Prepare a Business Plan

Prepare a Business Plan

Every business should have a realistic working business

plan - and it's essential when you're starting up a

business.

A business plan is a written document that describes the

business, its objectives, its strategies, the market it is in

and its financial forecasts.

It has many functions, from securing external funding to

measuring success within your business.

This guide will show you how to prepare a high-quality

plan using a number of easy-to-follow steps.

The audience for your business plan

Many people think of a business plan as a document

predominantly used to secure external funding.

This is important - as potential investors, including banks,

may invest in your idea, work with or lend you money as a

result of the strength of your plan.

But there are other benefits to creating and managing a

realistic business plan - even if you just use it in-house.

It can:

Help you spot potential pitfalls before they happen

Structure the financial side of your business efficiently

Focus your development efforts

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Work as a measure of your success

The following people or institutions may request to see

your business plan at some stage:

Banks

External investors - whether this is a friend, a venture

capitalist firm or a business angel

Grant providers

Anyone interested in buying your business

Potential senior partners

You should also bear in mind that a business plan is a

living document that will need updating and changing as

your business expands.

And regardless of whether you intend to use your plan

internally, or as a document for external people, it should

still take an objective and honest look at your business.

Failing to do this could mean that you and others have

unrealistic expectations of what can be achieved and by

when.

What the plan should include

Your business plan is a statement of intent.

It should provide details of how you are going to develop

your business, when you are going to do it, who's going to

play a part and how you will manage the money.

Clarity on these issues is particularly important if you're

looking for finance or investment.

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The process of building your plan will also focus your mind

on how your new business will need to operate to give it

the best chance of success.

Your plan should include:

The Executive Summary - this is an overview of the

business you want to start. It's vital. Many lenders and

investors make judgments about your business based on

this section of the plan alone.

Business Opportunity – who

you are, what you plan to sell or offer, why and to whom.

Marketing and Sales Strategy - why you think

people will buy what you want to sell and how you plan to

sell to them.

Management Team and Personnel – your

credentials and the people you plan to recruit to work with you.

Operations - your premises, production facilities,

your management information systems and IT.

Financial Forecasts - this section translates everything

you have said in the previous sections into numbers.

The Executive Summary

The executive summary is often the most important part

of your business plan.

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Positioned at the front of the document, it is the first part

to be read.

However, as a summary it makes sense to write it last.

It may be the only part that will be read.

Faced with a large pile of funding requests, venture

capitalists and banks have been known to separate

business plans into "worth considering" and "discard" piles

based on this section alone.

What is an Executive Summary?

The executive summary is a synopsis of the key points of

your entire plan.

It should include highlights from each section of the rest of

the document - from the key features of the business

opportunity through to the elements of the financial

forecasts.

Its purpose is to explain the basics of your business in a

way that both informs and interests the reader.

If, after reading the executive summary, an investor or

manager understands what the business is about and is

keen to know more, it has done its job.

It should be concise - no longer than two pages at most -

and interesting.

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It's advisable to write this section of your plan after you've

completed the rest.

What the Executive Summary is not

A brief description of the business and its products.

It's a synopsis of the entire plan.

An extended table of contents.

This makes for very dull reading.

You should ensure it shows the highlights of the plan, rather than restating the details the plan contains.

Hype.

While the executive summary should excite the reader enough to read the entire plan, an experienced investor or businessperson will recognise hype and this will undermine the plan's credibility.

Business Opportunity

Your business, its products and services

If you want other people to invest in your business or if

you're writing your plan to focus your existing business

activities, you must be able to clearly convey what your

business does.

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This part of your plan sets out your vision for your new

business and includes who you are, what you do, what you

have to offer and the market you want to address.

It answers the question - is your idea viable?

