It may be here you match the skills to the senior managers.
Slightly off track, these would be a driver when designing management reporting to monitor KPI. Best to anticipate than to react always more options.
- 4. Finances – THE NUMBERS!!!
Mandatory requirements are the cash flows, projected Profit and Loss and Balance Sheets for a minimum of 5 years; illustrates to third parties strategic planning and evolution of the business.
It should also include a breakeven analysis, how many products need to be sold and at what price to cover costs. Compare pricing to the competition.
Of course one size doesn’t fit all, so complete scenario planning, gives examples of tolerances.
There is often a gap between the funds raised (or expected sales price) and the money required. The cash flow in the first instance with crystalize any shortfall. The authors will have to find solutions to address this. It could be a combination of reducing costs, spreading costs, accelerating income or seeking new funding, at additional cost.
The first page is the last page to be completed. The summary gives a snapshot of the business, the headline figures and the senior management.
A business is not only about the product, it is about the delivery of it. If the right resources are not evident how will the business achieve its objectives?
Give a brief biography of the senior managers and how their expertise will enhance the business.
The business plan has been written, the authors are happy that they have demonstrated their in-depth knowledge.
The business plan needs to be given to the target audience. No matter how good YOU think the message is, if the recipient doesn’t understand it, or it is in a format not to their liking, your objective will not be met.
The completed business plan now takes on a different role. It becomes the template for presentations to interested parties. Often potential investors want to see a one page summary, want to see a PowerPoint presentation, or see prototypes.
Be flexible, listen, and be adaptive. Ensure the data in the business plan is always current.