This isn’t negotiable. If you are remotely serious about starting up your own business you are going to have to do one. There’s no mystique surrounding a plan; it should be easy and even enjoyable to do, and it won’t cost anything except your time.

You need a business plan because:

• It’ll show you if there are any serious flaws in your business.
• It’ll show you if your business is likely to succeed.
• It’ll show you if there’s likely to be a market for your product or service.
• It’ll show you if you’re likely to make any money.
• It’ll show you if there’s likely to be a future in your business.
• You will not be able to borrow money or apply for grants or loans without one.
• No external funder or adviser will take you seriously without one.
• Your business is more likely to fail without one.

A business plan is also useful because it provides you with a way of measuring the success of your business.

WHAT IS A BUSINESS PLAN?

A business plan is simply a logically laid out document which brings together in the same place all the information and research you’ve carried out on your business. It should also include details of what your competitors are up to, as well as other outside influences such as an assessment of economic conditions.

An economic assessment may sound daunting, but it’s not. It could just be noting that interest rates are at seven per cent and rising, and you know you’ll need to borrow £50,000 to open your livery stables. Therefore, as a result of your assessment, you decide to wait until interest rates are down to a more manageable five or six per cent.

Or perhaps you decide unemployment in your area is too high, and wages too low, to support your dream of a small but upmarket florist’s shop. Again you may decide to wait or try the town up the road which is more affluent.

WHY IT WORKS

A business plan works because it forces you to consider your business from all angles. This means what the business is, where the money’s coming from, if there’s a gap in the market and if it’s likely to be profitable.

A lot of it is estimated because you’ll be anticipating what’s likely to happen in the future. But base it on some clear and thorough initial research and you’ll be surprised, eventually, at how accurate it turns out to be.

WHAT TO PUT IN YOUR PLAN

It’s got to be detailed but not long-winded. Most business plans can probably be fitted onto a maximum of about 12 to 15 sheets of A4 paper. Much longer and no one’s going to read it, but you can include back-up material as appendices.

There are two main audiences for your business plan:

• yourself
• a potential financial backer and/or business adviser.

It has to be interesting. If you’re bored writing about your business in the plan then you’ll be bored doing it. If your funder or backer is bored they won’t read your plan and you probably won’t get your money.

So the rules when writing it:

• Keep it snappy but don’t be flippant.
• Be precise and detailed but don’t go on.
• Keep it ordered.

Formats will vary, there’s no definitive way of putting together a business plan, but it should probably include the following elements:

Executive summary

Oddly, it’s usual for a business plan to start with a summary, known as an executive summary. The idea is that many would-be backers or advisers don’t have the time or can’t be bothered to read the whole document. They’ll read the précis and make a preliminary judgement. If they’re interested they’ll go on and read the rest, but if they’re bored or not impressed with your ideas then they won’t go any further.

So it’s critical that your executive summary is well-written, informative and covers all the main points of the business plan. Again, there’s no set format but it probably shouldn’t be much longer than a side of A4. You’ll probably find it easier to write the executive summary after you’ve written the main plan.

Mission statement

A mission statement isn’t a bit of cheesy American corporate psychobabble but a useful way of reminding yourself, your staff, customers and suppliers what it’s all about. It’s a direct statement of what you want to achieve and the philosophy behind your business. It shouldn’t be any longer than a sentence or phrase.

Microsoft, no less, keeps its mission to the point: ‘To enable people and businesses throughout the world to realize (sic) their full potential’ … though it does take a further page to elaborate on its values. Or how about this one from the women’s fashion retailer Phase Eight: ‘To offer a shopping experience that exceeds expectations and clothes that give pleasure in the buying and wearing.’

Try for yourself, something like:

‘Somerset Farmhouse Cheeses: help us spread the word that there’s more to cheese than Cheddar.’

Or it can be more literal:

‘Joe Bloggs Portrait Photography. We capture your family through every milestone. Studio or at-home portraits available. Pets by arrangement. We have the vision.’

And it’s not set in stone: as your business evolves then so should your mission statement. Stick the statement on the wall and re-read it when you’re feeling low, think you’ve lost your sense of direction or need some motivation.

A mission statement isn’t compulsory for your business plan, but if you are going to include one then it should be close to the beginning.

