The secret success of my business planning

I started this post before I saw the news on the G4S fiasco not delivering sufficient staff for the London 2012 Olympics. A perfect example of a business not managing their resources during the planning process! Management accountants are masters at forecasting and planning, often making a very good living at it. And there are of course many IT companies out there offering forecasting software as well as downloaded templates from the internet.

Some questions may be obvious others not so:

How long a period? That depends on the drivers and target audience.

Is it project based or for planning purposes? Project forecasting is often easier to assess. For planning purposes the horizon is often a moveable feast and on occasions subjective.

All business planning from sales forecasts to the ubiquitous 5 year plan has one overriding critical factor, what is the chance of success or failure?

Assuming the planning has a ring of reasonableness, resource management is often overlooked.

Factors to consider, generally forgotten by us mere mortals:

  • Timing is crucial, connecting the resource capacity to new business opportunities and planning based on the likelihood of each new opportunity. Lead times, as a matter of course we plan for delivery of raw materials, what about the other resources?
  • Ensure there are sufficient qualified personnel to achieve the objectives. Plan staff requirements, both current and future never losing sight of experience, skills and training.
  • Capacity of resources is often overlooked or assumed. For example, to meet expected demand, Pepsi Cola are opening a new manufacturing plant in China .   The Farnborough Air show took place this week. To secure raw materials and pricing, Airbus signed a US $1.4B contract with aluminium company Alcoa Inc.
  • Closer to home, there is an upsurge in office space being offered in London’s Shoreditch  to meet the demand of the tech companies from Google to app designers, all needing a place to hang their hat or should that be park their Boris Bikes.

Businesses need to have visibility of their current and upcoming capacity/requirements. Effective monitoring of capacity and expected availability/demand could be the edge to being able to service the client, or in this case the success of my business planning.

How to write a business plan

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:-

  1. 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.

  1. 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?

V.            Pricing

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.


  1. 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.


  1. 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.

Executive Summary

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.


To Finish

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.


Due Diligence

Buying, selling or thinking of setting up a business always do your research, known in the trade as due diligence. The holy trinity of due diligence is always the customers, the company, and the management.

The fundamental question is there a demand for the service or product?  Don’t base it just on hunches or observations. Who are already out there doing it? For very little money Companies House (  can be a great starting point, it’s amazing what information you can get, even for a small company.

Don’t forget pricing, premium products and services command premium pricing try and pull off anything less will fail. The adage is true “You can’t fool all the people all of the time”.

What is the USP (Unique Selling Proposition) why would somebody want to trade with this business? Recognise it, flaunt it.

The company has to be sound, fit for purpose. There has to be clarity on costs, know the suppliers. Is there sufficient support, think about staff, IP, premises and systems, benchmarking, QA?

Thirdly, the management, no man is an island. The most undervalued asset in any business is the staff. It is often unlikely a person holds all the skills to perform all roles and responsibilities.  Identify the key skills and resource.

Whether you are buying selling or setting up a business it always takes longer than first estimates and you can’t forecast for all events.

Covering the bases these are some generic points to be going on with.

Customer 1.       Market Research
2.       Customers’ Profile
3.       Competitors’ Profile
4.       Managing Market Risks
5.       Pricing
6.       Promotion and Advertising
Company A.       Running the Business
1.       Staff
2.       Key Suppliers
3.       Equipment
4.       Managing Operational Risks
5.       Legal Requirements
B.       Finances
1.       Start-up / Selling Costs
2.       Breakeven Analysis
3.       Funding options and Tax incentives
4.       Cash Flow Forecasting
5.       5 Year Plan
6.       Profit & Loss Account
7.      Balance Sheet
Management 1. Job descriptions
2. Contracts
3. Remuneration

Share Loss Relief

Share Loss Relief allows capital losses which arise in respect of shares to be set against a person’s income providing certain conditions are met. Without the provisions which are now at Part 4, Chapter 6 ITA 2007 and Part 4, Chapter 5 CTA 2010 allowable losses computed under TCGA 1992 could only be relieved by setting them against chargeable gains on other assets. Relief against income may be more valuable to the investor than relief against capital gains, and the purpose of Share Loss Relief is to encourage entrepreneurs to invest in unquoted trading companies. Share Loss Relief is available both to individuals (who pay income tax) and to companies (which generally pay corporation tax), although only investment companies are eligible to claim it.

This guide provides an overview for companies and potential investorsIt does not cover all the detailed rules, so companies and investors should not proceed solely on the basis of the information in it, and should consider seeking professional advice.

Venture Capital Trusts (VCT)

Designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange, by investing through Venture Capital Trusts. Spread the investment risk over a number of companies. Investors can subscribe for, or buy, shares in a VCT, which invests in trading companies, providing them with funds to help them develop and grow. VCT realise their investments and make new ones from time to time.

