Business Plan: Final Steps
This blog looks at your Business Plan:Final Steps. It follows on from our previous blog where we mapped out the initial stages.
People reading the business plan need to be given an idea of why they should have faith in the management of your start-up. Outline the management skills within your team.
- Define each management role and who will fill it.
- Show your strengths and outline how you will cope with any weaknesses.
- Describe the background and experience of each team member.
- Clarify how you intend to cover the key areas of production, sales, marketing, finance and administration.
- Management information systems and procedures should be outlined. For example, management accounts, sales, stock control and quality control.
- Show how many ‘mentors’ and other supporters you will have access to.
How committed are you?
- Banks and any other potential investors will want to be sure you are committed to the business. Show how much time and money each of the management team will contribute, and what your salaries and benefits will be.
Explain what facilities the business will have and how it will deliver the product or service to the customer. Show the pros and cons of the location. Indicate the facilities you will need to start, for example. equipment, machinery, furniture.
- Consider any potential limits to production capacity.
If you are going to manufacture or distribute products, show how and where you are going to warehouse them and for how long. Provide a list of employee roles you need to fill and the skills required to fill them. Show how you selected your suppliers. Sales forecasts produced for start-up businesses are often over-optimistic. Here are some important reality checks. How soon can you start selling?
- Will potential customers hold off for a year before they take you seriously and place an order?
How often will you be able to sell?
- For how many days can you commit to selling?
- Do you know how long will each lead take to line up?
- What percentage of leads will turn into sales?
How much will you be able to sell?
- What will the average sale value be?
- Will most people give repeat orders, or must you find new customers each time?
What terms of credit are being offered? How much income can you realistically expect each month?
Your financial forecasts translate what you have already said about your business into numbers. A realistic sales forecast forms the basis for all your other figures.
- Break the total sales figure down into its components (e.g. different types of products or sales to different types of buyer).
Your cash flow forecast shows how much money you expect to be flowing into and out of your bank account and when. You must show that your business will have access to enough money to survive.
- Demonstrate that you have considered the key factors affecting cash flow – e.g. level and timing of sales revenue, wages.
- Show when there will be more money coming in than going out (‘cash-positive’).
Your profit and loss (P&L) forecast gives a clear indication of how the business will move forward. Summarise the annual P&L forecast for each of the first two or three years of trading. If you are launching a larger start-up, you will also need projected balance sheets. These will show you the financial state of your business on day one and at year end, perhaps for the first two or three years. Do not get too protective about your forecasts. You may need to revise them. For every forecast, list all your key assumptions (e.g. prices, sales volume, and timing). Small business advisers at banks and your local business support organisation will often help you put together your forecasts free of charge.
The cashflow forecast will show how much finance the business needs. Your assessment of the risks will determine whether or not you need to arrange contingency financing. Say how much finance you will want, when and in what forms. For example, you might want a fixed-interest loan and an overdraft facility. State what the finance will be used for.
- Show how much will be for buying equipment and how much for working capital (financing stock and debtors).
Confirm that you will be able to afford it.
Assessing the risks
Look at the business plan and isolate areas where something could go wrong (e.g. if your main supplier closes down).
- What you would do if it actually happens?
Consider a range of what-if scenarios (e.g; what happens to your cashflow if sales are 20 per cent lower or 15 per cent higher than forecast). If there are serious risks:
- you can arrange contingency funding to cover the finance you may need
- you may decide that the business is too risky and abandon the whole project.
Assessing risk will help you minimise problems and help build up your credibility with any investor or bank.
Detailed financial forecasts (monthly sales, monthly cashflow, P&L) should usually be put in an appendix.
- Include a detailed list of assumptions.
For example, the profit margin on each product, debtor collection period, creditor payment period, stock turn, interest and exchange rates, equipment purchases. You may want to give other relevant information.
- Detailed CVs of key personnel (essential if you are seeking outside funding).
- Market research data.
- Product literature or technical specs.
- Names of target customers.
- A list of external data sources used in your research will add credibility to the information.
Presenting the plan
The more solid information you can gather for your own use, the better the business plan will be. But a banker or other outsider will not have time to read through all the details. Keep your business plan short.
- Most business plans are too long. Focus on what the reader needs to know.
Make it professional.
- Put a cover on the business plan and give it a title.
- Include a contents page.
- Re-read it yourself. Would reading your plan give an outsider a good feel for your business and a grasp of the key issues?
- Show the plan to friends and expert advisers and ask them for comments.
The Business Plan: Final Steps adds in the Financial Numbers to your future business journey. Get in touch to see where we can help plan your Business journey and make money!
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