Personal or team profile

This is obviously about you and where you sell yourself. Include your CV, emphasising relevant skills, qualifications and experience; an assessment of your strengths and weaknesses; reasons for starting up your own business; and personal hopes and ambitions.

It’s important to make this section as strong as possible – though don’t overdo it, claiming you conquered Everest at 15. Your business is going to succeed or fail because of you and no one else, and therefore any outside backer is going to be taking a long hard look at what you’ve got to say.

If you have a business partner or staff already lined up to employ then you also need to sell them. Explain in the plan what they’ll bring to your business in terms of skills, experience and perhaps finance. If there’s a weakness, perhaps lack of direct sales experience, then this is where you should say what you intend to do about it. It’s also important to demonstrate commitment, so say how much time and money you and any partners and staff are putting into the business. If it’s important that your business plan helps you secure funding then emphasise any professional advisers you have, including accountants and lawyers.

There’s no right or wrong place in the business plan to include the personal or team profile. If the business is about you as an individual and a personality (reflexologist, healer), then give the profile more emphasis and include it towards the beginning of the plan. If your new business is more about the product (luxury organic chocolate truffles), then you may want to drop the profile down to below the sections on market research and sales strategy.

Business opportunity

This is about selling your business, explaining your vision of it and setting out how and why you think it’s viable. But again it has to be believable. Don’t claim you want 100 branches of your sandwich round to be established before Christmas if you have no experience of food retailing and only £500 start-up money.

The first sentence should be a description of your business, something along the lines of: ‘This company will offer personalised walking and horse riding holidays in Yorkshire, sold mostly via its own website.’ At most use two sentences. If you can’t condense your description into these two sentences your aims are almost certainly too broad. If you aren’t clear and concise in your description then your own focus probably isn’t any clearer.

Then state:

• The business name.
• An outline of your product or service and who your customers are likely to be.
• When you hope to start trading. Or if you’ve taken over an existing business, what the history is, how long it’s been trading and how you want to develop it.
• An outline of the present market.
• Any gaps in the market.
• What makes your product or service different, the unique selling point (USP).
• Any competitive edge you may have (previous experience, lots of start-up capital, ability to build your own website).
• The objectives of your business and likely timescale, over one, five and ten years (in Year One establish website and sell 30 holidays: by Year Ten have own premises, run 5,000 holidays and employ team of walking guides).
• An assessment of the business’s likely strengths and weaknesses. (Strengths include the advantage of not having to build up expensive stocks of a product or raw material; weaknesses include the chance of another Foot and Mouth type incident closing off the countryside.) This is also the point to include your economic assessment.

You may have lived and dreamed of your young business for months, and become immersed in its world, but remember that the readers of your plan almost certainly won’t know it like you do. So avoid jargon and don’t assume too much prior knowledge, especially if you’re going into something obscure (restoring ancient stained glass windows, importing rare seeds). If you’re not sure, get a friend or family member who doesn’t know the subject to check that it’s readable.

Market research

Again, if you want to be taken seriously by an outside backer or adviser, then you have to be seen to be doing proper market research. So here you explain your research methods, the results and then your conclusions.

Be honest. If you put too positive a gloss on things you’re only fooling yourself and any experienced outsider reading your plan will see through it anyway.

You may also want to construct one or two ‘what-if?’ scenarios to show you’ve thought about other possibilities:

• What happens if an existing competitor substantially increases its advertising budget and takes on extra staff?
• What happens if another competitor moves into the local area?
• What happens if there’s a general economic downturn and people start cutting their spending on non-essential goods and services?

Overall in this section you have to demonstrate that you’re familiar with the market you’re going into, that you understand what drives that market and can recognise any trends which could affect sales.

Advertising, marketing and sales strategy

This stage of the plan follows logically on from the last. Your research has demonstrated that there is a demand for your product or service, so now you have to show how you intend to get it ‘to market’, as the jargon goes. According to Business Link, the national business advice service set up by the Department of Trade and Industry, this section is often the weak link in business plans, so it’s worth putting in the effort to make it right, achievable and credible.

