Preparing a Business Plan
Three basic phases to the development of a business plan:
1. INFORMATION COLLECTING AND ANALYSING
This involves compiling the data necessary to determine how you should operate the business. The information that you gather will apply to the following areas:
(a) Your business
(b) The service that you will offer
(c) The area that you are going to operate in
2. POLICY COMPOSITION
This involves how you will operate your business based on the "information" collected in stage 1. Normally the policy will be detailed in two written plans:
(a) The marketing plan
(b) The operating or action plan
3. FORECASTING RESULTS
This involves making financial projections which will show the expected profit of your business. These financial details will appear on the three major documents that chart the progress of your business:
(a) Profit and loss trading accounts
(b) Balance sheet
(c) Cashflow forecasts
At this junction we should be aware of two things. First, preparing a sound business plan is not a five minute job. It takes time and effort. Many will argue that they cannot spare the time or that they can store the information in their heads. The second point is easily summed up - "a plan is not a plan until it is written down".
To prove this I would suggest that readers try to memorise any average length financial document.
How do you make your plan work? After collecting all the information and building up the business plan you will reach a stage where you are able to ask pertinent questions about your business. One question may be "Do I have enough information to determine how I should advertise?" Can you answer that question fully? If not, go back and gather more information until you can provide a full answer.
Ask yourself the following questions to test your business plan:
- How should I price my service?
- How am I going to advertise my service?
- Does it look like I have enough clients to make my business profitable?
- Who are they going to be?
- What sort of finance will I require to set up my business properly?
- How will I borrow the finance?
These questions are just a small selection of the questions you may be able to answer BEFORE entering into a new or existing business. Some of the broad areas you must answer questions on are:
(a) Your service and the service you will give
(b) Your customers
(c) Your market area
(d) The competition
(e) The location of your business
(f) How to promote your business
(g) What selling methods you will use
(h) How will you organise your business
(i) What sales must you achieve in year one
Let us assume that your business plan has worked and that you are "in business" and moving along nicely. This is not the end of your business plan. You must keep it up to date. The best made plans get out of date because conditions change. Sometimes the change is with yourself or your staff. Sometimes the change is with your customers. Their desires and tastes alter; their needs and wants alter with their financial changes. In order to adjust a business plan to account for such changes an owner must:
(a) Be alert to changes that come about in the business in the industry, in the marketplace and in the country
(b) Check the plan against these changes
(c) Determine what revisions, if any, are needed to bring the plan up to date
One of the important parts of your business plan, the cashflow forecast, will indicate the profits you may expect during the first year of business. Do not be surprised if your plan indicates only a break even situation or perhaps a small loss. Most small to medium sized businesses find the first year a time of consolidation, and only with the start of the second year does the business really take off.
It is always a good idea to talk over your business plan with your REGISTERED chartered accountant. These professionals can tell you whether your plan looks reasonable and business looks profitable in the long run.