Start with an overview of your business:

When you started or intend to start trading and the

progress you have made to date

The type of business and the sector it is in

Any relevant history - for example, if you acquired the

business, who owned it originally and what did they achieve with it

The current legal structure

Your vision for the future

Then describe your products or services as simply as

possible, defining:

What makes it different

What benefits it offers

Why customers would buy it

How you plan to develop your products or services

Whether you hold any patents, trademarks or design

rights

The key features of your industry or sector

Remember that the person reading the plan may not

understand your business and its products, services or

processes as well as you do, so it's important to avoid

jargon.

It's often a good idea to get someone who isn't involved in

the business - a friend or family member perhaps - to read

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this section of your plan and make sure they can

understand it.

Marketing and Sales Strategy

Your markets and competitors

In this section you should define your market, your

position in it and outline who your competitors are.

In order to do this you should refer to any market research

you have carried out.

You need to demonstrate that you're fully aware of the

marketplace you're planning to operate in and that you

understand any important trends and drivers.

You should also be able to show that your business will be

able to attract customers in a growing market despite the

competition.

Key areas to cover include:

Market - its size, historical data about its development

and key current issues

Target customer base - who they are and how you know

they will be interested in your products or services

Competitors - who they are, how they work and the share

of the market they hold

Future - anticipated changes in the market and how you

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expect your business and your competitors to react to them

You also need to know how your competitors' advantages

and disadvantages compare to your own.

Describe any competitive analysis you have carried out

and include some what-if scenarios that show how your

business would deal with customers' changing needs or

any other market changes.

Marketing and Sales

This section should describe the specific activities you

intend to use to promote and sell your products and

services.

It's often the weak link in business plans so it's worth

spending time on to make sure it's both realistic and

achievable.

A strong sales and marketing section means you have a

clear idea of how you will get your products and services

to market.

Your plan will need to provide answers to these questions:

How do you plan to position your product or service in the

market place?

Who are your customers?

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Include details of customers who have shown an interest in your product or service in the plan and explain how you plan to go about attracting new customers.

What is your pricing policy?

How much will you charge for different customer segments, quantities etc?

How will you promote your product or service?

Identify your sales methods eg direct marketing, advertising, PR, email, e-sales.

How will you reach your customers?

What channels will you use?

Which partners will be needed in your distribution channels?

How will you do your selling?

Do you have a sales plan?

For example, will you sell by phone, via a website, face-to-

face or through retail outlets?

Management Team and Personnel

Your team's skills

Your business plan needs to set out the structure and key

skills of both your management team and your staff.

It should identify the strengths in your team and your

plans to deal with any obvious weaknesses.

The management team

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If you're looking for external funding, your management

team can be a decisive factor.

Explain who is involved, their role and how it fits into the

organisation.

Include a paragraph on each individual, outlining their

background, relevant experience and qualifications.

Include any advisors you might have such as accountants

or lawyers.

If you're looking to satisfy your bank manager or other

investors, you need to demonstrate that your

management team has the right balance of skills, drive

and experience to enable your business to succeed.

Key skills include sales, marketing and financial

management as well as production, operational and

market experience.

Your investors will also want to be convinced that you and

your team are fully committed.

Therefore it's a good idea to set out how much time and

money each person will contribute to the business and the

salaries and benefits you plan to draw.

Your people

Give details of your workforce in terms of total numbers

and by department.

Spell out what work you plan to do internally and if you

plan to outsource any work.

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Other useful figures might be sales or profit per employee,

average salaries, employee retention rates and

productivity.

Your plan should also outline any recruitment or training

plans, including timescales and costs.

It's vital to be realistic about the commitment and

motivation of your people and spell out any plans to

improve or maintain staff morale.

Operations

Your operations

Your business plan also needs to outline your operational

capabilities and any planned improvements.

There are certain areas you should focus on.

Location

Do you have any business property?

What are your long-term commitments to the property?

Do you own or rent it?

What are the advantages and disadvantages of your

current location?

Production facilities

Do you need your own production facilities or would it be

cheaper to outsource any manufacturing processes?

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If you do have your own facilities, how modern are they?

What is the capacity compared with existing and

forecasted demand?

