BUSINESS PLANS

GUIDE TO WRITING YOUR BUSINESS PLANINTRODUCTION

A business plan is an important document for any business and it can be written for a variety of reasons. Internally, it can help owners and managers crystallise their ideas, focus their efforts and monitor performance against established objectives. Externally, the business plan can act as a medium for attracting finance for start-ups or expansion.

There are many books and publications, which tell you how to write a business plan, what it should contain and how it should be used. This one is different. This is a work-pack specifically designed for those who wish to raise finance.

For many people, the experience of raising finance is a new one. The importance of the plan to this process cannot be overemphasised. Many opportunities presented to financiers are subsequently rejected. It is essential, therefore, that the entrepreneur prepares a quality document. The objective of this work-pack is to help you prepare just such a document by providing you with the headings which need to be covered.

The sections which follow outline the contents of the business plan. We hope that you will find the comments relevant and thought provoking and that you will be able to use these thoughts as a basis for preparation of a business plan which will adequately convey your ability to succeed.

CONTENTS

The business plan should summarise the proposed activity and the prospects for success for the venture, paying particular attention to factors that are critical to success or failure.

The contents should be tailored to the particular individual requirements, circumstances or characteristics of the proposal. However, in general, they commonly fall within the following categories: Executive Summary Current position

Objectives

Product/Service and Operations Marketing and Sales Plan Competition Management and Staff

Financial plan

Information and control

Risk factors and mitigationWe believe that the business plan should be written by you, the management, albeit with the help of professional advisers. The investor is backing the management and the plan must be an expression of your objectives. Experience has shown that the advisers provide a useful role in helping to determine the overall structure of the plan and can provide helpful ideas and reactions.Do keep the length of the plan under control and remember that the reader is unlikely to know the sector as well as you! Avoid jargon and explain acronyms/abbreviations in some cases a Glossary is a good idea. Do include a title page containing address and contact details, together with an Index.EXECUTIVE SUMMARY

Although preferably written last, the Summary should appear at the front of the proposal.

It is essential that the Summary 'catches the eye' and grasps the imagination of the reader by providing enough information for him to decide in principle if he would be interested in the deal.

Financiers have different preferences and are looking to invest in different situations. The Summary must be clear enough for them to establish from the start whether or not the case is worth pursuing.

The Summary should include:

What your product or service is, in a clear, concise description; What your market is;

The unique aspects of your product;

Why customers will buy from you rather than your competitors; In the case of new or innovative products, what barriers there are to prevent competition entering the market; Management experience and funding input; The financial highlights, both achievements to date (if appropriate) and expectations of growth; The finance required; The potential 'Exit" route/returns for the investor or the ability of the business to service borrowings.CURRENT POSITION

This section should be a brief resume of the stage the business has reached and how the company has developed in the last few years, with reference to factual information.The following questions should be addressed:

What is the corporate structure?

Who owns the company and shareholdings? Who are the senior managers?

What is the management structure?

How many employees are there?

What is the location?

What is the trading history? What are the key financial ratios?

What are the strengths and weaknesses of the business? (SWOT analysis)OBJECTIVES

The business plan should include a clear and concise statement of the current objectives. Some factors are easily measured such as turnover or profitability targets. Others are, however, more qualitative in nature and these should not be disregarded simply because of their subjective nature. It is important to recognise that performance will be monitored against these targets by external investors at a later stage; consequently they must be achievable. Future positive and negative variances will have to be explained.

You should state the following:

Any turnover targets by product, if relevant;

Any profit or cost reduction target;

Any market share target;

Any nonfinancial objectives such as improving your:- customer service;

- industry reputation;

- product quality;

Any relevant personal objectives.PRODUCT/SERVICE AND OPERATIONSThis section may seem more relevant to a manufacturing business but applies equally to other industries and service companies. Existing products or services should be considered in turn, and thought given to how each can be improved, developed or replaced to maintain competitiveness. Furthermore, if goods are being manufactured, or a new service is being offered it is important to consider the side effects. For example, more staff and production space may be required; raw materials purchased and stocks held may need to be increased, or specialist staff recruited. The operations plan should state how all these will 'come together' to achieve success.

Describe:

Products or Services;

Unique qualities and any intellectual property rights;

Regulatory issues (if appropriate); For a new product, the path to launch; Any plans for diversification;

Facilities;

Manufacturing processes;

Plant and machinery used in processing;

Organisational structure and identify key positions, roles and responsibilities.MARKETING AND SALES PLANThis is a vital area, which should be explained in detail. The location and size of your market will need to be defined, together with your share of the total. Where relevant, you may need to involve third parties to substantiate your claims; guesswork will not do!

You will need to demonstrate the steps you are going to take in marketing your business and the impact you expect these to have. Are you assuming that your market share will increase? If so, explain why. Dependence on success from large increases in market share will often be difficult to justify.

In summary, include the following:

Absolute size of your domestic market;

Absolute size of your export market (if appropriate); Trends and developments expected in the market in the future;

Your target market and share;

The factors influencing the market; The risks associated with new markets; Results of market research; Routes to market; Sales pipeline.COMPETITIONHow influential are your competitors and to what extent are they in a strong position to influence your market share? Is your market dependent on external factors over which you have no control? If so, these need to be predicted and planned for.Describe: Who they are;

What their strengths and weaknesses are;

What the response of the competition will be;

How your product is superior; The relative importance of each competitor.

