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We’ll need to see your business plan…my what?
As marketing and business strategists, David Perry and John Thornton of Warrington based Thornton Perry Associates have seen a fair few business plans in their time; they have also written a few…
Whether you are starting out, looking at an acquisition or looking for expansion finance, the chances are that along the way someone is going to ask for a business plan. But just what are they expecting to see? There are many Internet sites offering ready made business plans; “insert your company name here and press print”, but the end result is seldom of any substance. Your accountant will produce a set of figures for you but is unlikely to include more than a page of explanation which you will probably have to write for them.
Everybody has a different view on what is required and exactly what should be included. This can range from a few pages of hastily scribbled figures to a glossy 50 page sales brochure. We have seen both ends of the scale: a 200 page rambling pile of paper with figures showing offices in America and Japan in month two to a blank sheet of paper and the vaguest of ideas. You need to start with a clear vision, but that’s perhaps a subject for another time...
As in all business, the key is to know your audience.
If your existing bank wants to know that you have given some thought to why you need a few thousand extra and how and when you expect to pay it back, then a simple financial forecast may be all that is required.
If, on the other hand, you are looking to raise a substantial investment from business angels, equity partners or other investors the document has to sell the proposition and demonstrate that you know what you are doing. In some fields potential investors, particularly in America, gauge the quality of the plan by weight; if it is less than half a ton it is not worth looking at. In all instances no-one is going to read the whole thing straight away. Unless the first couple of pages make them interested and confident that the rest is worth reading it will simply not be read and your killer argument on page 36 will be overlooked.
If you are looking for “Angel” finance the sexiness of the market can often be more important than the potential return. A wealthy potential investor with an interest in fashion may well be more likely to invest in the launch of your niche jewellery range that in a high return web-based industrial insurance project despite bigger potential returns. Your plan has to be as attractive as your product. Irrespective of the style and market, your business plan should include the following:
Executive summary
This is the first part to be read and the last part to be written. Imagine
you have 30 seconds to pitch an idea to a movie producer in Hollywood
or 20 seconds on the X in front of Simon Cowell.
Once the plan has been completed it should be summarised into a punchy
one-pager. It should include a line to the effect of, “finance of
£x is required to fund this project, £y of which will be provided
by the directors.” OK a bit scary, but they need to see that you
are willing to put your own cash in even if the funding you are providing
is only on the balance sheet. They also need to know right at the beginning
just how much cash you want. The rest explains why.
If the project is complex or the investment multi-million a separate synopsis
document can be produced. This needs to be an overview in two or three
pages which can be hawked around potential investors to see if there is
any interest before hitting them with the whole caboodle.
It will cut down the print cost if nothing else.
Objectives
Once again this is a summary of your aims. It should explain exactly and
clearly what you are setting out to do and where you anticipate the plan
will get you.
By this time the reader should know what you are about, whether you are
an engineer or a hairdresser.
Product / concept description
Whether you are launching a new product or looking to buy an existing
business the next section should briefly explain what it is or what it
does; don’t expect them to know just because you do.
Don’t get hung up on confidentiality. If you want someone to give
you their money you have to trust them: but make sure they sign a full
non-disclosure agreement first!
If you are looking to buy an existing business a brief history of the
business should be included to set the scene and explain how it can be
improved under your leadership.
Principal Directors
Often overlooked but of vital importance. Confidence is needed that you
and your partners have the necessary skills and experience to pull it
off. If you have a great plan for mining rocks on Mars but only have experience
of flower arranging you are going to struggle to convince a backer!
Personal profiles should be to the point and emphasise relevant experience
and qualifications. Often the mistake is made of simply including a CV.
You are not applying for a job and no-one cares how many o-levels you
have! Readers will interpret a CV in their own way. Do the job for them.
Write as if you are talking about someone else, someone you admire.
If your plan is to open a recording studio:
Don’t write: “I went to Manchester poly to study medicine
but dropped out to join a band. I wasn’t very good so I worked on
the mixing desk.”
Do write: “After studying medicine at Manchester, John launched
a successful career in the music industry where he gained valuable experience
in digital mixing and production.”
Include qualifications and memberships where relevant and don’t be shy of mentioning other attributes if they give you a greater reason to be a success. If you are planning an organic green grocer, mentioning your time spent working on your allotment may be more relevant than your degree in music.
