Mark Edwards, general manager at Rocket Lawyer, brings you this essential guide to creating the perfect business plan during your lunch break.
Mark runs through:
- Getting Started
- The Business Outline
- The Marketing Plan and Strategy
- The Management Team
- Financial Information
- SWOT Analysis
Read these six steps to writing a business plan in your lunch break.
Step 1 – Getting Started
Not only does it act as a blueprint for your business, laying out clear foundations for success, but the business plan is also the single most important document you’ll create in order to secure the funding you need to help grow your business.
Whatever funding platform you’re looking to for investment – be it:
- Your bank,
- Venture capitalists
- Crowdfunding websites
- Grants from the government
Those you’re pitching to will expect to see a carefully thought-out business plan before they’ll agree to fund or invest in your business. Research has found that start-ups with a business plan raise twice as much capital as those without one in the first twelve months, so that should leave you in no doubt as to the importance of getting it right.
In addition, it encourages you to look long and hard at your concept or product – does it really have legs? Do the figures stack up? How are you actually going to implement it? Once completed, it will give you an excellent overview about the feasibility of your big idea – information not only vital to yourself, but also to potential investors.
All businesses needing planning, whatever stage they’re at, but for new business ventures, it is even more important to set clear objectives and a have strategy in place from the start, and a strong business plan will help you do just that, as well as holding the key to unlocking the finance that will help to get your business off the ground.
So follow us each week as we bring you another new snippet of advice on the key points you should cover to ensure that you have a clear and well-structured business plan, one that gives you the best chance of walking out with that much sought-after ‘I’m in’ vote.
One of the most crucial elements, the executive summary, forms the first part of a business plan and – if not adequately presented could also be the last part your potential investor reads. This section helps them to decide whether or not to continue reading – first impressions count so it pays to get this part right first time, literally.
Use this section to give an overview of your business without going into too much detail, providing enough useful information for a potential investor to decide whether it is something they would like to read in greater detail.
This is your opportunity to demonstrate the validity and potential of your concept, so do include your strongest unique selling points (USPs) and include any brief supporting information to show that you have based your business idea on sound industry insight and diligent research. Highlight the opportunities there are within your target market, the need or demand for your product or service.
Step 2 – The Business Outline
The business outline is the next section that most investors will look at, that is if your executive summary is successful in drawing them in first. This section is your chance to provide greater context and detail for your business, such as:
- Explaining your business concept
- The background to your start-up
- Detailing any existing assets
- Ownership structure
Any early successes or milestones you may have achieved while testing out your business idea would be good to include too, as this will demonstrate the potential it has to perform even better with some investment.
Explaining exactly what your business is about is crucial when it comes to persuading anyone to help you make a go of it.
You need to really show that you have a thorough knowledge of your product or service, the industry in general as well as your target market. This is where you can really demonstrate your business nous. Avoid unnecessary jargon but demonstrate that you are well-versed with any industry concepts and use specific terminology if it is appropriate.
The background to your business idea will often be as important to potential investors as the concept itself. If you previously worked in the relevant industry and decided to go it alone, or if you have a highly experienced or specialist team that can offer something your competitors cannot and which will stand you in good stead over potential rivals, make this known. This will show that you have solid grounding, an experienced and talented team and possibly useful contacts you may be able to call upon when your business is up and running. Also, don’t shy away from a bit of selective name-dropping, particularly if you can get a good reference from any leading industry figures.
Detailing any work already carried out with a view to starting your business will show that you are willing to put in the required effort on your own, without waiting for a helping hand. This ‘hands on’ commitment to making a success of your business is what investors are looking for – they need to know that they are placing their money in someone who cares about turning the business into a financial success. Also, if you have built up any existing assets such as equipment, vehicles, retail space or intellectual property, do list these so your investor is aware of how much you have already invested in the business.
Do outline your ownership structure too e.g. shareholdings or partnership details, as this will allow your investor to decide if they should be talking to anyone else. Last, but certainly not least, explain what makes your business stand out from the competition or why everyone is going to love it and buy into it. Detail your business’ USPs to make it clear to investors the benefits of investing in you.
Step 3 – The Marketing Plan and Strategy
This section is important because it demonstrates to potential investors your business’ chances for success. Knowing your customers and being clear on how you will go about targeting them to increase exposure and sales is key to any successful business. You can split this part into two sections:
A Market Analysis
Your market analysis should be split into four sections:
Describe your target market (e.g. gym enthusiasts, pet owners, the eco-conscious) in detail as this is an effective way of demonstrating your awareness of exactly who will be making up the majority of your customers. Your sales will largely be decided by the take up of your product or service by this sector of the population so be clear and realistic about who you are aiming your product or service at.