Will any investment be needed?

Management Information Systems (MIS)

Have you got established procedures for stock control,

management accounts and quality control?

Can they cope with any proposed expansion?

Information Technology (IT)

InformationTechnology (IT) is a key factor in most

businesses, so include your strengths and weaknesses in this area.

Outline the reliability and the planned development of

your systems.

Financial Forecasts

As part of your plan you will need to provide a set of

financial projections which translate what you've said

about your business into numbers.

You will need to look carefully at:

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How much capital you need if you are seeking external

funding

The security you can offer lenders

How you plan to repay any borrowings

Sources of revenue and income

You may also want to include your personal finances as

part of the plan at this stage.

Financial planning

Your forecasts should run for the next three (or even five)

years and their level of sophistication should reflect the

sophistication of your business.

However, the first 12 months' forecasts should have the

most detail associated with them.

Include the assumptions behind your projection with your

figures, both in terms of costs and revenues so investors

can clearly see the thinking behind the numbers.

What your forecasts should include

Cashflow statements - your cash balance and monthly

cashflow patterns for at least the first 12 to 18 months.

The aim is to show that your business will have enough

working capital to survive so make sure you have

considered the key factors such as the timing of sales and

salaries.

Profit and loss forecast - a statement of the trading

position of the business: the level of profit you expect to

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make, given your projected sales and the costs of

providing goods and services and your overheads.

Sales forecast - the amount of money you expect to

raise from sales.

Presenting your business plan

To make sure your business plan has the maximum

impact, there are a number of points to observe.

Keep the plan short - it's more likely to be read if it's a

manageable length.

Think about the presentation and keep it professional -

even if you only intend to use the plan in house.

Remember, a well presented plan will reinforce the

positive impression you want to create of your business.

Tips for presenting your plan

Include a cover or binding and a contents page with page and section numbering.

Start with the executive summary.

Ensure it's legible - make sure the type is ten point or

above.

You may want to email it, so ensure you use email-friendly

formatting.

Even if it's for internal use only, write the plan as if it's

intended for an external audience.

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Edit the plan carefully - get at least two people to read it

and check that it makes sense.

Show the plan to expert advisers - such as your

accountant - and ask for feedback. Redraft sections they say are difficult to understand.

Avoid jargon and put detailed information - such as

market research data or balance sheets - in an appendix at the back.

Make sure your plan is realistic.

Once you've prepared your plan, use it.

If you update it regularly, it will help you keep track of

your business' development.

Further help and advice

Your accountant, if you have one, or your bank can offer

support.

Your local Business Link has specialist advisers who can

help you with business planning.

You can find your local Business Link through our Contacts

Directory.

Enterprise Agencies offer free business counselling and

can help you prepare your business plan.

You can find your local Enterprise Agency on the National

Federation of Enterprise Agencies website.

Here's how having an up-to-date business plan helped my business

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http://www.nfea.com/index.htm?page=find_lea.htm

http://www.nfea.com/index.htm?page=find_lea.htm

http://www.businesslink.gov.uk/bdotg/action/directory?r.l3=1073869162&r.l2=1073859137&r.l1=1073858805&r.s=e

http://www.businesslink.gov.uk/bdotg/action/directory?r.l3=1073869162&r.l2=1073859137&r.l1=1073858805&r.s=e

Darren JonesAKC Home Support Services

Darren's top tips:

"Make sure your business plan reflects your personal vision - don't just put things in because you think it’s what someone else wants to read."

"Be objective. It is important to weigh up the pros and cons."

"Get assistance whenever you can."

Darren Jones launched his care business, AKC Home

Support Services, in 1991 with his wife Sharron.

Although writing their business plan was one of the first

things the couple did, Darren admits he originally saw it as

a bit of a chore.

Now, he takes a different view, believing it has helped the

business stay on track and true to its goals.

What I did

Write the plan

"When we started the firm I knew we needed a business

plan but saw it more as a document for everyone else

than something to help us.

