A well-prepared business plan is essential throughout the life of your business, not just before you start. You will need it later on to guide your focus, to prepare for expanding the business or to help implement new directions, technologies or products:

• Before you start your business, a business plan will ensure that the business is feasible and that there is a well laid out blueprint for action. The business plan will cover critical business decisions made at the start, for example, patents, organisational structure, partners, initial debt, etc. It will be geared to the initial funding or capital requirements from a bank or investor.
• Once you are in business, a business plan helps you track how you’re going. You may need to include new steps in the plan for one-off grants, accreditations, expansion or strategic changes in direction, new markets, products, further funding requests to banks for either long or short-term funds, or to induce new investors.

Four steps in preparing a business plan

Step 1: collect information

Gather information on your product, business, market, industry, economic climate and anything else relevant.

Step 2: analyse the information collected

Take all information collected and analyse how it will affect the success of the business.

Step 3: form a strategy

Decide how:

• the business will function
• the product will be marketed, including packaging, selling, advertising, etc (marketing plan)
• finances will be arranged, including sales forecasts, budgets, cash flow forecasts, profit-and-loss statements and so on (financial plan)
• the business will operate, including supply sources, equipment, materials (operational plan).

Step 4: prepare the plan

Put all the information together into one consolidated business plan. The plan itself should be:

• clear: use simple language, short sentences, tables and diagrams, not too many adjectives
• brief: only use essential and useful information, e.g. if asking for finance, tailor the plan to the request (don’t put together a lengthy plan to ask for a small loan)
• truthful: the business plan should not exaggerate, as others (e.g. your bank) will probably see through the exaggeration and react unfavourably – you need to have a realistic idea logical: the way the business plan is prepared indicates how the business will be run

Preparing your business plan

Having determined that your business is feasible and conducted your SWOT analysis and SWOT action plan, the next task is to prepare a formal business plan to take you forward.

Contents of the business plan

The following is a sample table of contents. Not all the headings will be relevant to your particular business, and some will be more applicable than others.

• Cover page and introduction
• Executive summary: this is a one to two-page summary of the plan, written to be read as a complete self-contained section
• Mission statement: this is your well thought out statement of purpose, who or what your business is or wants to be; the ‘flag on the hill’ that you will march towards
• Business description/background: what is the business, competitive position, the market/niche
• Business environment: what’s happening in your industry, economy and region
• SWOT analysis and action plan
• Market analysis: preview your market, where you fit and what you know about your customers and competitors
• Marketing plan: your comprehensive guide to marketing ideas and strategies
• Operations: production, logistics and infrastructure
• Financials: this should cover:
  • key financial performance and results
  • profits or projected profits
  • sensitivity analysis
  • cash flow
  • capital requirements
• Human resources / staffing
• Business legalities and intellectual property
• Key success factors: what you must do to achieve success  

Cover page and introduction

The cover page should have the following information:

• trading name of your business
• period covered by the plan
• who the plan was prepared for, and the date the plan was prepared.

The introduction sets out the objective of the plan: if the business plan is for financing, the objective would state how much, the purpose of the funds and benefits to the business.

Executive summary

Write this last, as a stand-alone document. Write it as if this is all the reader is going to read. It shouldn’t be more than two pages, and it needs to make the reader want to read further into the business plan. Include the high points of the plan, purpose of the plan, significant milestones, key factors for success, financial targets and projected results, and a summary from the action plan.

Mission statement

This is important to help sell your business. A well-considered statement of your purpose and business direction covers what you want your business to be, where you want it to go, the milestones along the way in the immediate term (first 12-18 months), medium term (two to three years) and the long term (three to five years).

Business description and background

This outlines the springboard from which you will proceed, what you are and what the business opportunity is, the nature of the business and past experiences and lessons.

Describe your business concept and unique features, your competitive advantage, any market niche or features that enable you to boast a unique selling point.

Cover the structure and organisation of your business – how it will seize the outlined business opportunity, including an organisation chart showing:

• relationship between departments or key staff
• key responsibilities of each staff member or department
• number of staff in each department
• any planned changes to the organisation during the period of your business plan
• brief résumé of key staff to provide an insight into the quality of management

Business environment

This is where you address what’s happening in your profession or industry, trends and events, as they are relevant to your business opportunity.

SWOT analysis and action plan

This is as discussed in the ‘SWOT analysis and action plan’.

Market analysis

Picture your chosen market for the reader. Cover products, services, clients, competitors, distribution, channels – where you fit and what you know. You want the reader to conclude that you know your prospective market backwards, you have done the research.

Marketing plan

This is a gutsy part of the business plan covering marketing and promotions, selling strategies, pricing, distribution channels and results.

