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Preparing a Business Plan

Introduction

A business plan is a written document that describes a business, its objectives, its strategies, the market it is in and its financial forecasts. It has many functions, from securing external funding to measuring success within your business.
There are many benefits to creating and managing a realistic business plan. Even if you just use it in-house, it can:
• help you spot potential pitfalls before they happen
• structure the financial side of your business efficiently
• focus your efforts on developing your business
• work as a measure of your success
You should also bear in mind that a business plan is a living document that will help you monitor your performance and stay on track and will therefore need updating and changing as your business grows. Regardless of whether you intend to use your plan internally, or as a document for external people, it should still take an objective and honest look at your business. Failing to do this could mean that you and others have unrealistic expectations of what can be achieved and when.
These notes are intended to introduce the various elements of a business plan and to assist clients in its completion following an initial meeting with a business adviser, they are not meant to be fully comprehensive instructions and it should also be remembered that, since they are general guidelines, some of the specific suggestions may not apply to your particular circumstances or business.

1. The Business

This should contain a very accurate and brief overview of what your business will be providing and your vision for its future. Four or five bullet points would be one way of completing this or a few brief sentences. Don’t be general – think of a bank manager looking at this plan knowing nothing of what you are thinking of doing – this section has to ‘sell the idea’ without being hard work to read. Include the type of business it is, the sector it is in, when you intend to start trading etc.

2. The executive summary

The executive summary is a vital part of your business plan and although it is the first part to be read it makes sense to write it last after you have completed the rest of the plan.
It may be the only part that will be read. Faced with a large pile of funding requests, venture capitalists and banks have been known to separate business plans into 'worth considering' and 'discard' piles based on this section alone so put the key points from each and every section and most interesting and innovative elements in here. The summary should be concise and interesting but without any hype.
Its purpose is to explain the basics of your business in a way that both informs and interests the reader. If, after reading the executive summary, an investor or manager understands what the business is about and is keen to know more, it has done its job.

3. Business Objectives

This section has to describe why you are setting this business up. For most projects the first thing should be to state clearly what you need the business to generate for you. This will normally be money, but how much? For some businesses earning a living may be the most important element, for others it may not be, but for all there will be a level of financial return (or in a few cases investment), which will define success. Even if your proposal relates to a social enterprise from which you do not expect to earn any money there is still a maximum amount that you can afford to put into the business and it should be stated here. Objectives could include an indication of turn-over and profit year on year and where you see the business being in the next 3-5 years.

The list of objectives should then continue with brief descriptions of why you want to do this RATHER THAN statements such as:-

• To create full time employment in the industry that I have always worked in.
• To develop an interest that I have pursued as a hobby into an income generating business.
• To provide this service that is currently not available within the Island.
• To improve the standard of living for this group of people.

One good way of looking at this section is to consider starting your own business in the same way as you would consider applying for or accepting an offer of a job. You would want to be sure it was something you wanted to do, it was something that was meaningful to you and that the money was appropriate to your circumstances.

4. Products and services

Describe your products or services as simply as possible, defining:
• what makes them different or unique
• what benefits they offer
• how you plan to develop your products or services
• whether you hold any patents, trade-marks or design registration
• the key features and success factors of your industry or sector
Remember that the person reading the plan may not understand your business and its products, services or processes as well as you do, so try to avoid jargon.

5. Business Structure

This should be a simple description of the legal and practical form that the business will take.

• Is it being run on a self- employed basis or is it a Limited Company?
• Are there any partners/directors?
• Will there be joint ownership opportunities?
• Will you be VAT registered?

6. Business Operation

Your business plan also needs to outline your operational capabilities and any planned improvements. There are certain areas you should focus on.
Location
• Do you have any business property?
• What are your long-term commitments to the property?
• Do you own or rent it?
• What are the advantages and disadvantages of your current location?
Producing your goods and services
• Do you need your own production facilities or would it be cheaper to outsource any manufacturing processes?
• If you do have your own facilities, how modern are they?
• What is the capacity compared with existing and forecasted demand?
• Will any investment be needed?
• Who will be your suppliers?

