Creating a business plan is one of the most important things you will do when starting up a business. It will help determine whether you gain funding from potential investors, and it will help you to clarify your business objectives and direction.
In this article we will look at how to write an effective plan, the ingredients it should contain, and some of the common pitfalls to avoid.
Before you begin writing
Before you start writing a plan, you will need to consider what information you need to assemble, the initial decisions to be made, and the sales and marketing options open to you.
Assess the expertise and assistance you already have and decide what additional help you will need to prepare your plan and harness your resources effectively. For example, you might need accountancy or marketing assistance.
Examine your business ideas critically and check these against your initial perception of the marketplace. Perform a ‘SWOT’ analysis on your business: look at its Strengths and Weaknesses, and consider the Opportunities open to you, and the Threats you face.
The marketplace is the key to the success of your business. You should review the market for your goods or services, and the competition you face. Use market segmentation to identify potential customers, and market survey methods to characterise your customers and their needs.
Essential ingredients to create a business plan
- A business description and mission statement.
Every business needs a clear declaration of why it exists and a basic description of how it intends to meet its primary objective. Think of your mission statement as the heart of your business plan. All your goals and activities should flow from it.
Having prepared your mission statement, you next need to comprehensively describe your business. Provide a brief history and then explain what it does, identify the marketplace niche it fills and assert why you and the business will succeed. You may also wish to reveal why your business chose its location and how you will benefit the local community.
- Management and people profiles
In business, as in any walk of life, people matter. Potential investors, lenders and even employees are not interested in a faceless, soulless corporate entity. They need to know that competent, experienced people are steering the ship.
Provide an outline of your organisational structure and management team, giving solid reasons why you and any colleagues are competent and can deliver results.
- A financial portrait and strategy
Prospective investors and lenders need a good idea of the financial aspects and potential of your business. Include projections of basic data such as a projected balance sheet, a profit and loss account and an analysis of cash flow. It is important to be as accurate as possible. Do not fill the business plan with overly optimistic financial projections that could ultimately depict your business in a bad light.
- Sales and marketing objectives
Expertise and past success mean little without an up-to-date strategy for bringing your products or services to market. Describe your intended market, giving specific details on its size and how much of it you intend to serve. What is your market’s growth potential? What specific geographic and economic factors play a role?
Competitor intelligence is another crucial factor. Name your largest competitors and explain why you can serve your market better than these rivals. Do not conceal your weaknesses: recognising the challenges you must overcome shows that you are realistic.
- An executive summary
The likelihood is that many potential lenders will initially only read an executive summary. That is not to say they’ll never read your entire business plan – but it does mean that a concise, readable executive summary may be necessary to get your ‘foot in the door’.
An executive summary should show the highlights of each section of the business plan, providing a clear synopsis of who you are, what you do and where you’re heading.
- Good presentation
The length of the business plan will depend on individual circumstances, but it should be short enough to maintain the interest of any potential investor. The presentation should be professional and clear, with graphics and charts where appropriate.
Avoid some common pitfalls
Here are some business plan traps which you should be careful to avoid.
- Over-optimism
Most business plans are over-optimistic, especially as regards predicted sales, often massively overestimating the size of the market. Research your market thoroughly. Too many business plans include a SWOT analysis but concentrate on the strengths and opportunities and ignore the threats and weaknesses.
- Ignoring the competition
Business plans commonly assume that the competition will make no competitive response or indeed, will have no new initiatives of their own. Study your competitors and try to anticipate their plans.
- Ignoring risk
What are the risks attached to the plan? Think through these and consider the costs of failure as well as the rewards of success.
An ongoing process
Like keeping a ‘To Do’ list, writing a business plan is an ongoing process. Don’t make the mistake of abandoning or forgetting about your business plan after you’ve presented it to investors. The plan should adapt to changes in your company, its market, and the economy – and that means regular reviewing and updating.
Creating your plan will open your eyes to the realities of your business. Keeping it updated will help you stay on the right track. By following the above guide, you can create an outstanding business plan to help drive investments!
This article was written by striveX Accountants, a Reading UK accountancy firm, in September 2020. striveX are experts in a range of accounting and bookkeeping services. To get in contact about working with us, please call 01628 560427, or email mailto:[email protected]