Where there are a number of directors, try to demonstrate a balance of abilities such as product and market awareness, salesmanship and book keeping.
Mention age if it is important. A mixture of youthful energy and experience is handy if it is a long term project and demonstrates that the directors won’t be in their dotage before it is completed.
Investors expect directors to be hands-on but if you are going to oversee things and employ a specialist to run the day to day business include their credentials here as well. It is important for an investor to know that the business is going to be run by competent people.
The Market
Let readers know you have thought about it. This section can be quite
big depending on your sector. Look at every market associated with your
business. Show the market sizes but most importantly demonstrate that
it is expanding. If it isn’t why do you want to get into it? Throw
everything including the kitchen sink into this bit. It shows that your
business has massive potential and you have thought of everything.
Unless there is a good reason to avoid it, such as it’s a dog walking business, include market statistics on the rest of the world not just Britain or your area. In an Internet age there are not many products or services that cannot reach a global market. (You could franchise your dog walking business model to say, Italy, where dog owner ship is very high!) You don’t have to plan to conquer the world in the first year but it demonstrates that potential can be much greater in the future. Even if you are a fruit and veg shop potential changes in supply from overseas is relevant.
Lots of pie charts and diagrams are always useful. They add colour and break up a dull read. Include charts and tables on the socio-demographic profile of your customer base. It shows that you understand who your customer is.
Marketing
Once you have demonstrated the market for your business you can then go
on to explain how you intend to get to it.
Cover all aspects but make sure you don’t forget PR and on-line.
Include a section on launch marketing explaining exactly how you expect
people to immediately know what you are doing.
If you have identified multiple markets explain your marketing campaign
for each of them.
Summarise your marketing activities in a chart showing markets, activities
and phases. This will effectively be your marketing plan.
Administration and procedures
Explain how your business will be run. Include a big and complex business
process flow chart. It is unlikely that anyone will go through it but
it has two advantages: It looks like you know what you are doing and it
helps you understand what you are doing too!
Financial factors
At last the figures! Summarise key ratios and funding requirements. Key
ratios are gross and net profit and most importantly ROI (Return on Investment).
Depending on your industry you may want to show other ratios such as staff
to turnover. Make sure that these are at least in line with the industry
norm though.
If you like you can summarise the 3 year P&L and cash flow projections into a simple graph as long as the net profit line eventually goes upwards and the cash flow eventually gets above the X axis.
At least three years projected profit and loss and cash flow projections broken down by month will be needed. If it is a long term project totals for years four and beyond should be acceptable. This is similar to the “few pages of scribbled figures” plan but much more impressive as an appendix to a fully thought out document.
Accountants will go straight to this so it has to be readable. As the document is likely to be portrait, a monthly P&L is unlikely to fit easily across a page. It should be attached therefore as a landscape spreadsheet.
Make sure you can justify the figures! If you haven’t created them yourself ensure that you fully understand why your light heat and power costs have increase in year 2 (Anticipation of a 25% increase in energy costs.) Equally important; make sure that nothing has been left out which could embarrass you later.
Presentation
Presentation is everything. Pages should be numbered showing page x of
y and sections should be indexed with sub sections where required. It’s
not a legal document so don’t get carried away and number each paragraph
though. Include a table of contents between the cover and the executive
summary.
When you have done all the words and figures and checked and re-checked
them think about your audience and how it will look to them.
Spend some time and thought on the presentation of the plan and don’t
forget the front cover. Depending on your audience it could be either
bright and glamorous or efficient and businesslike. Either way a splash
of colour makes it stand out on a desk.
Don’t cut costs on printing. Converting a word document to an acrobat file will make the print that bit crisper. Invest in decent paper; it adds to the weight as well as the quality.
Have it ring bound with a cardboard back and an acetate front. This means it can be read easily and opened out flat but it does mean that you can’t add or replace pages so check it again before you produce lots of copies.
Finally don’t forget that a business plan isn’t a business! You now have to go out and do it. If all this is overwhelming or you don’t feel sufficiently creative you can always get someone else to research and write it for you. As I said at the beginning we’ve written a few in our time…
David Perry
February 2006
Thornton Perry Associates
St James’ Court
Warrington
WA4 6PS
Tel: 01925 657711
Fax: 01925 657722
info@thorntonperry.com