Environmental Policy

Give a brief resume of how will you deal with any waste products you might have – chemicals, cooking oil, grass cuttings, dirty water etc. Also mention here if you plan to use renewable energy or have thought of ways to reduce energy costs.

7. Personnel Profile - Profile

This section should be used to explain simply why you (and any business partners or staff) will be able and best at running this business compared to anyone else. Again think of the bank manager looking at this, not knowing you or the business and sell to them your capability to do this well.
This section needs to set out your own background and skills and the structure and key skills of both your management team and your staff. It should identify the strengths in your team and your plans to deal with any obvious weaknesses.
If you're looking for external funding, your management team can be a decisive factor. Explain who is involved, their role and how it fits into the organisation. Include a paragraph on each individual, outlining their background, relevant experience and qualifications. Include any advisers you might have such as accountants or lawyers.
Any investors will also want to be convinced that you and your team are fully committed. Therefore it's a good idea to set out how much time and money each person will contribute - or has already contributed - to the business and the salaries and benefits you plan to draw.

Personnel Profile – Personal and Staff Development Plans

This section needs to show any areas of weakness in knowledge or training and explain how you are going to resolve them. Also if it is appropriate it should include any on-going training or certification that is needed. One thing to bear in mind here is that there is always room for improvement – if you think there is no area in which you could do with additional training or experience – think again.

When filling this section in provide solutions; don’t just state the problems eg :-

Book keeping requires some basic training – two day course provided by Orkney College running mid- march at £240.00. Funding for this from Individual Learning Account and personal funds.

So explain what do you need to know, where can you get the training, when, how much will it cost and where is the money coming from?
Spell out what work you plan to do internally and if you plan to outsource any work.
It's vital to be realistic about the commitment and motivation of your people and spell out any plans to improve or maintain staff morale.
Also include in this section information about your management-information and information technology systems
• Have you got established procedures for stock control, management accounts and quality control?
• Can they cope with any proposed expansion?
• IT is a key factor in most businesses, so include your strengths and weaknesses in this area.
• Outline the reliability and the planned development of your systems.

8. Markets and competitors

In this section you should define your market, your position in it and outline who your competitors are.

8.1 Description of target market segments

Broadly this should be used to define and put into categories your expected customers. The way you do this will be dependent on the type of business you run but things like different age groups, social and economic break downs, geographical break downs all help. Possible groups might include:-

• Young mothers (between 18 and 25 years old) with limited disposable income.
• Middle aged residents in the Stromness area.
• Tour ship visitors to Orkney (from abroad) with limited time and high recreational budgets.

It is difficult to give examples that will apply to any specific business but always remember that ‘I want to sell this to anyone’ is not sufficient. For everything you do there will be limits as to who your customers are – this is where to explore these areas.

8.2 Market Research – Market Appraisal

Use this section to look at each segment that you have defined on the previous page and try to assess how many potential customers they are.

Internet research is good here where statistical information can normally be found covering all the criteria that you have used in you segmentation. Population statistics, age distributions, social and economic groupings can all be found. Sometimes you may need to use national or even international data and then extrapolate these to your local market – what is the average coffee consumption for women in the UK? – but the idea is to use as much meaningful information as you can find to build a picture of how many customers are out there.
Also in this section refer to any
• market research you have carried out
• anticipated changes in the future market and how you expect your business and your competitors to react to them

8.3 Customer Benefits

In this section you need to demonstrate that you're fully aware of the marketplace you're planning to operate in and that you understand any important trends and drivers.
You should also be able to show that your business will be able to attract customers in a growing market despite the competition.
This section is important as it not only clarifies your product in terms of what customers will get but it also is an aid in developing your promotional campaign. Essentially look at what you are offering from the point of view of ‘Why should potential customers be interested in listening to my proposal?’ ‘What is the benefit to them in what I have to offer?’

8.4 Competition

Use the previous section and your product to compare why what you offer is better than anyone else or will attract a certain group of customers. eg ‘My business will cater for this group of people who currently can only get this service by travelling south thereby increasing the cost’.