If I started another business tomorrow I would write one

much more willingly as it brings a number of benefits -

from helping you secure finance to keeping you focused

on your goals.

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"We got help from our local enterprise centre, looked at

examples from other businesses and a template from the

bank.

We mixed and matched bits from these sources because

not everything applied to us.

For example, because we were going into a new market

we couldn’t write about our competitors but needed a lot

of information about the market for care services."

Consult the plan

"We used our business plan to set out the financial and

strategic goals we wanted to achieve in the short and

long-term.

We review it annually now unless there’s a significant shift

in our market and then we use it to immediately re-

evaluate our goals.

"Our business plan has also helped us to avoid expanding

too quickly.

Early on, we were offered work in another county.

This seemed great but when we looked at our business

plan – and particularly our cashflow forecasts - we realised

it was important to establish a firm base in one county

before taking on work in another otherwise we would

overstretch ourselves."

Use the plan

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"We purchased a residential unit four years ago and our

business plan definitely helped us demonstrate why the

bank should lend us the money.

Without it being put down on paper I don’t think it would

have sounded like a very viable suggestion.

"The home added a different dimension to the business in

which we had no trading record so the bank lent us the

money according to our past performance.

We could also show that we would offset some of the cost

by using part of the new building as office space.

"Our plan also helped us to get support from Shell

LiveWire - the organisation that assists 16-30 year olds to

start and develop businesses - as you must have a

business plan to enter its competitions.

We were awarded prizes twice - not only bringing in extra

money but publicity too."

What I'd do differently

Work on the plan’s presentation

"I would have tried to get more assistance and perhaps

made the document look a bit more professional.

It's your way of gaining support for your business and is

the one thing that your bank manager will remember

apart from how you were dressed."

Get as much help and advice as possible

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Show the plan to an independent third party - such as

friends or family who have run their own businesses - who

will be able to point out if anything is missing.

It's much better to make mistakes on a practice run than

when it really matters.

Related web sites you might find useful

Read sample business plans at the bplans.org.uk

website

http://www.bplans.org.uk/spu/businessplans.cfm

See a library of business plan templates on the

Microsoft Office website

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http://office.microsoft.com/search/results.aspx?

Scope=TC&Query=business+plan&CTT=6&Origin=EC010

331121033

Download a guide on getting to grips with

competitors from the Chartered Institute of

Marketing website (PDF)

http://www.cim.co.uk/mediastore/10_minute_guides/10_mi

n_Get_To_Grips_With_Competitors.pdf

Find out how to create a sales and marketing

strategy on the Chartered Institute of Marketing

website

http://www.cim.co.uk/cim/ser/html/infHow.cfm?

objectID=3CD45711-DCC6-4CB7-

B854F8761140182F&displaytype=full

Use the business planning software at the Alliance

and Leicester Commercial Bank website

(registration required)

http://www.alliance-leicestercommercialbank.co.uk/conten

t/SU080024.asp

Buy an online course on Finance and Budgeting at

the learndirect business website

http://www1.learndirect-business.com/?

target=framework.asp?

framework_id=15%26parent_id=78%26display_courses=t

rue

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Example of a Business Plan

Global Marketing Business Plan

1.0 Executive Summary

West Pacific Marketing Consultants aims to provide marketing services to targeted business environments in Indonesia, Asia, and the west Pacific region. This plan seeks to generate a significant increase in company sales and profits from the delivery of retainer consulting, project consulting, market research and industrial analysis, feasibility studies, and strategic analysis and reporting services, compared to the preceding year.