You need to say:

• What your objectives are (you want to make every household within 15 miles aware of your name, you want to reach all working women between 30 and 55 in your local market town).
• What methods of advertising you intend to use.
• How much it’s likely to cost.
• How often per year you intend to do it.
• How you’re going to set your prices.
• How you intend to sell. This means via a shop, craft fair or farmers’ market, on the internet, face-to-face or even on the phone.

The operations

This is about the practicalities of your business, so include:

• Where you’re going to work from and how much it’s going to cost. Do you have to take on a lease? How much are your insurances?
• How you’re going to make your product.
• At what point, if at all, you will employ someone to do the manufacturing while you concentrate on design or developing the product further. (This is relevant regardless of whether you’ll be producing pottery, furniture, sticky cakes or hand-stitched shoes.)
• How much spare manufacturing capacity you have. Are you able to expand using your available equipment and space or will you need to invest money in larger premises and more equipment in the future?
• How you’ll deliver a service or skill to your clients, if that’s what you’re offering. What’s the typical length of an appointment and where will you meet? Will clients need aftercare?
• Methods of payment and terms of payment. (Cheque with bankers’ card/major credit cards/account holders only. No credit/30 days’ credit/three months’ credit.)
• Transport. If you need to get around, how are you going to do it?
• Distribution. If you have a product, how are you going to get it to your customers? If you’re producing two or three large pieces of fine furniture every six months you can afford to arrange special delivery. But if it’s something on a larger scale, organic vegetable boxes going weekly to 500 customers across two counties or scented oils distributed to shops throughout the UK, you’re going to need a professional and reliable system of delivery.
• Your IT system. What equipment and software you’ll have, how it’ll be used to run your business, what back-ups you’ll have in place and the steps you’ve taken to make sure it’s secure.
• Your system of management. This means you have to show you have systems in place for stock control, quality control and for doing your accounts. If you do expand, will your systems be able to cope?

If your business is going to be large or complicated then elaborate on the system of management section because there’ll probably be a lot more to say. You may want to include:

• How you’ll run the business (when and how often you’ll do the paperwork and catch up on correspondence, when you’ll do your ordering, when and how you’ll do your books).
• More details on how you’ll check product quality control.
• What plans you have for customer care and customer feedback.
• How you’ll manage your time (the proportion spent on admin, design, making, thinking up new lines or services).

Even if your business is tiny and it really is only you and a couple of customers, you should still include a reference to a system of management because it does at least show you have thought about it.

Suppliers

If your business is small and you’ll only have a few suppliers, you could include them in Operations or leave them out altogether. But if you’re setting up an organic food bar, your supplier list could run to dozens or even hundreds. There’ll be local suppliers for food, both raw ingredients and ready-for-sale, plus wholesalers for everything from plates and cutlery to tables, pictures, lighting and pots and pans. Then there’ll be the suppliers who’ll provide flooring, lavatory fittings, building and plumbing materials. There’ll be another set for office supplies, letter heads, business cards, menus, price lists, promotional literature and so on. And there’ll be yet another set for basic services such as phone, water, electricity, gas, oil and perhaps wood and coal (for those obligatory open fires in country restaurants).

If this is the case, you need to show in your business plan that you’ve considered the suppliers and have lists drawn up. This doesn’t mean you’re stuck with them for life but that you’ve got enough to get you started.

So here in your business plan include:

• likely suppliers
• their terms and conditions (cash up front, 30, 60 or 90 day’s credit)
• probable delivery arrangements (daily, weekly, monthly).

Legalities

Again, this section could easily be swallowed by Operations unless there’s plenty to say.

Some businesses will find the legalities more onerous than others. Anything connected with food, health and safety, potentially dangerous machinery and even animals could be particularly affected. Your business plan should show that you’re aware of legislation and best practices in your field, and have carried out risk assessments. The legalities to consider will probably include:

• your trading status (sole trader, partnership, limited company)
• any partnership agreements or company contracts
• health and safety requirements
• any licences or permissions
• any copyright issues.

The numbers

This will probably be the last section of your business plan. If you’re writing your plan to try and attract funding, then these figures are going to have to be right, credible and clear. No backer is going to hand over any money until you’ve shown you’re responsible enough to look after it.

You have to show:

• how much capital, if any, you’re putting into the business
• where your income is coming from
• what your expenditure is likely to be
• how much money you need to borrow, if any
• What’security or guarantee you are offering for any loan
• how you’ll repay the money
• and over what period
• details of your personal finances.

