Most people will tell you that a business plan is an essential part of setting up a small business (or indeed any business). Unfortunately it’s also one of the aspects that many small business founders find hard to find the time to complete. When the time comes to put pen to paper, it’s amazing how we tend to find a sudden zest for a slew of mundane tasks that have remained on the to-do list for ages - anything to delay having to get started on the business plan.
One way to overcome this inertia can be to set your sights lower in terms of the expected output. If you’ve done some research on the web, you will have come across numerous template examples for business plans which contain multiple sections and are very long. These are worth a quick read if you are unfamiliar with business plans but should be used as guidance rather than followed slavishly. There are a few key sections that a business plan needs to include in the early days, which can be added to later once there is more time and information available.
Put simply, a business plan needs to state what products and services you plan to provide, how you plan to deliver these to your customers and how this will make money. Along the way there is definitely the scope to add detailed analysis of your market and competitors, although I suggest leaving this until you have written down the key components of your business in simple terms, avoiding jargon as much as possible.
- Business overview - outline the mission statement and vision for your business and its objectives. Include an outline of the history and current status of your enterprise.
- Products and services - provide details of the products and services that you plan to offer. Describe how you will deliver these to your customers and include key information such as capacity, critical enablers and dependencies (for example, equipment and premises).
- Customers - state the target market for your products and services. Write down what you know about the current market including pricing information.
- Financials - provide details of your planned sales, costs, profits and cashflow in as much detail as you have available. Identify your funding requirements, ideally on a monthly or at least quarterly basis, and proposed sources of funding.
If you are already running a business that you are looking to develop and expand, you will probably have a lot of this information to hand. For a new business idea, it will take some time to work out some of the details. Don’t be worried about using approximations and estimates in the initial plan, as these can be refined and validated as part of subsequent iterations. As a start-up you are likely to want to do at least an initial survey of the target market for your products and services, including an analysis of customers and competitors, to demonstrate that a viable business opportunity exists.
One of the toughest areas for many small businesses is creating a solid financial plan. Financial forecasts are only as good as the information on which they are based. Try to be realistic when it comes to estimating sales volumes, prices, costs and capacity. Procuring the services of a good accountant is a sensible step, particularly if you are not familiar with cashflow forecasts, balance sheets and profit and loss statements. Many small businesses that appear profitable on paper can struggle with cashflow - it doesn’t matter how profitable your business is or large its net asset position is if you don’t have sufficient money in the bank to pay the bills.
A business plan should be treated as a living document, and updated periodically as your business progresses and develops. Marketing is a good example, as this needs to evolve to keep pace with changes in your target market, channel strategy, pricing and so on. It’s also useful to review your business’s performance against the targets set out in the initial business plan to identify which areas haven’t panned out as planned and what might need to be done to get back on track.