Wednesday, September 15, 2010

What your business plan should include

With so much being written about what should a business plan include, you may be confused as to what exactly needs to be included. It really will depend on the purpose of the plan, the industry you find yourself in and what stage of your business you are busy with.

Your business plan should include a summary of what your business does, how it has developed and where you want it to go. In particular, it should cover your strategy for improving your existing sales and processes to achieve the growth you want.

You also need to make it clear what period the business plan covers - generally the next 12 months to two years.

The plan should include:

  1. Your marketing aims and objectives, for example how many new customers you want to gain and the anticipated size of your customer base at the end of the period. To find out about marketing strategy, see our guide on how to create your marketing strategy.
  2. Operational information such as where your business is based, who your suppliers are, and the premises and equipment needed.
  3. Financial information, including profit and loss forecasts, cashflow forecasts, sales forecasts and audited accounts. See our guide on cashflow management: the basics.
  4. A summary of the business objectives, including targets and dates.
  5. If yours is an owner-managed business, you may wish to include an exit plan. This includes planning the timing of your departure and the circumstances, eg family succession, sale of the business, floating your business or closing it down. See our guide: consider your exit strategy when starting up.

If you intend to present your business plan to an external audience such as investors or banks, you will also need to include:

  1. your aims and objectives for each area of the business
  2. details of the history of the business, including financial records from the last three years - if this isn't possible, provide details about trading to date
  3. management's skills and qualifications
  4. information about the product or service, its distinctiveness and where it fits into the marketplace

If you haven't already written one, you can use our interactive tool to create a business plan.

Prepare a business plan for growth

Creating a business growth plan is in many ways as important as the original business plan. Depending on your ambitions you may in many ways be taking on even more risk than what you did originally, only this time you may have a much better idea of what to expect in the market. A advanced business software package will be equipped for this and you may very well be able to upload your original business plan and find suggestions and alternatives on where to go next, what resources you may need, how long such a strategy may take and what the risks involved may be..

Planning is key to any business throughout its existence. Every successful business regularly reviews its business plan to ensure it continues to meet its needs and responds to variations in the market, the economy, its customer base, etc. It's sensible to review your current performance on a regular basis and identify the most likely strategies for growth.

Once you have reviewed your progress and identified the key growth areas that you want to target, it's time to revisit your business plan and make it a road map to the next stages for your business.

This guide explains how you can turn your business plan from a static, 'one-off' document into a dynamic template that will help your business both survive and thrive.

The importance of ongoing business planning

Most potential investors or lenders will want to see a business plan before they consider funding your business. Although many businesses are tempted to use their business plans solely for this purpose, a good plan should set the course of a business over its lifespan.

A business plan plays a key role in allocating resources throughout a business. It is a tool that can help you attract new funds or that you can use as a strategy document. A good business plan shows how you would use the bank loan or investment you are asking for. See our guide on how to use your business plan to get funding.

Ongoing business planning means that you can monitor whether you are achieving your business objectives. A business plan can be used as a tool to identify where you are now and in which direction you wish your business to grow. A business plan will also ensure that you meet certain key targets and manage business priorities.

You can maximise your chances of success by adopting a continuous and regular business planning cycle that keeps the plan up to date. This should include regular business planning meetings which involve key people from the business.

To find out more, see our guides on how to review your business performance and how to assess your options for growth.

If you regularly assess your performance against the plans and targets you have set, you are more likely to meet your objectives. Doing this can also signpost where and why you're going astray. Many businesses choose to assess progress every three or six months.

The assessment will also help you in discussions with banks, investors and even potential buyers of your business. Regular review is a good vehicle for showing direction and commitment to employees, customers and suppliers.

Business plan tips from a successful entrepreneur

Established in 2003 near Cape Town, Fenwick & sons produces decorative ironwork using traditional techniques combined with modern technology. A key challenge for Fenwick & sons has been to keep control of the business as growth accelerates. John explains how this has been achieved.

"Treat your business plan as a work in progress and review it often." We used  business plan services which really speeds up the process and adds to the efficiency in a big way
"Don't become complacent when things are going well, always worry positively about the future."
"Put formal processes in place from the start as informal processes of any kind can often break down, with potentially catastrophic consequences, when rapid growth puts them under pressure."

What I did

Review progress

"A good business plan is a must for any new or growing business since it gives targets to measure against. We had clear goals for our first year's trading, plus an ongoing strategy for steady growth in the first three years.

"However, after three months our sales were 200 per cent higher than we'd forecast. We also found that we were attracting more complex - and profitable - commissions than we'd expected. While this was obviously good news, it also raised questions about how we would cope in terms of staffing, production capacity and order scheduling."

Update the plan

"Thankfully, our original business plan was well researched and put together so we only needed time to review and update our original assumptions. The new profit and cash forecasts provided all the information we needed to help us manage our unexpected growth.

"For example, we brought forward the employment of another blacksmith as well as investment in new equipment. Originally we'd also planned for me to join Tim in the business part time after three years. Our rapid growth meant I joined after 16 months.

"These changes to our plan created a chain reaction. Doubling our capacity and freeing up Tim's time for business development soon led to even bigger and more lucrative contracts."

Control finances

"As we've grown, we've stuck to some basic financial principles and processes, such as proper cashflow forecasting, to prevent overtrading.