MANAGEMENT AND STAFF

It is said in the industry that financiers back people not businesses. The quality of the management team is recognised as the key factor in any investment decision. The importance of this should be borne in mind both when preparing the plan and during negotiations with potential backers.

It will be important, too, to demonstrate that the team can work together and that there are unlikely to be conflicts or confusion of roles in the future. If there has been a high turnover of senior staff in the past, explanations will be required.

The plan should include:

Evidence of the track record of key individuals;

Their experience in the industry;

Future executive requirements;

Curricula vitae for senior managers (usually relegated to appendices);

Identification of the key function areas e.g. marketing, finance etc. and that each of these is covered by management with appropriate experience;

The financial rewards to the senior executives;

The ages of the senior executives. If they are likely to retire soon, what provisions have been made for succession;

FINANCIAL PLAN

Many business plans fail to raise finance due to the inadequacy of the financial information provided. Investors will be assessing the projected funding requirement and the anticipated profitability to establish whether the proposition is commercially viable, and the potential return sufficient. Ensure that the financial plan reflects the objectives set out in the other constituent parts of your business plan.

Include the following:

The funding requirement;

A summary of the projections;

A summary of key financial statistics;

The detailed assumptions behind the forecasts;

A summary of the sensitivity of the forecasts to the key assumptions.

The following should be appended:

The detailed projections for up to 3 years including profit and loss accounts, cash flow statements, and balance sheets;

The most recent financial statements; and

Details of any sensitivity analysis.

INFORMATION AND CONTROL

Writing a business plan is not a oneoff exercise. It becomes a more valuable management tool by being used and reviewed regularly as the business develops.

Internal review of the business is only possible by ensuring that adequate management information and control systems are in place. Furthermore, external investors are likely to require that regular financial information is forthcoming from the company.

The business plan should therefore contain the following:

An outline of the transaction recording systems;

Details of the regular management reports;

A demonstration that the business has staff with adequate financial skills;

Details of how the business will be managed on a day to day basisPurpose of Lesson: In this lesson you will learn how to identify the materials, labor, transportation, shipping, physical location, technology, and other important logistics of how your business will run.

What is a Technical Feasibility Study?

The Technical Feasibility Study assesses the details of how you will deliver a product or service (i.e., materials, labor, transportation, where your business will be located, technology needed, etc.).

Think of the technical feasibility study as the logistical or tactical plan of how your business will produce, store, deliver, and track its products or services.

A technical feasibility study is an excellent tool for trouble-shooting and long-term planning. In some regards it serves as a flow chart of how your products and services evolve and move through your business to physically reach your market.

The Technical Feasibility Study Must Support Your Financial Information

Do not make the mistake of trying to entice investors with your staggering growth projections and potential returns on their investment that only includes income (revenue) to the business. With any increase in revenue there is always an increase in expenses. Expenses for technical requirements (i.e., materials and labor) should be noted in the technical feasibility study.

You should also not strictly rely on feasibility study conclusions to impress an investor. An experienced investor or lending institution will read your entire report and come to their own conclusions.

Therefore, it is critical that the technical and financial data in your study reconcile. If other parts of your feasibility study shows growth, you will also have to project labor and other costs and the technical ability to support that growth.

The technical component serves as the written explanation of financial data because if offers you a place to include detailed information about why an expense has been projected high or low, or why it is even necessary. It demonstrates to potential investors and lenders (and in some cases, potential clients) that you have thought about the long-term needs your business will have as it grows.

Preparing an Outline for Writing Your Technical Feasibility Study

The order that you present technical information is not as important as making sure you have all the components to show how you can run your business.

You do not have to include specific financial information in the technical portion of your feasibility study, but all information in this component must support your financial data represented elsewhere. Basic things that most businesses need to include in their technical feasibility study include:

Materials

Labor

Transportation or Shipping

Physical Location

Technology

Calculating Material Requirements

In this section you list the materials you need to produce a product or service, and where you will get those materials. Include information such as if volume discounts will be available as your business grows, or if you ever plan to manufacture your own parts at some point in time.

Things to include in your list of materials:

Parts needed to produce a product,

Supplies (glue, nails, etc.), and

Other materials that are involved in producing or manufacturing your product.

You do not need to include actual financial data in this portion of the study but financial data supporting your narrative assessment should be included in a separate spreadsheet as an attachment

RISK FACTORS AND MITIGATIONIt may seem strange to include risk factors in what is intended to be a selling document; however, it has the definite advantage of lending credibility to the proposal.

Including the major risks, financial and otherwise, that are likely to affect the business demonstrates that the entrepreneur understands that all businesses have potential stumbling blocks and has taken steps to identify these and developed a strategy to overcome these problems.

The best method to consider risk factors is by a sensitivity analysis of the forecasts. Most forecasting software is capable of being used extensively in this way.

The main results of such analysis should be incorporated into the plan particularly with regard to sales not reaching budgeted levels and the resultant effect on cash flow which is the demise of many new ventures.