The Key Elements of a Basic Business Plan
The thought of preparing a business plan can be a daunting prospect for many business owners or those about to start up a new business and some small businesses, particularly if they do not require a bank loan, never write one at all. But preparing a thorough business plan has been shown to increase profits because it provides direction for the business but also reveals opportunities for expansion and growth.
No matter how difficult the task of putting together a business plan might seem, it is essential for the health of your business and will help to clearly define your business goals and how they will be achieved. If you are seeking a loan to start a new business, or grow an existing one, then you will almost certainly require a plan. Instead of being daunted by the thought of a long, complex document, start with just the basics and then build from there if you need to add more detail.
Here are the building blocks a basic business plan:
- Executive Summary
- Business Description
- Market Analysis
- Sales and Marketing Strategy
- Management Summary
- Financial Plan
Executive Summary is an overview of the business and describes the products or services that you provide as well as opportunities in the relevant markets and the anticipated sales and profits. It also states who the senior people in the business are and their relevant skills, experience and qualifications. If the business requires external funding that will also be noted in this section.
Business Description documents who the owners of the business are. For existing businesses it states how long has it been trading and for new businesses how long the owners have been planning to start up the business. If relevant it can also provide more detail about the experience the owner(s) have in running this type of business as well as any laws or regulations governing the particular type of company.
Also describe here what differentiates your business from competitors and why customers would buy from you and not from a competitor. Make sure to note any weak points because documenting weaknesses will ensure efforts will be made to improve them and, realistically, every business has some weak points so it is better to be honest.
Market Analysis describes who your customers are, or will be, their anticipated age group and salary range if they are individuals or the type of company and number of employees if your customers are other businesses. For existing businesses state the level of sales you have already achieved and how you expect this to grow (with or without additional funding). For businesses that have yet to launch you will need to prepare a sales forecast.
Include details about who your main rivals are and why your products or services are better than theirs? What will tempt your competitors’ customers to start buying from you? How might competitors respond when their customers switch? Describe all of these issues in some detail – they are issues you should be thinking about and planning for whatever type of business you run.
If the business is an area such as mobile technology that is growing very quickly then describe how the business intends to adapt to a rapidly changing market.
Sales & Marketing describes how you will sell your products whether from a shop, exclusively on the internet or directly to other businesses. How will you find the right customers? Will you use traditional print advertising, if so in what publications and what will be the regular cost. Will you use email marketing and, if so, where will you obtain the customer list or how will you grow your own. Will you use social media, paid internet adverts and organic search engine optimisation? Or more likely a combination of all of these.
In this section also state your pricing structure and where you position your products or services in terms of quality.
Management Summary describes the relevant skills and experience of the senior people involved in the business, including their weaknesses and how these can be overcome (eg by training or using external services). State which areas of responsibility each person will have; in small start-up businesses just a small number of people may share responsibility for all tasks initially.
Financial Plan is the section that will show real or projected sales for the different types of product or services as well as the different customer groups if there is more than one. Be realistic about the sales forecasts and don’t forget the factors that will affect sales such as seasonal variations and the state of the wider economy; also factors that will affect cashflow such as loan payments, salaries, equipment costs etc.
If the business is not expected to be in profit in the first year (or more) then state the forecasts for the first few years to show when it is expected to be profitable.
Risks every business will have some measure of risk so describe the assumptions you have made and how they will affect the business. For example, is your business dependent on raw materials, if so what if their costs rise or they are no longer available? Will the business, for example, be affected by fluctuations in foreign exchange rates?
These are just the building blocks of a business plan and certain businesses may require more information in their plan, especially if you are hoping to secure a loan from a bank. If you feel you need help preparing a business plan this is one of the many ways that we, as Chartered Accountants, can help your business so why not get in touch