It is also worth considering all the competition here and addressing the benefits that you offer in comparison to all of the available options. You may believe that there is no direct competition to your business because what you are doing is a new idea or something not currently available locally, but, what about indirect competition? For example, the street in Kirkwall has a wealth of good gift and luxury goods shops each offering something different to the others. However, they are all indirectly competing with each other to achieve sales from the discerning customers that they naturally share and who will choose carefully where to spend their limited budget for luxuries and giftware.
 
8.5 The Market – Competitive SWOT Analysis

This should be simple to complete using some of the main competitors identified in the last section. It is important to know your competitors' strengths and weaknesses as compared to your own - and it is good practice to do a competitor analysis of each one. These comparison headings should be used as a guide only and for your own situation you may need to add and delete headings for the analysis to make sense. The important thing here is to ensure that it is all as realistic as possible. If the result here is that your business is going to be better that all the rest on all counts you may need to think again!
Remember also that the market is not static - your customers' needs and your competitors can change. So, as well as showing the competitor analyses you have undertaken, you should also demonstrate that you have considered and drawn up contingency plans to cover alternative scenarios.

9. Marketing and sales promotion

9.1 Marketing Plan

This section should describe the specific activities you intend to use to promote and sell your products and services and the costs involved month by month. It's often the weak link in business plans so it's worth spending time on it to make sure it's both realistic and achievable.
A strong sales and marketing section should demonstrate that you have a clear idea of how you will get your products and services to market.
Your plan will need to provide answers to these questions:
• How do you plan to position your product or service in the market place?
• Who are your customers? Include details of customers who have shown an interest in your product or service and explain how you plan to go about attracting new customers.
• What is your pricing policy? How much will you charge for different customer segments, quantities, etc?
• How will you promote your product or service? Identify your sales process methods, eg direct marketing, advertising, PR, email, e-sales, social marketing, trade/consumer events.
• How will you reach your customers? What channels will you use? Which partners will be needed in your distribution channels
• How will you do your selling? Do you have a sales plan? Have you considered which sales method will be the most effective and most appropriate for your market, such as selling by phone, over the internet, face-to-face or through retail outlets? Are your proposed sales methods consistent with your marketing plan? And do you have the right skills to secure the sales you need?

9.2 Promotion

Simply list all your proposed promotional activities to achieve the objectives set out in your marketing plan. This should include everything from placing advertisements in the newspapers to producing and distributing flyers, networking activities, attendance at trade shows, etc. Start off with the obvious ones and then spend time brainstorming what other opportunities there may be to get your new business known about.

© Sorton Partners 2012

Promotional Budget

Take all the items listed in the previous section and break down the costs month by month for the first year on this page. The result will be a full budget that can be transferred into your final cash flow.

10. Financial forecasts

Use the cash flow spread sheet to provide a set of financial projections which translate what you have said about your business into numbers.
Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business. However, the first 12 months' forecasts should have the most detail associated with them.

10.1 Each year in the cash flow projection should be accompanied by a page to explain the assumptions behind your figures, both in terms of costs and revenues, so investors can clearly see the thinking behind the numbers.
Your forecasts should include:

10.2 Sales forecast – the volume of sales you anticipate and the amount of money you expect to raise from sales (detailed for the first year and transfer to cash flow spreadsheet year 1).

Cash flow statements (spread sheet) - your cash balance and monthly cash flow patterns. The aim is to show that your business will have enough working capital to survive so make sure you have considered the key factors such as the timing of sales and salaries, utilities payments, vat payments etc.

Profit and loss forecast (spread sheet) - a statement of the trading position of the business: the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads.

Alongside your financial forecasts it is good practice to show that you have reviewed the risks your business could be faced with, and that you have looked at contingencies and insurance to cover these. Risks can include:

• competitor action
• commercial issues - sales, prices, deliveries
• operations - IT, technology or production failure
• staff - skills, availability, costs and illness
• acts of God - fire or flood

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