Business Plans: Part 3
About the Author:
Paul Wilton (editor)
CA with degrees in commerce, accounting and information technology. Paul worked overseas in the “Big 4” accounting firms and served as a director at Audit New Zealand before setting up his own consultancy. Author of A-Z of New Zealand Business Law, Paul has over 20 years of experience as a business owner and consultant. He joined FBA in 2004 and is totally committed to providing excellence in quality and value to our subscribers.
This is the final in our 3 part series on business plans. In Part 1 we examined the need for a business plan and listed the business plan core components. In part 2 we examined in detail the components of the plan. In this issue we review how all these components can be brought together to provide a practical framework for your business.
Outline of the Plan
Part 1 outlined the 10 key components of a business plan and for brevity these are reiterated below:
Executive Summary
Company Analysis
Industry Analysis
Analysis of Customers & Competition
Marketing Plan
Design & Development Plans
Operations Plans
Management Team
Financial Plan
Appendices
Core Components of the Plan
We examined items 1 through 4 above in our previous issue. The balance of these core components are self explanatory and we provide a brief synopsis on each in turn for clarity.
Marketing Plan
Describes your marketing strategy. It includes a brief description of the overall market and the market sector you are targeting. You will need detailed information on current and proposed customers (surveys will be useful here). You need names of competitors, market share and alternative products. There will also be market influences. You need to demonstrate how your service/product will find a niches amongst all this.
Design & Development Plans
These may be required for new products or for a start-up company. Often the cost of research and development for a new product can far exceed expectations. Thus a critical analysis of production techniques needs to be evaluated prior to start-up.
Operations Plans
This part of the plan deals with the nuts and bolts of business execution. How many staff will be required, supervision, plant, materials sourcing, experience, packaging and delivery? How will invoices be generated? Follow up service? It is useful to include a timescale of events in this section.
Management Team/Staff
You will need the right people to undertake the work. More experienced people cost money. So how do you pitch for the type of people required to undertake the work. This is the most important resource for your business but it is often overlooked by people responsible for writing the business plan.
Financial Plan
Lay out exactly what is required for the business. Provide a profit loss sheet for not just the first year but at least three years. It is essential to include a cash flow analysis for the same period of time. Make sure it is realistic. MAKE ALLOWANCE FOR ALL TAXES including provisional and terminal tax. Further, a big failing of many businesses is to underestimate the lag in cashflow due to retention with debtors.
Most importantly, make sure you can support your sales estimates with reasons for your assumptions. It is most useful to also include a sensitivity analysis. This examines what happens if you achieve 110% sales, 90% sales, 80% sales and 70% sales. How sensitive to sales will the business be and what safeguards can you put in place? (For a start-up company you would also discuss ownership issues).
Appendices
These are supporting and reference documents used for the compilation of the business plan.
Tips for Writing a Business Plan
Write for your target readership. If this is a proposal for a new venture then the approach may be more formal than that required for management purposes within an existing business.
If this is a review of an existing business plan or a new venture within an existing business then involve people within your business at all levels.
Obtain help from your professionals: accountants, legal advisors, bankers, consultants.
Point out any obvious benefits and all other benefits.
Identify the risks or difficult issues to surmount and demonstrate how you would do this.
Remember to have a contingency plan. What if sales do not reach goal as quickly? Do you have backup cash reserves? What if there is a production delay of 3 months due to a design fault?
Outline the skills of the management team, not just what their tasks are. If this is a start-up business then investors are looking for confidence in the ability of the people to make it work.
Write in report style. Keep it brief, to the point and readable. Use everyday easy language.
Charts and graphs and other visual aids can provide useful insights for the reader.
Problems Encountered in Writing Business Plans
A number of problems and oversights can be encountered when preparing a business plan. Here are some of them:
Having over confidence with the idea and thus over estimating the potential market. New Zealand comprises many small businesses with only a few people. Many of these people lack professional training and when they get an idea that they think is good they just go for it (in typical NZ fashion). But this “she’ll be right” attitude can be exceedingly expensive and professional help should be sought if necessary. If you do not know the size of your potential market and likely sales then you have to find out. A few lost dollars up front are a lot better than losing everything. Don’t just guess!
A mismatch in resources is often a fault in a business plan. This could relate to either plant and/or people. Getting the right fit is very important and it is therefore necessary to assign people with the right qualifications to job tasks. Plan for sick days, relief staff, your holidays, and other issues when dealing with staff.
The cost of depreciation should not be considered a cash add-back. This is a real cost as machinery will have to be replaced at some time in the future.
Some writers of business plans fail to adequately link the research data to their conclusions used in the following sections. The product/service must be compatible with the environment and suit the SWOT analysis.
Ensure that you have examined the Key Success Factors (KSF’s) and the Key Performance Indicators (KPI’s). The KSF’s can be addressed by answering two questions: 1) What do our customers want? And 2) What do we need to do to survive our competition? The KPI’s are relatively easy to address as these are internal factors, for example, sales $ turnover per month.
Don’t use complicated jargon. Anybody should be able to understand a business plan.
Web References
We reiterate below (particularly for the benefit of our more recent subscribers) the websites we found as a good resource for business plans:
www.bplans.com is an excellent resource that offers 60 sample business plans, across many categories of business and service.
At http://www.morebusiness.com, you can find a wide range of articles, advice on many topics including building your own website and fail-proofing your business, along with business plan builders.
Go to http://www.venturea.com/business.htm for persuasive and well-written reasons for writing a business plan. You’ll find a list of 9 guiding principles for writing your plan, and an outline plan with plenty of explanations as to the requirements.
For a UK site, have a look at www.business-plans.co.uk, written by Miller Consultancy, providing useful reviews of books on writing business plans, websites and software.
References: Massey University
MBA Programme Business Policy Module
Reignite the Passion