Why you need a Business Plan
The moment you decide to set up a business, someone is going to say this dreaded phrase to you. The two simple words ‘Business Plan’ are enough to strike fear into the heart of any budding entrepreneur and have you running back to the jobs pages faster than that! But should they?
Well, the answer is ‘no’, and then a bit ‘yes’ as well . . . the thing is, anyone who tells you that you must have a Business Plan is kind of right. However small your business is to start with, it does really help to plan it all out beforehand and to make sure that you know what you’re aiming to do and how you plan to go about it – but at the same time, as most entrepreneurs who now run successful businesses will tell you, what they wrote in their Business Plan and what actually then happened were two totally different things.
As a famous serial entrepreneur once put it – a Business Plan should be just five words - ‘get and keep more customers’. Of course, at a fundamental level this is right, and you should never forget that this is the main aim of any business (very few businesses go bankrupt due to too many customers).
At the other end of the scale, it is also important not to ‘hide behind’ the need for a Business Plan, spending weeks polishing and perfecting it, when instead you should be just getting out there and making it happen. But as with all these things, there is of course a happy medium. Especially if, as for many people, you need the Business Plan because you want to borrow money from the bank, or entice an investor, in order to set things up on Day One.
What is a business plan?
A business plan is a document which sets out in detail exactly how you will run your business, and includes everything from funding and cashflow, to identifying your products and/or services, to target audience, marketing and so on.
With all this information in place, you should start to get a feel for how feasible the business idea really is. And at this stage you need to be very calculating and not at all emotional, as if the figures don’t stack up, then you probably need to think again.
The elements of a Business Plan
The information outlined above gives a general idea of what should be included, but there is a fairly standard format which most Business Plans should follow, and it looks something like this . . .
- Executive Summary – a quick overview of your business idea in no more than two sides of A4, so that anyone can easily get the gist of what you are planning without reading the rest if they do not have time.
- Business Description – a brief history of the business, where it has come from, how long it has been trading (if relevant), who is involved in the business, legal structure, how much each shareholder owns, who else is in the management team, what their skills sets/backgrounds are, details of any external advisors such as industry specialists or non-exec directors.
- Product/Service Description – an explanation of what you are selling and any registered trademarks or patents/patent applications on products, or any other ‘intellectual property’ owned, any USPs (unique selling points).
- Market Research – a detailed explanation of your target audience, who they are and why they will buy from you, whether you are filling a ‘gap in the market’, whether you are selling to businesses (business to business) or the public (business to consumer), the overall market available and what percentage of it you will need for your business to be viable.
- Marketing Plan – a ‘snapshot’ of what will become your more detailed Marketing Plan, which outlines how you plan to market the business to your target audience, for example selling face to face, via retail outlets, via the internet and so on (there a few hints and tips on these pages: sales and marketing for small businesses and finding work).
- Competitor Analysis – a breakdown of all companies in your target geographical area who offer the same as you, with details of where they are better or worse, and how you will do things differently in order to win business over them.
- SWOT Analysis – this is a quick bullet-pointed analysis of your business covering Strengths, Weaknesses, Opportunities and Threats – which is a tried and tested business tool.
- Financial Forecast – this needs to show your expected turnover, expenditure and profit over the next three years and should be as realistic as possible.
What should it look like?
This might sound like an obvious question, but it’s worth clarifying. A Business Plan which is going to a bank or external investor will need to be more detailed, probably somewhere in the region of 20 to 40 sides of A4, but one which is just for your own internal use is more likely to be around 10 to 5 sides. Of course this is only a rough guide and will vary depending on the complexity of your business idea. Either way, it should be clear and as concise as is possible.
Your Business Plan should also be neatly laid out, with numbered sections for clarity - and a cover page, followed by a contents page, at the front. If you already have a company logo then it’s a good idea to include this on the front cover, but it’s not essential by any means. Likewise, if you have not even decided on a name for your business, then it is fine to use a ‘working title’ for your business plan. For more information on choosing a name for your business please click the link for our useful guide.
Make sure that the document is easy to read with plenty of white space and not too much dense and heavy text. Choose an easy to read typeface such as Arial or Calibri and make sure that the type is not too small or too big. 10pt Arial or 11pt Calibri is fine. Avoid Times New Roman, however much you might personally like it, as it’s far harder to read and takes up more space! Include tables and diagrams where relevant and also images if appropriate, but don’t simply add images for ‘decoration’. Your financial elements will probably already be set up in a spreadsheet so it’s fine to use printouts of these and add them at the back as appendices.
Remember to avoid jargon as, whilst you may be an expert in your industry sector, the external audience for your Business Plan is unlikely to be and may not have the same level of ‘technical knowledge’.
And as we mentioned before, don't get carried away with it, you should be spending more time looking for customers than sitting in your office planning.
One last thing, it is good to get into the habit of writing your new idea's down rather than just keeping them in your head. When you write things down, your brain slows down and you'll be forced to think things through more thoroughly. Which is a bit like writing your business plan down, you'll be surprised at what new opportunities come from writing your plan.
We'll be adding new guides, hints and tip weekly so be sure to check back regularly.
You may also find our other Free Business Guides useful:
- How to advertise your business
- How to market your company for (almost) free!
- Is freelancing for me?
- What will an accountant do for me?
- How to be number one on Google
- Benefits of an Accountant
- Do I need an accountant as a Freelancer?
- Top Tips to getting more Customers
- Creating a website for your business
- Choosing and Registering a company name
- Choosing a small business accountant
If you'd like to chat with Easy Accountancy about your small business you can Ask us a question, call us on 0500 234 111 / 01442 275 767.