The highlights of this plan are the targets: gross margin and sales-revenue. The targeted gross margin for each of the first five years of this plan are $1.7 million, $2 million, $2.4 million, $2.9 million, and $3.5 million, respectively. The sales-revenue targets for the same five years are $2.1 million, $2.5 million, $3 million, $3.6 million, and $4.3 million, respectively. These figures represent 2.00%, 2.02%, 2.01%, 1.94%, and 1.73%, respectively, of the key prospects available for West Pacific Marketing Consultants. These targets are attainable through a proactive approach to the candidacy of clients, teaming-up with technology providers, and partnering with reputable local and regional engineering suppliers and construction firms to reduce competition, improve pricing, and reduce risks. The projected marketing budget for each year will be $444,640, $502,380, $568,469, $644,426, and $731,799, respectively.

This business plan has been created on the basis of five years of market research, which spanned March of 1996 through November of 2000. Data conclude the size and growth of the market and geographical segments, customer needs, perception, and buying behaviour trends have been on the upswing, and are expected to continue

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in this trend for the next five years. West Pacific Marketing Consultants feels that it is able to fill the hole in the marketing niche, and will benefit from operations beginning in January, 2001.

Note: All figures within this plan are in the U.S. dollar, and reflect the currency exchange rate of $1 = Rp 7,200.

Highlights

1.1 Objectives

West Pacific Marketing Consultants' objectives are to make an equal and fair profit in the business-to-business (B2B) and business-to-consumer (B2C) marketing services industry. This goal is to be reached by attaining the numbers below:

1. Sales of $2.1 million in 2001, $2.5 million in 2002, $3 million in 2003, $3.6 million in 2004, and $4.3 million in 2005.

2. Average gross margin at 80.18%. 3. Net income at 44.10% of sales in 2001, 45.04% of

sales in 2002, 45.90% of sales in 2003, 46.69% of sales in 2004, and almost 50% of sales in 2005.

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1.2 Mission

West Pacific Marketing Consultants offers companies, government institutions, nongovernmental organizations (NGO), and individuals reliable, high quality, and cost-effective consulting services for various purposes. Our services include business development, market development, market intelligence, industrial sectors analysis, and channel development on a global scale, as well as sales assistance for global companies in the Indonesian market.

The situation in Indonesia is currently characterized by the facts that times are tough, investment appetites are low, industries are cutting costs, and budgets are being slashed. Fully aware of this situation, West Pacific Marketing Consultants, after completing a five year research study, has come to the conclusion that its potential clients would be interested in doing things in a smarter way, with good support of a reliable and efficient market intelligence. West Pacific Marketing Consultants believes that it can provide both solutions and value creations to its clients. Its senior executive consultants have been working with some reputable U.S.-based global companies for more than 14 years, and have extensive knowledge of Indonesian, Asian, and Pacific business environments.

1.3 Critical Success Factors

There are two keys to success that West Pacific Marketing Consultants is focused on. These are broadly

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characterized as Internal and External Factors, and are explained in more detail in the following two sections.

1.3.1 Internal Factors

The company feels that it controls its own success through some basic internal factors.

These are:

1. Selling and Marketing Power. The services the company provides are made attractive in order to maintain a certain percentage of B2B and B2C clients.

Being a market intelligence services provider, business and market development consulting services provider, and business and sales representative, West Pacific Marketing Consultants demonstrates a successful approach in converting its reputation into an excellent brand to ensure the conversion of its clients' knowledge into their intellectual property, thus creating value for its clients.

2. Excellence in fulfilling the promise. Clients do not buy features, they buy benefits.

To realize a benefit, a claim must be made and proof presented. This company has had success on claim after claim.

3. Developing visibility to generate new business leads. Participation by the company in online

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business affiliations with reputable global players of e-business technology is a necessity.

Two of these players are Palo Alto Software and B2BToday.com. Strategic relationships must also be made with companies, government institutions, regional (provincial) government offices, and NGOs, as well as with individual customers.

4. High-quality service and customer satisfaction. Everything the company sells is guaranteed; therefore, the services have to do what the customers want, and do it well.

Long-term customer satisfaction is critical to the survival of the company.

