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How to create a winning business plan

Guy Rigby Friday, 04 May 2012.

There’s nothing quite like a plan, and every business has one. Whether it’s in the mind of the entrepreneur, a hastily, handwritten ‘to do’ list or a more traditional document, it’s the plan that dictates what happens in a business on a day-to-day basis.

Business planning is an important process. The general rule is that if you fail to plan, you plan to fail. Apart from anything else, this is because a properly executed business planning process will make you consider a host of issues that might otherwise have slipped under the radar.

Contrary to some entrepreneurial thinking, planning need not dampen drive or hamper creativity or passion. Indeed, planning can be an illuminating and inspiring part of the business building process as research leads to new ideas and, occasionally, that elusive eureka moment!

Content is king

One of the reasons that entrepreneurs don't relish the process of writing a business plan is because it can be a daunting task. However, it can also be rewarding if you focus on it section-by-section.

As Bobby Hashemi, co-founder of Coffee Republic and private equity investor at Risk Capital Partners, says in Anyone Can Do It, “You can eat an elephant if you approach it one bite at a time.”

In any case, you don't want to overdo it. Nobody wants to read a 100 page document, so they probably won’t. A business plan needs to convince you, your team and/or your backers that your business is viable, your opportunity is exciting and your projections are realistic. No more, no less.

“It is possible to include too much information in a business plan especially when it is for the bank,” says James Nicholson-Smith, Director at The FD Centre, a company that provides part-time finance directors to SMEs. “The point of a business plan is to provide core information about the business in a clear and concise way. It's quite possible that the reader will want to know more, but that's no bad thing.”

So how long should a business plan be? Advice on this varies widely.

BBC Dragon, Peter Jones, suggests “a compelling business plan can be written in three pages,” while Angels Den founder, Bill Morrow says it depends on the sector but that their business plan template is eight pages long. Jane Khedair, author of Successful Business Plans and founder and MD of Business Plan Services, suggests it should be no longer than 20 sides of A4 plus 6 to 12 pages of financials. Indeed if it’s any longer than that, it is less likely to be read.

Long or short, there is a relatively established methodology. You’ll probably end up including some or all of the following sections:

  • An executive summary – As its name implies, the Executive Summary gives a brief overview of everything that follows. It is akin to Peter Jones’ three pager (or less), so it should be designed to stand on its own. It will deliver the main headlines and enable any reader to immediately understand the purpose of the plan as well as any financing sought. Apart from outlining this purpose, the content should include a brief company history and track-record, a summary of the market, the opportunity and the competition, details of your key management team and some summarised financial information. If the plan’s purpose is to seek equity investment, then exit strategy should also be discussed.

Be aware that some people decide whether or not to read an entire plan based on the quality of the Executive Summary so make sure it’s compelling and clear, as well as being interesting to the reader.

Here’s a tip- writing a draft version of the Executive Summary at the outset can be a great idea. Whilst you’ll need to revisit it later on, ‘beginning at the end’ can provide some real clarity and focus.

  • The business: history/model/opportunity/future plans and goals – This section describes who you are, where you’ve come from, what you do and where you’re heading. It will summarise the history, achievements and current position of the business, as well as its ownership structure. It will also outline the future opportunity. This opportunity, and how you will access it, will typically be the main focus of the overall plan.
  •  Your business strategy and action plan – This explains your vision and strategy, as well as the tactics you will use to move the business forward. It will focus on the strength of the business (i.e. its strong foundations) and explain the opportunity that the management team wish to pursue. It will outline the benefits of pursuing the opportunity (e.g. developing a new product, accessing a new market, acquiring another business, commencing international operations) and consider the benefits and risks involved.
  • Your team and management structure – This section specifies the skills, credentials and experience that you, your team and your advisers have, as well as any recruitment, training and retention plans that you have or intend to put in place. The management team is considered by investors and lenders as the key factor in any business plan. They believe, in my opinion quite rightly, that the ultimate success of the business will depend on the skill and experience of this team. Intended management changes and succession planning should also be covered here.
  •  Your operations and administration – This outlines your premises and production facilities, your assets, and the IT and management systems that help with the smooth running of your business. It also defines the mechanisms, processes and reporting systems you have in place to track, control and improve your performance.
  • Your products and services – This describes the products and/or services, including your value proposition and USP – why customers buy from you and why you are successful. It will also consider how products are sourced or manufactured, as well as the product or service lifecycle.
  •  The market – This contains market research detailing the market size and your existing/potential market share in specific sectors; identifies key trends and drivers in your sector, including windows of opportunity and chances to increase your market share. It considers wider trends in the market and how these may affect your business in the future. It profiles your competition, their share of the market and your customers/target audience. Essentially, it compares your business to other existing and potential competing businesses, and defines your competitive ‘unfair’ advantage.
  • Your marketing plan – This includes the methods you’ll use to reach, attract and retain your customers. It outlines your positioning in the market, how you are pricing and promoting your products and/or services, where and how you will drive future sales and how you will deliver excellence and after-sales customer service. It also outlines details of any strategic alliances or distribution partners.
  •  SWOT analysis –This provides an analysis of your main strengths, weaknesses, opportunities and threats. It explains how you will reduce risk by tackling threats and overcoming weaknesses and what you are doing in order to seize opportunities and play to your strengths.
  •  Financial statements and forecasts – This summarises historic and forecast financial information, including integrated profit, cash flow and balance sheet forecasts for the next (say) 36 months. It considers any financial issues or changes arising either in the existing market or as a result of pursuing the new opportunity. It details banking and financing arrangements and sets out the required funding and how it will be used. Typically it allows for funding headroom - an unspecified amount to be added to the fund raising - to cover uncertainty and contingencies. The key here is to convince investors and/or lenders that you will not run out of cash.
  •  Appendices – These provide CVs of key team members, organisation charts, product literature, key contracts and details of IP protection. They can also provide more detailed financial analysis, market research reports or other relevant information.

And finally…a business plan shouldn’t be a chore, either to read or write. If yours is, consider whether you have the stamina or passion to see the business through.

Email: guy.rigby@smith.williamson.co.uk

Disclaimer
By necessity this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Article correct at time of writing.

Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.

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Guy Rigby

Guy Rigby

Guy is an experienced chartered accountant and an entrepreneur. A natural and driven enthusiast, he built and sold his own accountancy firm, as well as pursuing other commercial interests. He has been a director and part owner of a number of different companies, including businesses in the IT, property, defence, manufacturing and retail sectors.

Guy joined Smith & Williamson in 2008 and leads the entrepreneurial services group. His day to day activities include advising entrepreneurs and their businesses and coordinating Smith & Williamson's activities in this increasingly important market.

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