VCT must be prior approved from HMRC. Investments may entitle you to various Income Tax and Capital Gains Tax reliefs, and VCT are exempt from Corporation Tax on any gains arising on the disposal of their investments.

HMRC's approval of a VCT means that it currently satisfies their requirements enabling investors to qualify for certain tax reliefs. It does not guarantee the safety or success of any investments you make in a VCT.


Tax reliefs are only available to individuals aged 18 years or over and not to trustees, companies or others who invest in VCT.

1.       Income Tax reliefs

  • Exemption from Income Tax on dividends from ordinary shares in VCT (dividend relief).
    • 'Income Tax relief' at the rate of 30 per cent of the amount subscribed for shares issued. The shares must be new ordinary shares and must not carry any preferential rights or rights of redemption at any time in the period of five years beginning with their date of issue. You can get this relief for the tax year in which these 'eligible shares' were issued, provided that you subscribed for the shares on your own behalf, the shares were issued to you, and you hold them for at least five years.
    • The Income Tax relief at 30 per cent is available to be set against any Income Tax liability that is due, whether at the lower, basic or higher rate.

2.       Capital Gains Tax reliefs

You may not have to pay Capital Gains Tax on any gain you make when you dispose of your VCT shares. (This is called disposal relief.)

You can get two of the reliefs, dividend relief and Capital Gains Tax exemption, for both newly issued shares and second-hand shares acquired, for example, through the Stock Exchange. But Income Tax relief can be claimed only if you subscribe for new shares.


You can get Income Tax relief for a tax year if shares in VCT for which you subscribed up to a maximum of £200,000 are issued to you in the year.

In some cases you will not be entitled to Income Tax relief for a subscription for VCT shares.

Claiming Income Tax relief when investing in a VCT

Should claim the relief in the tax return for the year in which the shares were issued. Added bonus, you do not necessarily need to wait until you send in your tax return to get the benefit of the relief. You can do this once the shares which qualify for the relief have been issued to you by contacting your Tax Office.

Use a nominee to hold VCT shares?

Yes, but to get Income Tax relief you must have subscribed for them in your own name.

Ceiling £200,000 worth of shares in VCT

Dividend relief that you receive for ordinary shares in VCT (dividend relief), and Capital Gains Tax exemption on their subsequent disposal, are given only for shares you acquire up to the 'permitted maximum' of £200,000 in the tax year.

Selling shares in a VCT exempt from Capital Gains Tax?

There will be no chargeable gain (or allowable loss) for Capital Gains Tax purposes on selling ordinary shares in a VCT provided:

  • you acquired the shares within the permitted maximum for the tax year in question
  • the VCT was an approved as a VCT both when the shares were acquired and when they were sold, and
  • you are aged 18 or over when selling the shares

Sell VCT shares?

Because the ordinary shares of a VCT are listed in the Official List of the London Stock Exchange, you can sell them in the same way as any other listed investment.

Income Tax relief

If you sell or otherwise dispose of your shares within five years of them being issued to you, you will have to repay some or all of the Income Tax relief you get for the shares you dispose of. This does not apply if the disposal is a transfer between spouses.

If there has been a transfer between spouses of shares for which Income Tax relief was obtained, the recipient is treated in relation to any subsequent disposal or other event as though he or she had subscribed for the shares in the first place.


The company’s VCT invest in

If a company issues any of its shares or securities to a VCT, it must meet certain conditions if those shares or securities are to form part of the VCT's qualifying holdings These conditions concern both the type of company and the size and mix of investment. There are, for example, requirements as to the company's:

  • unquoted status
  • trading activities
  • gross assets
  • independence
  • subsidiaries

Unquoted status

The company must be unquoted for VCT purposes. This means that none of its shares, stocks, debentures or other securities can be listed on a recognised stock exchange.

Companies whose shares are dealt solely on the Alternative Investment Market (AIM) of the London Stock Exchange or on two of the Plus Markets are unquoted companies. Those trading on Plus Traded and Plus Quoted will be regarded as unquoted, those trading on Plus Listed will not, as this was designated a recognised stock exchange in July 2007. Shares or securities in a company which ceases to be unquoted can continue to be treated as being comprised in the VCT's qualifying holdings for the following five years.

Trading activities

The company must exist for the purpose of carrying on a 'qualifying trade' or be the parent company of a trading group whose business as a whole meets the scheme's rules. The relevant company must have a permanent establishment in the UK.

