BUSINESS PLANS
GUIDE TO WRITING YOUR BUSINESS PLANINTRODUCTION
A business plan is an important document for any business and it
can be written for a variety of reasons. Internally, it can help
owners and managers crystallise their ideas, focus their efforts
and monitor performance against established objectives. Externally,
the business plan can act as a medium for attracting finance for
start-ups or expansion.
There are many books and publications, which tell you how to
write a business plan, what it should contain and how it should be
used. This one is different. This is a work-pack specifically
designed for those who wish to raise finance.
For many people, the experience of raising finance is a new one.
The importance of the plan to this process cannot be
overemphasised. Many opportunities presented to financiers are
subsequently rejected. It is essential, therefore, that the
entrepreneur prepares a quality document. The objective of this
work-pack is to help you prepare just such a document by providing
you with the headings which need to be covered.
The sections which follow outline the contents of the business
plan. We hope that you will find the comments relevant and thought
provoking and that you will be able to use these thoughts as a
basis for preparation of a business plan which will adequately
convey your ability to succeed.
CONTENTS
The business plan should summarise the proposed activity and the
prospects for success for the venture, paying particular attention
to factors that are critical to success or failure.
The contents should be tailored to the particular individual
requirements, circumstances or characteristics of the proposal.
However, in general, they commonly fall within the following
categories: Executive Summary Current position
Objectives
Product/Service and Operations Marketing and Sales Plan
Competition Management and Staff
Financial plan
Information and control
Risk factors and mitigationWe believe that the business plan
should be written by you, the management, albeit with the help of
professional advisers. The investor is backing the management and
the plan must be an expression of your objectives. Experience has
shown that the advisers provide a useful role in helping to
determine the overall structure of the plan and can provide helpful
ideas and reactions.Do keep the length of the plan under control
and remember that the reader is unlikely to know the sector as well
as you! Avoid jargon and explain acronyms/abbreviations in some
cases a Glossary is a good idea. Do include a title page containing
address and contact details, together with an Index.EXECUTIVE
SUMMARY
Although preferably written last, the Summary should appear at
the front of the proposal.
It is essential that the Summary 'catches the eye' and grasps
the imagination of the reader by providing enough information for
him to decide in principle if he would be interested in the
deal.
Financiers have different preferences and are looking to invest
in different situations. The Summary must be clear enough for them
to establish from the start whether or not the case is worth
pursuing.
The Summary should include:
What your product or service is, in a clear, concise
description; What your market is;
The unique aspects of your product;
Why customers will buy from you rather than your competitors; In
the case of new or innovative products, what barriers there are to
prevent competition entering the market; Management experience and
funding input; The financial highlights, both achievements to date
(if appropriate) and expectations of growth; The finance required;
The potential 'Exit" route/returns for the investor or the ability
of the business to service borrowings.CURRENT POSITION
This section should be a brief resume of the stage the business
has reached and how the company has developed in the last few
years, with reference to factual information.The following
questions should be addressed:
What is the corporate structure?
Who owns the company and shareholdings? Who are the senior
managers?
What is the management structure?
How many employees are there?
What is the location?
What is the trading history? What are the key financial
ratios?
What are the strengths and weaknesses of the business? (SWOT
analysis)OBJECTIVES
The business plan should include a clear and concise statement
of the current objectives. Some factors are easily measured such as
turnover or profitability targets. Others are, however, more
qualitative in nature and these should not be disregarded simply
because of their subjective nature. It is important to recognise
that performance will be monitored against these targets by
external investors at a later stage; consequently they must be
achievable. Future positive and negative variances will have to be
explained.
You should state the following:
Any turnover targets by product, if relevant;
Any profit or cost reduction target;
Any market share target;
Any nonfinancial objectives such as improving your:- customer
service;
- industry reputation;
- product quality;
Any relevant personal objectives.PRODUCT/SERVICE AND
OPERATIONSThis section may seem more relevant to a manufacturing
business but applies equally to other industries and service
companies. Existing products or services should be considered in
turn, and thought given to how each can be improved, developed or
replaced to maintain competitiveness. Furthermore, if goods are
being manufactured, or a new service is being offered it is
important to consider the side effects. For example, more staff and
production space may be required; raw materials purchased and
stocks held may need to be increased, or specialist staff
recruited. The operations plan should state how all these will
'come together' to achieve success.
Describe:
Products or Services;
Unique qualities and any intellectual property rights;
Regulatory issues (if appropriate); For a new product, the path
to launch; Any plans for diversification;
Facilities;
Manufacturing processes;
Plant and machinery used in processing;
Organisational structure and identify key positions, roles and
responsibilities.MARKETING AND SALES PLANThis is a vital area,
which should be explained in detail. The location and size of your
market will need to be defined, together with your share of the
total. Where relevant, you may need to involve third parties to
substantiate your claims; guesswork will not do!
You will need to demonstrate the steps you are going to take in
marketing your business and the impact you expect these to have.
Are you assuming that your market share will increase? If so,
explain why. Dependence on success from large increases in market
share will often be difficult to justify.
In summary, include the following:
Absolute size of your domestic market;
Absolute size of your export market (if appropriate); Trends and
developments expected in the market in the future;
Your target market and share;
The factors influencing the market; The risks associated with
new markets; Results of market research; Routes to market; Sales
pipeline.COMPETITIONHow influential are your competitors and to
what extent are they in a strong position to influence your market
share? Is your market dependent on external factors over which you
have no control? If so, these need to be predicted and planned
for.Describe: Who they are;
What their strengths and weaknesses are;
What the response of the competition will be;
How your product is superior; The relative importance of each
competitor.
