Writing a business plan

A business plan is essentially the route map that helps you establish a viable new business. It will also be essential if you need to raise finance for your business. Your business plan must be exciting but credible, with clearly identified customer benefits and evidence of growth and future prospects. An executive summary is vital, clearly stating your financial objectives, the business idea and profit forecasts.

The early years

In early plans, the sales forecasts are critical. Your focus will be on the business proposition, research into the potential market, defining the competition and developing a marketing and sales strategy. Next, the plan will identify the resources (people, equipment and money) you need to achieve the forecast sales, together with realistic timescales to achieve significant milestones, such as the dates of the website launch, first day of trading, first stock delivery, etc. This information becomes the basis of your financial forecasts. Once completed, you can use the plan to monitor the performance of your business.

As your business grows

As your business grows, you can use the techniques and basic information developed in the first business plan to prepare annual budgets and updated financial forecasts. These are usually focussed on the year ahead. The next time you will need a business plan is usually when you’re thinking about raising finance. Banks and investors require considerable information to support loan applications or engage in discussions about an investment. This includes financial forecasts, historic annual accounts and management accounts.

Your business plan must be exciting but credible, with clearly identified customer benefits, and offer evidence of growth and future prospects. The plan should include sales and market information and how current sales will translate into the future sales forecast. In addition, it will identify why you need the finance and how you will pay it back.

Business Angels and private equity investors read and reject many business plans; the executive summary is vital and it must have a wow factor. It should state your business proposition and summary of the financial figures, including the amount of capital you are looking for. It is worth committing the main points to memory to discuss as required.

Credibility is common to all good business plans. An open and balanced view of the past and future prospects creates this. A good investor will quickly see through a biased explanation of past events and performance, or unrealistic projections for the future. The information you provide to Business Angels and private equity investors will be the same as for a bank, but you will also need to provide a significantly expanded business plan.

Financial forecasts will now be required up to five years ahead. Potential investors will want to examine the details supporting the business plan, particularly the market analysis and the financial forecasts. So be prepared to back up key assumptions. Committing to that first business plan and investing time in developing it may seem unnecessary when there are so many demands on your time. However, the skills learnt and the perspectives gained will help you to grow the business, raise finance and, who knows, one day potentially sell a successful business.

What needs to be included in your expanded business plan

The elements of the expanded business plan should include:

• a history of the company
• its current and future products and/or services (including patents);
• its sales channels and delivery;
• how the products will be produced;
• how the business operates and why it will be successful;
• a description of the market and sector plus details of the marketing strategy and sales and distribution process;
• full details of the management team;
• financial information (including debt finance already in place); and
• a risk analysis.

Working with a qualified accountant will help you to set realistic financial targets, establish budgets, plan ahead and compare forecast figures with actual results.