Most trades qualify, provided that they are conducted on a commercial basis with a view to making profits. A trade will not qualify if one or more excluded activities together make up a 'substantial part' of that trade. This will depend on the relevant facts and circumstances, but we generally consider that they do where they amount to more than 20 per cent of the trade. The main excluded activities are:

  • dealing in land, financial instruments, or in goods other than in an ordinary trade of retail or wholesale distribution
  • financial activities, property development, or providing legal or accountancy services
  • leasing or letting assets on hire, except in the case of certain ship-chartering activities
  • receiving royalties or licence fees, except where these arise from an intangible asset such as a patent or know-how, where most of it has been created by the company (or one of its subsidiaries)
  • farming, market gardening, or forestry
  • operating or managing hotels, guest houses, hostels, or nursing or residential care homes
  • providing services to another company in certain circumstances where the other company's trade consists to a substantial extent in excluded activities
  • shipbuilding, producing coal or steel

Gross assets

For investment of funds raised from 6 April 2006, the value of the company’s gross assets must not exceed:

  • £7 million immediately before the VCT makes its investment, and
  • £8 million immediately afterwards

If the company is a member of a group, the limits apply to the gross assets of the group, taken as a whole. This is known as the 'gross assets' rule


The company must not be controlled by:

  • another company, or
  • another company and a person connected with that company

Nor must there be any arrangements for such control. For this purpose a company controls another company if it directly or indirectly possesses, or is entitled to acquire:

  • more than 50 per cent of the company's share capital or issued share capital, or
  • more than 50 per cent of the voting power in the company, or
    • enough of the company's issued share capital to entitle it to more than 50 per cent of the company's income, if it were all distributed to the company's participators, or
    • more than 50 per cent of the assets of the company that are available for distribution to the company's participators on its winding-up

For this purpose all loans (except loans convertible into shares) and fixed-rate preference shares that do not carry voting rights are ignored.


A company in which a VCT invests may have subsidiaries providing that they meet certain conditions, which are outlined below.

In the case of each subsidiary, the company invested in must directly or indirectly own more than 50 per cent of the ordinary share capital of the subsidiary and the subsidiary must not be controlled by any person other than the company invested in or another of its subsidiaries. Additionally, any subsidiary whose business consists wholly or mainly of holding or managing land or property deriving its value from land must be at least 90 per cent owned directly by the company invested in. If the money invested in the company by the VCT is to be used by a subsidiary, then that subsidiary must be at least 90 per cent owned directly by the company invested in. The trading activity for which the money was raised may be transferred between such subsidiaries and the company invested in.

Other requirements

Other rules concerning the investment include rules relating to:

  • the maximum size of the investment in any particular company that can count towards the VCT qualifying holdings
  • how the money invested by the VCT is used and the period within which it must be used, and
  • the need for a minimum proportion of ordinary shares with no preferential rights to dividends or to the company's assets on its winding up, and no right to be redeemed, in the investment made by the VCT in any particular company

This guide provides an overview for companies and potential investorsIt does not cover all the detailed rules, so companies and investors should not proceed solely on the basis of the information in it, and should consider seeking professional advice.

The Enterprise Investment Scheme (EIS)

Designed to help small higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. This scheme is only applicable to specific qualifying industries, exceptions listed below.

The Investor

  1. Income Tax

Income Tax Relief is available to individuals only, who subscribe for (although this can be through a nominee), shares in an Enterprise Investment Scheme (EIS). The minimum investment is £500 worth of shares in any one company in any one tax year. From 6 April 2011 relief is at 30 per cent of the cost of the shares (for shares issued on or before 5 April 2011 the relief is 20 per cent of the cost of the shares)  to be set against the individuals Income Tax liability for the tax year in which the investment was made.

Relief can be claimed up to a maximum of £500,000 invested in such shares, giving a maximum tax reduction in any one year of £150,000 providing you have sufficient Income Tax liability to cover it.

This relief cannot be set off against dividend income, as the tax credit attached to the dividend is not recoverable.

Generally, these shares must be held for three years from the date the shares were issued tax relief could be withdrawn. Income Tax relief can only be claimed by individuals who are not 'connected' with the company.

  1. Capital Gains Tax exemption

If you have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for the period referred to above, any gain is free from Capital Gains Tax. If no claim to income tax relief is made, then any subsequent disposal of the shares will not qualify for exemption from capital gains.

  1. Loss Relief

If the shares are disposed of at a loss, you can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains.

  1. Capital Gains Tax deferral relief

This is available to individuals and trustees of certain trusts. The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company. The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose.

There are no minimum or maximum amounts for deferral. It does not matter whether the investor is connected with the company or not. Unconnected investors may claim both Income Tax and capital gains deferral relief.

There is no minimum period for which the shares must be held; the deferred capital gain is brought back into charge whenever the shares are disposed of, or are deemed to have been disposed of under the EIS legislation.

