Creating a business plan
Creating a business plan from scratch initially appears to be quite a daunting task.
A quick search of Google will confirm your worst fears as you will be faced with a plethora of insights regarding content, layout and formats - all of which appear to differ from one site to the next.
You’ll also be bombarded with conflicting advice and guidance as to how long a business plan should be - too long being as bad as too short - but no-one really comes off the fence and provides an actual answer.
Should I include a cash flow projection or full financial projections? What is an integrated business plan? Am I creating a business plan or a strategic business plan? What should I include in a business plan?
Creating a business plan can be an extremely informative process and can often inject real passion into flagging businesses. Done correctly, business planning can be truly invigorating.
But as NBS Advisory says to all its clients - if you can’t get enthusiastic about your business, don’t ask us to.
Business plan templates don't work
The first thing that we would emphasise is that templates don’t really work when it comes to preparing a business plan.
There is a huge number of templates available from multiple different sources and all of them are relatively cheap and easy to populate.
Although these offer an extremely tempting option, they should be used with caution and generally only be seen as a quick fix. Simply populating a business plan template does not constitute business planning.
You literally end up with a business plan, not your business plan - and it’s your business, not just a business.
Creating a business plan properly will increase your understanding of your business. It means that you’ll be able to explain your plan and key business metrics much more easily and confidently.
Which leads us nicely to ask why? Why are you creating a business plan?
What is the purpose?
The first question to answer is why are you bothering to create a business plan in the first place?
A business plan has to serve a purpose. When a business is looking to raise finance (whether that is bank borrowing or equity investment) then the purpose is immediately obvious and easy to communicate.
But looking to raise money is far from the only reason for creating a business plan. If you don’t state the purpose right from the start then you’ll end up meandering and waffling.
You run the risk of ending up with a fantastic looking document which is sadly useless as a business plan.
Some examples of why a business plan is created beyond raising finance could be:
- To improve annual net profit
- To increase monthly sales
- To improve gross profit
- To reduce our overdraft
- To sell the business
- To address a competitors challenge
Once you understand why you need to create a business plan then you need to make its purpose specific.
‘To improve net profit’ becomes ‘To improve annual net profits by not less than 7% over the next 18 months’
‘To sell the business’ becomes ‘To sell the business for £xxxxx within the next two years’
And therein lays another top tip - nowhere is it written that a business plan must be for 12 months only - often this is an artificial constraint
If you are looking to raise finance from a Business Angel then we’d suggest you start with our free eBook - Catching your own dragon - How to raise money from angel investors.
How long should a business plan be?
The answer is as short and concise as possible. We are fans of a business plan that does not exceed 7 written pages plus perhaps 3 pages of financial projections.
This is why appendices are a vital part of a business plan.
By adhering to a maximum of 7 pages you force yourself to keep the plan concise and to the point. If it drifts up to 8 pages then no-one will be losing any sleep, but you should be asking yourself if that 8th page means you’re waffling on page 3.
If you’re not, then fine… but at least ask yourself the question. This is a business plan, not a novel.
This doesn’t mean that your plan lacks detail. It means it packs a punch and keeps all users on message. Remember that a business plan has a purpose.
Appendices should contain the detail that a user can then dig into as they need to or see fit (and NBS Advisory uses the term ‘user’ in preference to ‘reader’ deliberately).
Your sales plan for example, needs to take up no more than a page in your business plan.
The associated appendix may be 4 or 5 pages of commentary, assumptions and calculations and can be delved into at leisure.
The single page devoted to the sales plan in the business plan keeps the message clear and ensures that users who are not directly involved in sales still understand the key message.
What should I include in a business plan?
What you include in a business plan will depend on its purpose.
When you are creating a business plan then a great starting point is to prepare a likely contents page. In doing so, simply ask yourself if looking at a particular part of your business is necessary to deliver the purpose.
If, for example, the purpose is to reduce the business overdraft then looking at customer payment strategies may be far more relevant than having a section devoted to marketing.
When you have your initial contents page then don’t be frightened to change it!
Some suggested sections would be:
- The purpose of this plan
- Our market
- Our key competitors
- Financial projections
Make the content relevant to the purpose and stick to the 7 pages rule - it’s great for making sure you focus on what must be in a business plan rather than what you’d like to talk about.
This is the area that many owner managed businesses find most challenging to prepare when they are creating a business plan.
The single most important piece of advice that we can give is that you, as the business owner, must, MUST, understand the financial projections and the key drivers, assumptions and calculations that underpin them.
It is completely acceptable (and probably sensible) for you to ask professionals such as NBS Advisory to help you prepare your financial projections but you must own them and you must understand them.
We very recently had to advise an investor not to proceed with an opportunity based mainly on the entrepreneur's lack of understanding regarding their financial projections - particularly sales.
In terms of what needs to be included in the financial projections of a business plan the main 3 are:
- Profit and loss forecast
- Cash flow forecast
- Balance sheet forecast
If in doubt, prepare the profit and loss forecast first. It drives everything else and understanding the numbers behind the P&L makes understanding the other aspects of the financial projections much, much easier.
In calculating your numbers don’t get bogged down in looking at overheads - these are relatively easy to predict and relatively easy to manage and reduce if necessary.
The most important part is the trading account: sales and cost of sales.
And remember - only the next 6-8 months can have a high level of certainty so only the first 12 months of any financial projections should be provided on a month by month basis.
Month 13 - 36 can be quarterly and anything over that should be 6 monthly.
Keep it live
Creating a business plan is much more about the business planning process than the finalised plan.
If a business plan stays static then it very rapidly becomes out of date and irrelevant.
If you make creating a business plan a once a year exercise then the key people that you are looking to deliver on it will increasingly ignore it and not engage in the planning process in the future.
The learning and understanding that comes from creating a business plan is the real value - make that process part of your ongoing management of the business.