5. Create multiple opportunities from a single line of expertise. West Pacific Marketing Consultants is able to leverage from a single pool of expertise into multiple revenue generation opportunities: business development, market development, market intelligence, industrial sectors analysis, and channel development on a global scale, as well as sales assistance for global companies in the Indonesian market.

6. Key management team. The right management team is integral, and must have a strong foundation in marketing, management, finance, and services development.

The company is confident in its team.

1.3.2 External (Business Environment) Factors

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The Asia-Pacific Region is now living in an interesting era: the process of change from the "old economy" to the "global new economy" brings a tremendous development growth of e-commerce, mobility of capital, and liberalization to the region.

Since the new global economy brings new economics, new market structures, new industry structures, and new company structures, the profile of customers has also changed.

Customers have evolved from "solution demander" to "value demander," and from "clients" to "business partners." West Pacific Marketing Consultants is proactively focused on establishing relationships with multiple digital contents, companies, government institutions, regional (provincial) government offices, NGOs, and individual customers as its prospective business partners.

Marketing Strategies for Small Businesses

Challenges and Limitations

There is no doubt that marketing can present significant

challenges for the small businesses. The limited human and

financial resources implicit in being a small business places

practical constraints on what marketing activity can be

carried out. This means that, while in theory marketing

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principles are applicable to all organisations regardless of

size, the ability to apply and implement many of these

principles is likely to vary with size depending on the

availability of resources.

A. Know your Strengths and Weaknesses

To utilise resources optimally, you need to play to your strengths and minimise your

weaknesses. Some of the typical strengths and weaknesses of small businesses are:

Strengths Weaknesses

FlexibilityReactive; random oscillation from active to passive marketing

Knowledge of local market

Limited resources/Lack economies of scale

Credible as specialists

Short term view

Entrepreneurial spirit

Strong reliance on passive word of mouth for sales

ResponsiveFocus on developing sales through new customers

InnovativeLimited awareness of what marketing really isTendency to 'shot gun' promotional activityToo many eggs in one basket/ too few customersLimited market intelligenceLimited planning

As businesses pass through the transitions from small to

medium sized, there will be a tendency for some of these

strengths and weaknesses to diminish, but even if you are at

the upper end of medium sized, still ask yourself honestly

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whether any of these weaknesses still apply to your

business?

The rest of this article presents strategies to optimise your

resources. Whilst addressing these weaknesses.

i. List your own business' strengths and weaknesses

Make a list of your own business' strengths and weaknesses,

getting input from your management team and as many of

your employees as possible. Compare your strengths and

weaknesses with those of your main competitors. Check

whether you need to take corrective action to minimise

weaknesses and identify where you can exploit strengths

that your competitors don't have.

ii. Short-term versus flexibility

There is a tendency for the marketing activity of smaller

businesses to be short term, ad-hoc, and reactive leading to

a fire-fighting culture. This can cost money and time,

because resources are not optimally deployed as a result of

not considering the fuller, longer-term picture. However, a

balance is needed. The ability of the smaller business to be

flexible and respond rapidly to market changes is a major

strength in the right context. This is particularly the case in

fast moving markets and when in competition with larger

businesses who are far less likely to be able to respond as

quickly.

In order to avoid 'short-terms' whilst maintaining flexibility,

you need an overall strategy for your activities to fit into. If

you check whether your response to market situations is

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consistent with your overall strategy you can decide whether

a particular course of action is appropriate.

Before you can develop a strategy, you need to identify your

objectives, i.e. what you want to achieve in a particular

market. Once you have your objectives and a strategy, you

are well on the way to having a marketing plan. You may

well have this in your head, but it's much better to write it

down so that you have something to keep you on track and

to show to others in your business.

B. Adopt a focused strategy, avoid the shotgun

Avoid trying to aim too widely with your marketing because

your resources will be spread far too thinly to be effective.

The word FOCUS should be the key word for small

businesses.

i. Segment your market

Not all of your customers within your market have the same

needs. Think of an orange as your market and within that

each orange segment represents individual customer groups

with distinct and different needs. Carry out a survey to

identify your customers? needs. Group your customers

according to their needs. These groups are your main market

segments.

