There are no right or wrong ways to start a business. Different companies spring to life along different pathways, and business owners must always play to their own strengths in terms of business development. But no matter what type of business you’d like to start, it always pays to have a plan.
According to research published in the Strategic Entrepreneurship Journal, businesses with a formal, written business plan are actually 16% more likely to succeed than those without a business plan – and with 50% of all UK start-ups failing within five years, entrepreneurs certainly need all the help they can get.
That’s why we’ve written an all-encompassing guide to ensure your business has an ironclad business plan that will maximise your chances of success.
What is a business plan?
If you’re working on your first-ever business venture, the concept of a business plan might be totally foreign to you. Don’t worry, because they’re actually pretty straightforward.
A business plan is essentially just a written document that describes everything there is to know about your business. It covers everything from objectives and strategy, to your products, marketing plan, logistics and projected finances. Just think of your business plan as the blueprint for how you want your finished company to look and operate.
It should essentially weave together a great narrative outlining where your business is coming from and where you’d like it to go.
Why is a business plan important?
On the one hand, a business plan is important for your sanity. By writing down everything you know about your proposed business, you’ll be able to get a much better feel for your start-up and what sort of expectations you should be setting.
The writing process also affords you the opportunity to hone in on your idea, set benchmark goals and come up with different ways to measure your progress and success. Above all else, reviewing your plan will enable you to spot potential oversights or mistakes you’ve made during your initial planning stages. On the other hand, writing a business plan has crucial, external impacts on your business development, too.
If you need funding to get your start-up off the ground, investors or creditors will almost always request to see your business plan before they’re willing to extend you funding. To gain a small business loan, for example, government agencies or high street banks will want to know that your business has a clear direction. You must demonstrate exactly how a proposed loan will fit into your business plan, show how every single penny will be spent and prove their will be some return on investment.
The easiest way to illustrate all of these points will be to present a loan manager or seed investor with a watertight business plan.
What should I include in my business plan?
Business plans aren’t a legal requirement for companies in the UK, and so there aren’t any set rules on what your business plan should or should not include. That being said, there are several key items that your business plan absolutely must include in order to demonstrate your company’s overall viability. First and foremost, your business plan needs to include a quick pitch.
You should start your business plan with an executive summary that clearly and concisely outlines everything a reader can expect to find inside your business plan – and that executive summary should never exceed two pages of text. You should also include an elevator pitch alongside your executive summary that could adequately sell your business to investors in just a couple of paragraphs.
This is because the people looking at your business plan will often be incredibly busy, and might not have time to look at your entire business plan right when you hand it to them. If you don’t give your reader something short and sweet to lure them in and make them want to read more, your business plan might simply be forgotten. Because the executive summary is essentially a recap of everything else in your business plan, it’s normally the last thing you’ll write.
You should also include a short ‘about me’ section. By talking about your background, experience and motivation for starting a new business, you’ll be able to humanise your start-up and show potential investors that real people are at the heart of your company and how it will operate.
Next, you’ll need to outline precisely what it is your business is going to do. Are you going to sell products, offer services or do both? Go into some detail about what you’re planning to offer and why. Tell the reader how much you plan on charging customers for those goods or services.
Remember: in terms of pricing, the amount of money you charge customers must exceed that item’s production cost, and must also include enough to cover some of the overheads you will need to pay in order to keep your business up-and-running.
Most business plans include details about customers, too. You should generally devote a section of your business plan towards identifying exactly who it is you think will buy your company’s products or services. For example, what age group or demographics do you anticipate will be more likely to become one of your customers? More important still, you need to outline why those individuals would be likely to buy your goods or services – citing real and current statistics, studies and anecdotes. That feeds into a wider section on market research.
Nobody will offer funding to your business unless you can prove to them you’ve done your homework. So, you need to conduct both primary and secondary market research about your competitors, consumer base, industry trends, logistics and anything else you think might be helpful.
In terms of what types of research should be going directly into your business plan, you should always include a section on your competitors. For reference, a competitor is any sort of business that offers a product or service that will be similar to what it is you’d like to sell. As a brand-new start-up, chances are you’ll have lots and lots of competitors – so, start local and work your way up.