The company

In order for its investors to be able to claim, and keep, the Enterprise Investment Scheme (EIS) tax reliefs relating to their shares, the company which issues the shares has to meet a number of rules regarding the kind of company it is, the amount of money it can raise, how and when that money must be employed for the purposes of the trade, and the trading activities carried on.

The company must satisfy HM Revenue & Customs that it meets these requirements, and is therefore a qualifying company.

  • Must be an unquoted company at the time the shares are issued.
  • Must not be controlled by another company (or another company and any person connected with that company).
  • There are also various other criteria but these are the main considerations

Limit on money raised

Companies are not allowed to raise more than £5 million in any 12 month period from the venture capital schemes. The schemes are the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs). Investments from either of these schemes must fall within the £5 million limit.

Trading activities

Most trades qualify, but some do not. Those that do not are termed 'excluded activities' and are:


dealing in land, in commodities or futures in shares, securities or other financial instruments
property development
operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment
operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home
Non-core activity dealing in goods, other than in an ordinary trade of retail or wholesale distribution

Financial Services

financial activities such as banking, insurance, money-lending, debt-factoring, hire-purchase financing or any other financial activities
leasing or letting assets on hire, except in the case of certain ship-chartering activities
Intellectual property receiving royalties or licence fees (though if these arise from the exploitation of an intangible asset which the company itself has created, that is not an excluded activity)
Professional Services providing legal or accountancy services


farming or market gardening
holding, managing or occupying woodlands, any other forestry activities or timber production
Manufacturing shipbuilding

Natural Resources

coal production
steel production

This guide provides an overview for companies and potential investors. It does not cover all the detailed rules, so companies and investors should not proceed solely on the basis of the information in it, and should consider seeking professional advice.

The Seed Enterprise Investment Scheme (SEIS)

Is designed to help small, early-stage companies to raise equity finance by offering a range of tax reliefs to individual investors who purchase new shares in those companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by the existing EIS. SEIS applies for shares issued on or after 6 April 2012. The rules have been designed to mirror those of EIS as it is anticipated that companies may want to go on to use EIS after an initial investment under SEIS.

Income Tax relief is available to individuals who subscribe for qualifying shares in a company which meets the SEIS requirements, and who have UK tax liability against which to set the relief. Investors need not be UK resident.

The shares must be held for a period of three years from date of issue for relief to be retained. If they are disposed of within that three year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.

Relief is available at 50 per cent of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. The relief cannot be set off against the notional tax credit on dividend income, as that tax credit is not recoverable.

This is the first year of the scheme there are no capital gains tax relief applicable. Though If you sell an asset that gives rises to a Capital Gains Tax liability this can be mitigated by investing up to £100,000.


  • It must have fewer than 25 employees. If the company is the parent company of a group, that figure applies to the whole group.
  • It must have no more than £200,000 in gross assets. If the company is the parent company of a group, that figure applies to total of the gross assets of the company and its subsidiaries. Shares in, and loans to, subsidiaries, are ignored for this purpose.
  • The company must not have had any investment from a Venture Capital Trust (VCT), or issued any shares in respect of which it has submitted an EIS compliance statement.
  • The company is restricted as to the amount of money it may raise under SEIS. It may not receive more than £150,000 in total under the scheme. This also take into consideration other State Aid received by the company in the three years preceding the relevant share issue which is de minimis aid according to EU regulations. (HMRC would not expect this to be common and if the company has had any such de minimis State Aid it will have been advised accordingly by the body responsible for administering that aid.) If the relevant issue of shares takes the total over £150,000, then the excess will not qualify for relief.

This guide provides an overview for companies and potential investors. It does not cover all the detailed rules, so companies and investors should not proceed solely on the basis of the information in it, and should consider seeking professional advice.


HMRC offer a number of tax incentive schemes to stimulate investment in new businesses. Depending on how much funding is required will direct you to which scheme is applicable to your enterprise. HMRC venture capital schemes are:

  • The Seed Enterprise Investment Scheme (SEIS)
  • the Enterprise Investment Scheme (EIS),
  • the Venture Capital Trust scheme (VCT Scheme),
  • Share Loss Relief (effectively relief against income for capital losses on certain shares, previously called ‘VC Loss Relief’)

These schemes are grouped together as they have similar aims and have certain legislative features in common.

  • There is also the Corporate Venturing Scheme (CVS). Though this scheme only relates to made before 31 March 2010. Investments made before that date continue to attract relief as long as the relevant conditions are met for the qualification period.

This guide provides an overview for companies and potential investors. It does not cover all the detailed rules, so companies and investors should not proceed solely on the basis of the information in it, and should consider seeking professional advice.