Don't treat all of your market segments the same. You need to customise your product/service offering and your communication to be appropriate to each segments needs. The results will be worth the effort because there is substantial evidence to show that businesses that take account of their market segments

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in this way are more likely to be successful. Focus on a manageable number of segments to avoid overstretching your resources.

You can use a 'rolling' promotional cycle, where, for example, you concentrate your promotional activity on a different segment every three or six months. Choose a time period for the 'cycle' appropriate to your business. In this way you can still cover several market segments but you will achieve a greater return on effort by focusing on one segment at a time.

Focus your marketing attention on those customer segments where your main strengths have the best fit.

ii. Focus on a niche

Focusing on a market niche is a particularly appropriate

competitive marketing strategy for small businesses.

If you face heavy competition in a mass market, particularly

from larger businesses, it takes a lot of resources to

compete, and for smaller businesses, your size can also

make you less credible.

Take a look at your market and identify whether there are any market segments that are not being adequately served. Look at ways in which you can make an offering to fit their particular needs. Of course it has to make business sense before you pursue this path, and it is not without risks itself. There is no guarantee that larger business won't "muscle in" on your niche if it looks profitable, or that your niche becomes less attractive. You always need to monitor the market and be prepared to move to another niche or a non-niche strategy if necessary.

iii. Focus on a particular offering

If you are a smaller business, you may find it beneficial to

consider focusing even further within a niche or market

segment to become a specialist. Small businesses have

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greater credibility as specialists and there is the advantage

that you will develop a very deep knowledge and expertise

within your market as you pursue this route.

The disadvantage to this strategy is the risk associated with

total reliance on a small market sub-segment. You will need

to monitor the market regularly so that you can be ready to

target an alternative market if necessary.

C. Adopt lower risk strategies

When you are operating with limited resources, it makes

sense to look at lower risk strategies first.

i. Avoid moving into new markets too rapidly

Far too many small businesses get carried away with the

excitement of new horizons and forget to fully exploit their

existing markets before moving on. You may have a very

good reason for looking at new markets if your existing

market has dried up or has undergone a down-turn, but

remember, the further you move away from your existing

market, the risk and cost of marketing increases. This is

because you know far more about your existing market and

have far more information upon which to base your

decisions. Your production, systems and procedures are also

geared up to your existing market.

This is illustrated by these simple growth strategies that

increase in risk as you go down the list:

Selling more of your existing products to existing markets

Selling modifications of your existing products/services to existing markets

Selling new products to existing markets (totally new

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products or associated with existing products) Selling your existing products/services to new markets Moving into completely different markets with different

products

ii. Check your need to increase your customer base

In many cases, micro and some small businesses are

operating with a customer base that is far too small. This

imposes undue risk, because the sales from one customer

can account for a substantial proportion of total revenue.

Consequently, the loss of a customer could have a major

impact on your business, and in some cases result in its

demise.

Ask yourself whether you are in a high-risk situation. Take a common sense view by calculating the percentage of your total revenue accounted for by each customer, and for each, ask yourself what the impact on your business would be if you lost that customer and whether you would survive. If the answer is no to any of them, then you need to take steps to increase your customer base.

Make an estimate of how many customers you need in order to reduce to an acceptable level the percentage of your total revenue accounted for by each customer.

Set this number of customers as your target. Then identify how you are going to obtain these extra customers and over what time period. Draw up a mini plan for this. You are unlikely to be able to develop new customers overnight, and so the sooner you start planning to do this the better, but remember not to neglect your existing customers while you do this. (See also section D)

iii. Stimulate referrals

Recommendations and referrals from existing customers

form a substantial source of new customers for many small

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businesses. This has the advantage of being cost-free, but

the downside is that over-reliance on a passive phenomenon

that is uncontrollable is risky.