MANAGEMENT AND STAFF
It is said in the industry that financiers back people not
businesses. The quality of the management team is recognised as the
key factor in any investment decision. The importance of this
should be borne in mind both when preparing the plan and during
negotiations with potential backers.
It will be important, too, to demonstrate that the team can work
together and that there are unlikely to be conflicts or confusion
of roles in the future. If there has been a high turnover of senior
staff in the past, explanations will be required.
The plan should include:
Evidence of the track record of key individuals;
Their experience in the industry;
Future executive requirements;
Curricula vitae for senior managers (usually relegated to
appendices);
Identification of the key function areas e.g. marketing, finance
etc. and that each of these is covered by management with
appropriate experience;
The financial rewards to the senior executives;
The ages of the senior executives. If they are likely to retire
soon, what provisions have been made for succession;
FINANCIAL PLAN
Many business plans fail to raise finance due to the inadequacy
of the financial information provided. Investors will be assessing
the projected funding requirement and the anticipated profitability
to establish whether the proposition is commercially viable, and
the potential return sufficient. Ensure that the financial plan
reflects the objectives set out in the other constituent parts of
your business plan.
Include the following:
The funding requirement;
A summary of the projections;
A summary of key financial statistics;
The detailed assumptions behind the forecasts;
A summary of the sensitivity of the forecasts to the key
assumptions.
The following should be appended:
The detailed projections for up to 3 years including profit and
loss accounts, cash flow statements, and balance sheets;
The most recent financial statements; and
Details of any sensitivity analysis.
INFORMATION AND CONTROL
Writing a business plan is not a oneoff exercise. It becomes a
more valuable management tool by being used and reviewed regularly
as the business develops.
Internal review of the business is only possible by ensuring
that adequate management information and control systems are in
place. Furthermore, external investors are likely to require that
regular financial information is forthcoming from the company.
The business plan should therefore contain the following:
An outline of the transaction recording systems;
Details of the regular management reports;
A demonstration that the business has staff with adequate
financial skills;
Details of how the business will be managed on a day to day
basisPurpose of Lesson: In this lesson you will learn how to
identify the materials, labor, transportation, shipping, physical
location, technology, and other important logistics of how your
business will run.
What is a Technical Feasibility Study?
The Technical Feasibility Study assesses the details of how you
will deliver a product or service (i.e., materials, labor,
transportation, where your business will be located, technology
needed, etc.).
Think of the technical feasibility study as the logistical or
tactical plan of how your business will produce, store, deliver,
and track its products or services.
A technical feasibility study is an excellent tool for
trouble-shooting and long-term planning. In some regards it serves
as a flow chart of how your products and services evolve and move
through your business to physically reach your market.
The Technical Feasibility Study Must Support Your Financial
Information
Do not make the mistake of trying to entice investors with your
staggering growth projections and potential returns on their
investment that only includes income (revenue) to the business.
With any increase in revenue there is always an increase in
expenses. Expenses for technical requirements (i.e., materials and
labor) should be noted in the technical feasibility study.
You should also not strictly rely on feasibility study
conclusions to impress an investor. An experienced investor or
lending institution will read your entire report and come to their
own conclusions.
Therefore, it is critical that the technical and financial data
in your study reconcile. If other parts of your feasibility study
shows growth, you will also have to project labor and other costs
and the technical ability to support that growth.
The technical component serves as the written explanation of
financial data because if offers you a place to include detailed
information about why an expense has been projected high or low, or
why it is even necessary. It demonstrates to potential investors
and lenders (and in some cases, potential clients) that you have
thought about the long-term needs your business will have as it
grows.
Preparing an Outline for Writing Your Technical Feasibility
Study
The order that you present technical information is not as
important as making sure you have all the components to show how
you can run your business.
You do not have to include specific financial information in the
technical portion of your feasibility study, but all information in
this component must support your financial data represented
elsewhere. Basic things that most businesses need to include in
their technical feasibility study include:
Materials
Labor
Transportation or Shipping
Physical Location
Technology
Calculating Material Requirements
In this section you list the materials you need to produce a
product or service, and where you will get those materials. Include
information such as if volume discounts will be available as your
business grows, or if you ever plan to manufacture your own parts
at some point in time.
Things to include in your list of materials:
Parts needed to produce a product,
Supplies (glue, nails, etc.), and
Other materials that are involved in producing or manufacturing
your product.
You do not need to include actual financial data in this portion
of the study but financial data supporting your narrative
assessment should be included in a separate spreadsheet as an
attachment
RISK FACTORS AND MITIGATIONIt may seem strange to include risk
factors in what is intended to be a selling document; however, it
has the definite advantage of lending credibility to the
proposal.
Including the major risks, financial and otherwise, that are
likely to affect the business demonstrates that the entrepreneur
understands that all businesses have potential stumbling blocks and
has taken steps to identify these and developed a strategy to
overcome these problems.
The best method to consider risk factors is by a sensitivity
analysis of the forecasts. Most forecasting software is capable of
being used extensively in this way.
The main results of such analysis should be incorporated into
the plan particularly with regard to sales not reaching budgeted
levels and the resultant effect on cash flow which is the demise of
many new ventures.