A Business Plan is probably one of the most important documents you will ever put your name to. Well thought out, it could be the launching pad for a thriving business that turns out to be the best thing you ever did. Badly prepared, it could be a stumbling block for all your hopes and dreams of running your own business. It is as important as a good CV would be for someone hoping to get an interview for a prestigious job.
If you are looking for external finance to get your business up and running, a good Business Plan is an absolute must. Without one, you will find it very hard to persuade a bank or venture capitalist to invest in your business, or succeed in winning a Government grant. Yet it would be wrong to assume that a Business Plan is no more than a vehicle for obtaining external finance. Even if you are financing the business yourself, you should think of your Business Plan as a means of assessing the viability of the proposed venture before you actually get started. After all, if your bank manager would not lend you money without seeing some kind of evidence that he will get his money back, or make a return on it, you should be just as wary about committing your own funds to a project. A Business Plan can also be used as the basis for an ongoing Profit Forecast so its usefulness does not necessarily come to an end once the business has started.
A Business Plan should start with an overview of your proposed business. You will need to give a full description of the goods or services you will be selling; when and where you will be selling them; an in-depth analysis of the current market, identifying and reviewing the existing products, suppliers and customer base; your short-term and long-term business objectives and your plans for achieving them, such as marketing strategy, sales outlets and pricing policy. You should also include details of the people who will be running the business, focusing on their career histories, qualifications and technical skills.
The Business Plan should then address all the factors that may affect whether your business will succeed or not. Some of these will be obvious, others less so. Top of the list will be the demand for the products or services you will be selling. If it is something that is not yet on the market, gauging potential demand will not be easy. Some market research may be necessary. Spotting a gap in the market is something that is easy to talk about but actually doing so is a different matter entirely. It is not usually so easy to prove that one actually exists. Other factors affecting the viability of your business may include general economic developments such as changes in interest rates, exchange rates, taxation, inflation and consumer demand.
If you will be selling to retailers such as supermarkets rather than the general public, it should be possible to get some idea of potential demand just by talking to their purchasing managers. They will soon tell you if your idea is a non-starter. Without their support, you may find it very difficult to sell anything at all. Obtaining pre-production orders is a useful way of gauging demand for a new product. Once you have these, obtaining the finance to produce them in larger quantities should be much easier. At the very least, you should get some sort of written statement of interest from the retailers you hope to be supplying. This will be an important part of your Business Plan as back-up for your projected income figures.
Selling a new product or service direct to the general public is more of an unknown quantity. It often depends on a) changes in technology making existing products obsolete, or b) social factors such as fashion, demographics or regulation. Gauging demand in such circumstances will usually entail finding a way to quantify the number of people affected by these external factors. Knowledge of both the market and the product or service itself is vital in making this assessment. Sometimes an entrepreneur will dip his toe in the water by testing a local market. If it works out, he can more easily raise finance to expand the business. The actual results achieved so far will serve to back up his income projections.
Competing with existing suppliers to sell an established product or service requires a different approach. Here it is not so much the demand you need to assess but why people should buy from you. What is your unique selling point? This usually boils down to some aspect of price or service, or you might even have your own captive market. Whatever the reason, your income projections should be backed up with research into the market you are hoping to sell to. You should have some idea of the size and nature of the customer base and a realistic expectation of the market share you can hope to achieve. In short, you need to find out who your customers will be.
Quantifying the demand for your products or services is only one aspect of your Business Plan. You must also show how you propose to meet that demand. This is all a matter of acquiring the necessary resources. If you are selling goods, you will obviously need to buy or create them, store and distribute them and finally sell them. These activities will usually require some or all of the following resources:
- Contracts enabling you to acquire products or raw materials at a competitive price
- Personnel with the necessary skills to produce, distribute and sell your products
- Plant, machinery and equipment to produce goods in the quantities required
- Warehouse space for storage of your goods and raw materials
- Systems for recording and maintaining your stocks and fixed assets
- Sales outlets such as shops, showrooms, brochures and websites
- Vehicles and distribution channels for transporting your goods
- Offices and support staff for the administration of your business
- Technical knowledge for making or acquiring your goods
- Product knowledge for selling your goods and ongoing customer support
- Licenses, contracts, banking facilities, software and IT support
- Marketing skills for targeting your customers and advertising your products
- Professional services such as legal, consultancy and accountancy
- Insurance to cover risks such as product liability and business interruption
- Financial support such as grants, loans and share capital
Services are usually much easier to acquire and sell as they do not demand so much physical space. The main resources you need for services are simply the technical knowledge and equipment to deliver that service. This is usually a matter of recruiting enough staff of the right calibre to provide service of an acceptable quality within the required time frame and, most importantly, getting them to work as a team. You will also need to provide the means for them to deliver the service you are selling, such as offices, computers, telephones and training.
All these resources should be identified in your Business Plan, quantified and costed. You then need to demonstrate that you know exactly how your business is going to deliver the goods or services that you are aiming to sell. Knowing what resources you need to make a business work is only half the story. The most important thing you need to show is how you are going to actually obtain and utilise these resources. You will need to give a full description of your production methods, supplier contracts, licenses, marketing strategy, IT systems, business premises, plant and machinery specifications, the technical skills of your staff, websites, brochures and anything else relevant to running your business.
All these resources will need to be financed, so if external funding is required, you will need to show how this will be obtained and how it will be used. The working capital requirements of the business will need to be clearly identified as well as its long term investment needs. Only then can you move on to the nuts and bolts of analysing the figures and working out how much profit you can expect to make.