You can reduce this risk and take control by actively

stimulating referrals. Here are some tips for doing this:

Not all of your customers will know everything about your products/services. Regularly provide them with information sheets summarising your offerings. This is a good thing to do anyway, because it is likely to generate more sales from the customers themselves. Ask them if they can identify anyone who could use your products/services and encourage them to pass on the information to others. Make a judgement as to whether you need to provide an incentive for them to do this; in some cases it may not be appropriate.

Personally thank your customers for their custom, and make a point of asking them to pass on your name to others. At the same time find out how satisfied they are with your offering and take corrective action where necessary. Dissatisfied customers will not make recommendations.

"If you like what we do tell others; if you don' t like it, then

tell us."

Take the opportunity to enclose a referral slip with any communications or delivery documents.

D. Retaining and developing existing customers

Once you have achieved a reasonable number of customers,

beware of only focusing on developing new customers as a

means of growing sales. This runs the risk of neglecting your

existing customers. Clearly you need to look for

opportunities to develop new customers, but a balanced

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approach is needed.

Retaining and developing more sales from existing

customers should be the first priority, because this strategy

has distinct advantages:

It is the least risky growth strategy (also see next section)

Developing more sales from existing customers is less costly than obtaining new customers.

Existing customers: Are the foundations of your business. Is generally less price sensitive. Are likely to offer more opportunity for repeat business. Offer the potential for recommendations and referrals. Are generally more loyal.

In order to develop a strategy for retaining customers and

developing more sales from them you need to carry out

some analyses:

i. Analyse your customer base

80:20 customer ratio:

It is likely that 80% of your revenue is accounted for by only

20% of your customers. The 80% of your customers with

small sales probably fall into two categories. Either they will

never have the potential for increased sales, or, given some

work, they could be developed. Identify which are which and

take steps to sell more to those with sales potential.

Customer profitability:

Analyse the profitability of each of your main customers, i.e.

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the top 20%. You may be surprised to find how unprofitable

some of them are. Look at ways of increasing the profitability

of these or consider 'losing' them. Focus on the more

profitable ones; check their needs and identify ways to sell

more to each of them.

ii. Make your database work for you

Many small businesses operate with inadequate inefficient

customer databases because it is not considered to be a

priority to invest in them. If you don't have the means of

storing and manipulating data on your customers you can't

hope to fully exploit this gold mine of an asset.

Many of the strategies discussed in this article require the

ability to analyse your customer/contacts database in order

to obtain the information needed.

Ask yourself these questions:

1. Is your database just a list of customers and contacts?

2. Can your database be manipulated with ease to group

customers according to:

Sales Profitability Needs Main product/services purchased Location Frequency of purchase Average size of purchase, etc

3. Is your database fully integrated with your other software

programmes e.g. financial?

4. Was your database design based on an audit of your

business needs?

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5. Does your database allow you to keep additional

information on your customers other than contact details

etc?

If the answer is yes to 1 and no to 2-5 then you need to take

an urgent look at upgrading your database, but take expert

advice on this.

iii. Satisfaction through innovation

In order to retain and develop existing customers you will

clearly need to ensure their total satisfaction. This process

can stimulate innovation, because you may need to modify

existing products and services or develop new ones in order

to continue to satisfy their needs.

Find out from your customers what their needs are now and in the future in order to achieve this.

Will you need to modify products/services or develop new ones to fulfil these needs?

E. Retaining employees

There is a distinct cost advantage to retaining employees

because it costs a lot to recruit and train a new employee,

and in the early days they are less productive. As with

customers, you need to make sure that your employees are

satisfied in order to retain them. You are also unlikely to

have satisfied customers if your employees aren't satisfied.

These are two good reasons for making sure that you keep

your employees, but how good are you at this?

Do you have an employee satisfaction programme? Do you know what your employees' needs are in order

to ensure that they are satisfied? Have you taken steps

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to find out what motivates each of them?

Is your selection process and training programme adequate for each employee role?

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Prepare a Business Plan

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