Find out what businesses are operating in your local area, what they offer to customers and how your goods or services are going to be different. One of the easiest ways to organise your thoughts on competition and how your business will be able to survive it is to produce a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. That will show bank managers or potential investors that you’ve got very real expectations in terms of your ability to outperform competitors in the market.
Another crucial aspect of your business plan will be to spell out the A-Z logistics of how your business is expected to operate on a daily basis. That means explaining how you’ll create products or offer services, how customers will receive what they’ve paid for, who will get paid and how and everything in between. You should also add in a broad marketing plan outlining how you’ll promote your company to reach customers.
A lot of these titbits will seem trivial or banal, but include everything you can possibly think of. The more details you include, the more it will demonstrate your professionalism.
You’ve also got to include a section in your business plan about how much money your company is going to make. To secure funding, you’ll need to adequately explain and rationalise your income expectations so that you can demonstrate a positive return on investment (ROI). The best way to do that is to add in a cash flow forecast.
A cash flow forecast estimates the amount of money you are expecting your business to bring in and pay out over a specific period of time. How far in advance you choose to forecast is totally up to you, but certain business loan or grant schemes that you might want to apply for could have specific requirements. For example, the UK Government’s Start Up Loans scheme requires a minimum 12-month cash flow forecast.
To create a cash flow forecast, you’ll need to record:
Your revenue: This is all the money that will come into your business from sales, equity or other investments. Most revenue sections include around three-to-six items. By adding all these items together, you’ll get your company’s total income.
Your expenses: This is all of the money that you know you’ll need to spend in order to run your business. Examples might include property rental, local authority business rates, insurance, staff wages, supplier costs, marketing and advertisements – literally anything you can think of. You’ll also need to think about less regular expenses like VAT payments, which are due every quarter rather than monthly. By adding all of these items, you’ll get your company’s total expenses.
Net cash flow: This is the final section of your cash flow statement. You can find it by subtracting your total expenses from your total income. If this figure turns out to be negative, it means you’re expecting your expenses to be greater than your revenue across that period. If the figure is positive, it means you’re expecting to make a profit.
If you’d like a head-start, the Start Up Loans Company has an easy-to-use cash flow statement tool that you can download online for free.
Finally, most good business plans include some form of back-up plan. Nobody wants to contemplate a future in which their business plan fails, but it happens. By showing a bank or that you’ve planned for a range of ‘what if’ scenarios, like your cash drying up or a new competitor moving in across the street, you’ll prove that you’re ready for any outcome. That makes your business look stronger, and it prepares you to weather any storm.
How do I structure my business plan?
Once you’ve figured out all the items you want to include in your business plan, it’s time to think about how you’d like to structure it and get to work writing.
Just like deciding what to add in versus what to leave out, how you structure your business plan is totally up to you. There aren’t any set rules. That being said, the vast majority of business plans are structured as follows:
- Executive summary and elevator pitch
- About you
- Your products or services
- Your market and customers
- Market research
- Marketing strategy
- Competitor analysis
- Operations and logistics
- Cost pricing and strategy
- Financial forecasts
- Your back-up plan
You don’t necessarily need to have 11 sections in your business plan. You can combine certain bits together that seem related, and you can create totally different sections unique to your business that not every company would need to include. But this is the most popular running order used by UK businesses.
If you need a bit more guidance on how to structure your thoughts or develop each section of your business plan, there are loads of organisations that offer basic business plan templates online. The UK Government has compiled a list of resources and templates that should be able to provide you with a good starting point.
The bottom line
Developing your company’s business plan might seem like a dull administrative exercise – but it doesn’t need to be difficult, and it’s actually pretty exciting. Your finished business plan is effectively a concrete blueprint for your company’s future. It tells the story of where your idea came from, how you plan to achieve your goals and what’s going to happen when you do.
Your business plan is where it all begins, and it’s how you can finally start transforming your career dreams into a reality.