At McDade Roberts, we help many businesses from start-ups to those planning to sell their business and retirement. A critical document that sometimes gets lip service but is overlooked is their business plans. Below is a quick checklist of things that you need to think about when preparing a business plan.
Why is a business plan important?
- A business plan helps you make prudent, calculated risks rather than blindly reacting to events
- A business plan helps you make the best use of available resources
- A business plan helps set a path to achieve the lifestyle you want
You should always set out your business plan in writing, however roughly, because this forces you to define your ideas clearly.
Step 1 - Define your business
Examine your business ideas critically. Identify the key features of your business.
- Analyse its strengths and weaknesses
- Consider opportunities open to you, and the challenges you face
Step 2 - Scan the market
The marketplace is the key to the success of your business. You should review the market for your goods or services, and the competition you face.
- Use market segmentation to identify potential customers
- Use market survey methods to characterise your customers and their needs
Step 3 - Identify your niche
Only the largest businesses can afford to provide an overall service to all customers. Most companies should choose between offering general services to a restricted range of customers or offering a niche or specialist service. You could, for example, restrict customers by geographical area, or by some other classification. Things to consider when identifying your niche are:
- Identify the features of your key goods or services
- Identify the advantages you have over competitors
- Identify your 'USP' (your unique selling proposition)
Step 4 - People profile
Now you can review the skills and knowledge needed to run the business. Compare this list with the abilities of the people currently working for you. If certain skills or knowledge are lacking, consider whether training would be appropriate. Remember, it is often better to buy in certain skills such as accountancy and marketing as and when they are needed. Other skills, such as selling and production, are needed constantly and so should be available in-house.
Step 5 - Prices and profits
Identify the relationship between prices and profits. Most businesses price low to maintain turnover, but the additional profits from higher margins can often outweigh any loss of turnover. Decide on the impact of competitors' pricing policies within this phase too.
Step 6 - Marketing strategy
Marketing is deciding how best to reach customers, maintain marketplace intelligence, secure additional customers, and generate further business. Steps to consider are:
- Determine how you will attract potential customers
- Design the message and the medium required to evoke a response
- Prepare staff to deliver outstanding customer service
- Prepare a separate, more detailed, marketing plan
Step 7 - Capital expenditure and liquidity
Having defined the business you are aiming for, you now need to consider the financial resources needed. It is easier to arrange borrowing in advance rather than approach your bank manager when you have exceeded your overdraft limit!
Step 8 - Financial forecasting
Shout if you need help but a financial forecast is critical to a successful business plan. Items it should cover include:
Sales Revenue
- Taking into account current turnover and any potential increase
- Making full use of marketing survey data
- Converting forecasts into targets
Expenditure
- Identify and estimate fixed costs item by item
- Calculate variable costs on the basis of projected revenues
Profits
You need to forecast the level of anticipated profits for your business. Things to consider include:
- How will you respond if a competitor starts a price war?
- Could your production facilities cope with a large order? What would be the effect on your cashflow?
Funding Review
Things to consider include:
- Identifying assets and liabilities, including money owed to you and stocks held
- Drawing up balance sheets based on the forecasts
- Identifying how much of the cash needed can be financed from profits or trade creditors. The remainder needs to be provided either by the proprietors or by borrowing(s)
Once the plan has been prepared
To achieve the best results, you will need to monitor your performance against the plan. This will give you early warning for when you should reconsider your actions in response to market developments.
Consider the key information you need to manage the business, and hence the systems that will provide this:
- Plan to monitor revenues and costs
- Plan to manage cashflow
- Plan to manage people
- Plan to update the plan frequently!
Planning is a never-ending process
Businesses evolve and so should your plan. Plans should be designed to enable you to forecast the future, to help you stay ahead of the game and to assist you in realising your full potential. Do call us at McDade Roberts if you would like further help or advice on business planning. We have seen thousands of business plans so we are in a good position to help you.