How much detail to include will depend on your type of business and whether you need to borrow. If you’re setting up as a one-woman travelling aromatherapist who can afford to buy the initial stock out of your savings, then you’re probably writing your business plan mainly for your own benefit, won’t have to borrow and won’t have to go into as much detail. If on the other hand you’re opening an organic restaurant or well-stocked shop you could be borrowing a sizeable amount, and you’ll have to show and justify every relevant number, explaining your assumptions as you go.

Timescale will vary too. Our aromatherapist would probably only do figures for the first year or two, while the organic restaurateur or shop owner would probably have to provide figures for up to the next five years. In either case, logically the first year will be the most detailed: subsequent years can be revised as and when.

The figures you need to prepare are called forecasts and they should be put together on computer spreadsheets. If that’s beyond you, then either learn or get someone to do it for you. Spreadsheets display your data clearly, sort categories and do all the sums. Assuming you put in the right numbers in the first place there won’t be any mistakes. Anything typewritten or presented on graph paper will look amateurish.

The forecasts to include are:

• sales forecast
• cashflow forecast
• profit and loss forecast.

How to compile them is explained in detail in Chapter 6.

Sales forecast

A sales forecast is exactly as it sounds: a forecast of what you hope to sell in the future. A sales forecast will help you plan for the peaks and troughs in your business, to make sure you have enough stock at busy times and to enable you to use the quieter times to prepare.

It’s probably the most difficult section to get right because it’s basically down to guesswork. But the more preparation and research you do, the better the guesswork, the more accurate the forecast, then the greater the benefit will be to your business.

Even if you have a figures-phobia and do nothing else, still force yourself to do a sales forecast. It’s important you at least begin to get a feel for the financial side, and sales are at the core of your business – the heartbeat if you like.

Some people will question the need for a sales forecast, arguing it’s just guesswork and therefore worthless. But if you’ve done thorough market research, checked what your competitors are up to and costed your own likely expenditure, you should be reasonably

accurate. If you do turn out to be wildly wrong, then somewhere down the line you haven’t done your homework carefully enough.

Cashflow forecast

A cashflow forecast tries to predict how much money is likely to pass through your business. It’s less complicated to put together because it only deals with one element, money. Again, the forecast should help you smooth out the peaks and troughs of your business. You use the information it contains to make sure there’s always enough money in your business to continue trading, or in the jargon, you have sufficient working capital.

Any would-be lender or financial backer will look closely at your cashflow forecast to make sure you’ve taken into account all the key factors, such as the pattern of sales, wages, the cost of raw materials and rent for premises.

Profit and loss forecast

This forecast brings together information taken from the other two forecasts and shows how much profit (or loss) you’re likely to make. It sets out how much you think you’ll earn from sales against how much you’ve had to spend and arrives at one figure which should represent your annual income. Hopefully it’ll show you in profit.

Personal finances

At some stage in your business plan you will have to include your own personal finances: the level of detail will depend on how relevant they are to your business. If you’ve thrown every last penny into the business and your family won’t eat unless you show a profit within the month, then clearly your personal finances are vital. If on the other hand you have plenty of capital behind you and can afford to go several months or even years without turning a profit, then it’s not so important.

At some stage you’ll probably need to calculate the minimum amount you need to live on until you make a profit. This is known sometimes as a Personal Survival Budget or PSB. It’s simply a total of all your monthly outgoings. You’ve probably completed similar lists in the past on mortgage or loan application forms. Make sure you include:

• mortgage or rent
• insurance
• council tax
• bills (phone, electricity, gas, oil, water, TV licence)
• outstanding debts (credit cards, car loans)
• housekeeping (food, cleaning, basic maintenance)
• child care
• clothes
• car running costs (tax, insurance, petrol) or other travel costs
• travel, meals out, leisure
• birthdays and Christmas
• emergencies.

The total is often shockingly high. A single person living on their own can easily have monthly outgoings of around £1,000. If you have children it’s likely to be much more.

So say your PSB is £1,500 per month. That means your business has to make a minimum profit of £18,000 a year in order for you to just about survive. And that’s profit, not turnover or the total amount of money passing through your business.