"We're very rigorous in our estimates, costing every last step of a job so we don't quote too low. We also have a policy of not offering reductions - we price a job fairly, and that's it. There's no point cutting prices to attract business if you can't cover your costs.

"Other methods we use to control cash are 'just in time' raw material ordering to save on storage costs, insisting on deposits from customers and making sure we get paid in full on time."

What I'd do differently

Target our marketing more carefully

"While we did some successful marketing early on, we should have refined it earlier to reach specific customers and sectors. It's all too tempting to stick with what you've got when you're growing quickly and time is at a premium."

Address work-life balance

"A new business can be all consuming, especially if it's growing quickly, and that's not healthy in the longer run. We should have included work-life balance issues, such as taking holidays, in the business plan. We do now!"

Reviewing the business plan - when and how?

Once you have drawn up your new business plan and put it into practice, it needs to be continually monitored to make sure the objectives are being achieved. This review process should follow an assessment of your progress to date and an analysis of the most promising ways to develop your business. To find out more about these stages see our guides on how to review your business performance and how to assess your options for growth.

This process is called the business plan cycle. In some businesses, the cycle may be a continuous process with the plan being regularly updated and monitored. For most businesses, an annual plan - broken down into four quarterly operating plans - is sufficient. However, if a business is heavily sales driven, it can make more sense to have a monthly operating plan, supplemented where necessary with weekly targets and reviews.

It's important to keep in mind that major events in your business' target marketplace (eg competitor consolidation, acquisition of a major customer) or in the broader environment (eg new legislation) should trigger a review of your strategic objectives.

Regardless of whether or not there are fixed time intervals in your business plan, it must be part of a rolling process, with regular assessment of performance against the plan and agreement of a revised forecast if necessary.

The business plan is all about targets

An effective business plan is really all about targets. Affective targets should be set and will act as a motivating factor for those working on the business to help it succeed.

While the overall plan may set strategic goals, these are unlikely to be achieved unless you use SMART objectives or targets, ie Specific, Measurable, Achievable, Realistic and Timely.

Targets help everyone within a business understand what they need to achieve and when they need to achieve it.

You can monitor the performance of employees, teams or a new product or service by using appropriate performance indicators. These can be:

  1. sales or profit figures over a given period
  2. milestones in new product development
  3. productivity benchmarks for individual team members
  4. market-share statistics
  5. Targets make it clearer for individual employees to see where they fit within an organisation and what they need to do to help the business meet its objectives. Setting clear objectives and targets and closely monitoring their delivery can make the development of your business more effective. 
  6. Targets and objectives should also form a key part of employee performance reviews or appraisals, as a means of objectively addressing individuals' progress. See our guide on how to use appraisals to manage performance.

Make sure that you are both committed to your business plan targets yet flexible in how these will be met and when they may need to be changed. Being flexible in taking advantage of new opportunities is a key benefit of being a small business and should be taken advantage of relentlessly.

Plan and allocate business resources effectively

The business plan plays a key role in allocating resources throughout a business so that the objectives set in the plan can be met. A good business plan software program will almost certainly help you to do this so if your strengths lye elsewhere, it should not be a barrier to your success.

Once you have reviewed your progress to date and identified your strategy for growth, your existing business plan may look dated and may no longer reflect your business' position and future direction.

When you are reviewing your business plan to cover the next stages, it's important to be clear on how you will allocate your resources to make your strategy work.

For example, if a particular business unit or department has been given a target, the business plan should allocate sufficient resources to achieve it. These resources may already be available within the business or may be generated by future activity.

In practice this could mean recruiting more office staff, spending more on marketing or buying more supplies or equipment. You may want to provide funds through current cashflow, generating more profit or seeking external funding. In general, it is always better to fund future growth through revenue generation.

However, you should do some precise budgeting to decide on the right level of resourcing for a particular unit or department. It's important that resources are prioritised, so that areas of a business which are key to delivering the overall aims and objectives are adequately funded. If funding isn't available this may involve making cutbacks in other areas.

Compiling a more sophisticated business plan

Drawing up a more sophisticated business plan may be more time consuming but well worth while. Using the latest in business plan software technology may also be a a great way to ensure that your business plan is indeed a step ahead.

If your business has grown to encompass a series of departments or divisions, each with its own targets and objectives, you may need to draw up a more sophisticated business plan.

The individual business plans of the departments and separate business units will need to be integrated into a single strategy document for the entire organisation. This can be a complex exercise but it's vital if each business unit is to tread a consistent path and not conflict with the overall strategy.

This is not just an issue for large enterprises - many small firms consist of separate business units pursuing different strategies.

To draw up a business plan that unites all the separate areas of an organisation requires a degree of co-ordination. It may seem obvious, but make sure all departments are using the same planning template.

Objectives for individual departments

It's important for each department to feel that they are a stakeholder in the plan. Typically, each department head will draft the unit's business plan and then agree its final form in conjunction with other departments.

Each unit's budgets and priorities must be set so that they fit in with those of the entire organisation. Generally, individual unit plans are required to be more specific and precisely defined than the overall business plan. It's important that the objectives set for business units are realistic and deliverable.

However complex it turns out to be, the individual business plan needs to be easily understood by the people whose job it is to make it work. They also need to be clear on how their plan fits in with that of the wider organisation.