The ‘link’ between your marketing plan and the resulting business plan is vital. Marketing attracts and retains the customers and ultimately ‘drives’ the performance of the business.

You can use the ‘five Ps of marketing’ as a structure to discuss your marketing plans:

• the right Product
• the right Price
• the right Place (location)
• the right People
• the right Promotional strategy 

Marketing strategies

Your marketing strategy involves selecting a target market, developing an appropriate mix for each and allocating the resources necessary to achieve its goals.

It is important to understand that the practicality of your business plan is determined to a large degree by how realistic the sales forecast and the supporting marketing strategy are. Four variables shape your marketing strategies for meeting customer needs:

• product features
• quality of product
• level of service to the customer
• price – and this must be profitable to the business

Operations – production, logistics and infrastructure

The operations section of the business plan is the basic nuts and bolts of what to make and deliver. It should cover how you intend to operate the business and how you will organise your operating systems, production methods, capacities, quality control, stock management and asset replacement.

Financials

This key section is used to describe important factors affecting and contributing to the financial performance and profit you aim to achieve.

Cash is important and the financial section must include an analysis of cash flow and include a cash forecast by month for the first year and then quarterly for the next year.

Financial projections

This section sets out your financial projections for the year. These projections will comprise the following and each can carry a brief commentary to highlight key points: 

• operating results, profits and losses
• capital expenditure
• cash flow
• balance sheet
• business ratios

Sensitivity analysis

It is difficult to forecast the future. The best way to do this is by developing a number of possible levels of activities (called scenarios) plus a base case or 'best guess case', as shown in the table below.

This technique is called sensitivity analysis as you consider the sensitivity of each scenario on your profit and cash flow position.

The sensitivity analysis shows that you have addressed the sensitivities that will affect the business, and determined in a logical and structured way, the impact of each on your potential business and the alternative strategies to combat them.

Your sensitivity analysis is critical: you are trying to convince a reader you know your business inside out and that you should be trusted with a loan.

In developing and presenting your financial position and results make certain your figures are arithmetically correct and consistent.

Capital requirements

One of the major deficiencies in small business planning is the failure to properly assess the initial capital requirements. Undercapitalisation is a killer.

Warning

The banks are aware of the dangers of undercapitalisation and that many businesses will underestimate their capital needs.
You must give careful thought to assets and working capital, and the cash flow that will be needed.

The bank will review this situation very closely and lose interest if you have not projected your capital needs correctly.

Human resources / staffing

The ability of your business to achieve its objectives is linked to the effective management of your people.

The people who work for you are your most important asset responsible for:

• achieving your financial goals
• achieving your production goals
• increasing opportunities to sell products and provide services
• increasing their own skills and abilities

In this section, you must give names, qualifications and backgrounds of the owners and senior staff. You should also list any perceived human resources management deficiencies in the business and how these will be resolved, e.g. either by subcontracting or engaging part-time staff.

Human resources checklist

• Do you have productivity incentives?
• Do you recognise achievements?
• What is your training policy?
• How do you involve your employees in:
  • decision-making?
  • planning?
  • job design?
• What is employee morale like? Is it monitored and managed?

Business legalities and intellectual property

Are there any particular legal matters relating to your business? Who owns the intellectual property? What sort of business structure is the business?

Key success factors

You can give your business plan an extra push by including a page of key success factors. This page demonstrates the thoroughness of your plan and the thorough approach you intend to give to all aspects of your business.

Customising your business plan

For a business plan to work, it must be tailor-made for your business. Pro-forma or standard layouts don’t work, so customise the contents and guidelines given here to apply to your own business and to your purpose.

Formatting your business plan

Your business plan must look like a quality product and it must give this impression quickly.

Carefully consider:

• Appearance
  • choice of paper, its colour and feel, the binding, the cover
  • Style of the finished product is important and must be customised to
  • the personal style of the presenter
  • the personal style of the receiver (ask what the bank manager wants)
• Brevity
  • summaries and bullet points are easy to read
  • don’t write a long-winded novel or soap opera
  • headings and subheadings increase readability
• Relevance
  • what is said and how it’s said must be structured to the objectives of the plan
  • make sure your messages come through loud and clear
• Timeliness
  • highlight time targets and any action plans to be implemented to achieve these
  • the reader will be impressed with your commitment, resolve and determination
• Size
  • this depends on the audience but you can expect your business plan to be a minimum of 15-20 pages

Initial and ongoing business planning

Business planning is not a one-off exercise, but an ongoing business activity. You need to regularly review (say every six or 12 months) and revise your business plan.

About the author: John Petty FCPA