Remember too that until your business starts making a profit, that £1,500 a month PSB has to come from somewhere else.

SETTING OUT YOUR BUSINESS PLAN

It has to be typewritten. Using a computer is by far the easiest way, though if you’re desperate a typewriter will have to do. You may want to email it, so use a format which is readable by most computers, such as Microsoft Word or Acrobat pdf.

There’s no set format: what’s important is that it’s clear and logical, so start with a contents list and then your executive summary. Then sort the chapters into an order which suits you, end with the numbers or forecasts, and at the back include any other support material as an appendix.

If you’re unsure about the ideal length, aim for about ten sections and write a page or two of A4 on each. As well as your main headings, don’t be afraid to include sub headings and bullet points. Great slabs of text are off-putting and difficult to read. If you think there’s no way around this, then at least print it out double-spaced.

The content, detail and length will be decided by the nature of your business and whether it’ll be used to try and raise finance. If you’re planning a low key, low investment sandwich round for office workers then your plan should be much simpler than someone starting up a furniture making business who needs to borrow to pay for premises, equipment and staff. If you’ll be using the plan to try and raise a significant sum of money then it’s probably worth paying a professional (business adviser or accountant) to help pull together a really punchy executive summary, management team profile and numbers forecasts.

WHAT TO DO WITH IT

If it’s just for your benefit, write it and show it to a couple of people whose opinions you respect and who preferably have had first-hand business experience. Then put it away in a drawer and don’t look at it again for two or three weeks while you get on with other things. Then re-read it. Anything strike you as naive? Wrong? Overconfident? Under-confident? Anything that needs changing as a result of further work you’ve done in the meantime?

At some stage, regardless of whether the plan is just for you or not, you should also show it to some experts. This will probably include your accountant and perhaps a business adviser if you have one. Ask for their feedback and be prepared to rewrite sections.

Then, if you’re going for funding, send it out to back-up loan or grant applications. Many people deciding on these applications will have seen scores of other business plans. They may not give you any money this time, but their comments may help you be more successful next time.

WHAT TO DO IF IT REVEALS SERIOUS FLAWS

Strange but true. If you’ve written your plan honestly, after having done thorough and realistic research, some of the conclusions may surprise you.

You may have found that:

• There’s a viable business but there isn’t enough profit.
• Your cashflow isn’t sufficient.
• Raw materials are too expensive or too difficult to source.
• One person alone can’t run the business.
• Your premises may not be suitable.
• There are already too many people doing what you hope to do.
• You need training or qualifications.
• You need more experience before setting up yourself.
• The business will need more hours than you’re prepared to commit.

The list of possibilities is endless.

If any of the above happens, you have three choices:

• Abandon the idea completely and find something else to do.
• Plough on regardless.
• Try to find a way around the problem.

Option one isn’t as bleak as it sounds. At this stage you’ve only lost time and a bit of money. It’s far better to be ruthless, cut your losses at this point and find something else that has a better chance of success.

Option two, carrying on regardless, will probably end in disaster. If there is a serious flaw in your business, a decent business plan will expose it. There is absolutely no point in continuing just because ‘it feels right’, or ‘my family and friends all think it’s a great idea’. You could get as far as opening for business and sit there waiting for the customers who never arrive.

Option three, finding a way around the problem, is, like most compromises, the best and most painless way forward. So ask for advice from banks, accountants, business advisors and anyone with business experience, and all may not be lost.

UPDATING AND USING YOUR PLAN

A business plan isn’t written once and then preserved in aspic for ever. Instead, when you begin trading, use it as an active business tool, as a handbook or manual, which will help you keep your business on track and focused. Refer to it every now and then and use it as a measure to check your progress. For example:

• By the start of trading I was hoping to build up a network of six local shops which had agreed to sell my pottery. Are those deals in place?
• By Month Three I was hoping to achieve sales of £3,000 a month. Have I reached that target?
• By Year Two I was hoping to expand into the next county and agree deals with six more shops. Am I still on track for that?

Some businesses rewrite their plans annually. Certainly if you’re planning a big expansion or change of direction you should do it then. Also update your forecasts as predicted sales become reality. The more detail of actual figures achieved, the more accurate your future forecasts will become and the more helpful they’ll be to the future of your business.