Business success is often determined by the ability to tap into a niche market. Therefore, detailing any specific segments of your target market (e.g. fashion-conscious gym enthusiasts, health-conscious pet owners) that will be particularly attracted to your offering can provide a better idea of the potential of your business. It can also make the marketing plan easier to draw up.
Digging deeper into the demographics of your chosen market segment will allow you to focus even more clearly on your goals and proves to an investor that you have thoroughly done your research. Find out the worth to your business of the population who fulfil your specific set of demographics (i.e. the total number of people multiplied by the cost of your offering), as this can help you to ascertain some of your financial projections.
Finally, know your enemy! Unless you’ve come up with a brand-new invention, you’ll almost certainly have a number of competitors already out there. You should identify your most direct competitors, find out about the strengths and weaknesses of their products, services and business operations, and use those to your advantage (e.g. if they have made any mistakes, what can you learn from this?).
A Marketing Strategy
Choosing a suitable pricing point is crucial and will often determine your success upon entering the market. Even if you offer superior quality or higher levels of service compared to competitors, initially you are likely to be judged on how your pricing compares. Once you’ve established yourself you can re-assess these levels.
There is a huge array of marketing and sales techniques to choose from, including advertising in newspapers or magazines, various types of online marketing and traditional direct mail. Certain forms of marketing will be more effective for your particular product and target market so you need to choose the most appropriate methods. Also, bear in mind the costs involved. For example, unless you have a significant budget, TV advertising will be out of the question.
Separate from the sales techniques you deploy is the sales process itself. If you run a shop or café, most transactions will probably be done over the counter. On the other hand, you may decide to have a purely online presence, Amazon-style. Or you can adopt a dual approach, allowing customers to come and view your products in a store and go home and order for delivery on the internet or by telephone. Detail these insights clearly so your investors have confidence in how you will deliver sales.
If you have already done some legwork and found potential customers who have expressed an interest in your offering – particularly if they have provisionally agreed to a deal – include the relevant details in this section of the business plan, detailing any relevant paperwork such as letters of intent. This will give investors confidence that your business idea can hit the ground running once they have invested in you.
Step 4 – The Management Team, Operations and Logistics
The skills and experience of your management team can be an important deciding factor for a potential investor, as is a clear plan on how the business will operate.
In this section of the business plan, remember to highlight your own professional attributes, as well as those of any business partners or team members you may have, as it demonstrate your ability to succeed with the new venture based on your track record.
Approach this section a little like an abbreviated CV, noting any key achievements and experience, particularly where they are relevant to the proposed start-up. Remember that investors invest in people – if they have confidence in you, your expertise, your experience and success in delivering any relevant previous projects, they are more likely to have greater confidence in your offering.
There may be certain areas where your team do not possess the relevant skills or industry knowledge. These gaps should, if possible, be filled by a competent management team who will contribute to your business, either as employees or contractors.
Explain how any missing skills will be dealt with – for example you could enrol staff in training courses in order to provide them with the relevant knowledge they will need for the job. This is your chance to explain how you will address any weaknesses in your business and overcome them. Proactively doing this will demonstrate to investors how thoroughly you have thought every element of your business through.
If you have already succeeded in securing some level of investment for your business, include the details of existing investors in this section. Emphasise their unique value to your enterprise in terms of skills, experience and the potential to open doors and make valuable connections for your business. Make it clear what their roles and contributions are. There is no point in hiding anything – investors will want to know the details of all those involved in your business if they are going to invest their money into it.
If you don’t already have a LinkedIn account, create one. If you do have one, make sure you update it. This is often one of the first places a potential investor will look when researching the team behind an investment opportunity. You should also encourage other key members of the management team to create or update their LinkedIn profiles.
Similarly with social media sites like Facebook and Twitter, create a profile for your business. With personal profiles, ensure both your and your staffs’ accounts are clean and professional! Everyone is allowed to enjoy a social life but you probably wouldn’t want a potential investor seeing the outcome of your wild birthday celebrations.
With regards to your team and employees, it’s important that you assess your requirements realistically. You will most likely want to do as much as you can yourself when starting out, but remember that taking on too much can have the effect of hindering growth as you become overburdened with all the little jobs. Decide which roles will need to be filled by staff so you can plan your hiring process.
If it is necessary to rent out commercial or industrial premises, do consider the expenses of rental and also any utility bills. There are also various types of insurance or licences you may need to obtain depending on the type of business you’re starting. If you have staff, you’ll need to get Employers’ Liability Insurance and if you stock any high value goods, your insurance premiums may be significant. If you’re planning to work with children, you’ll have to make sure all relevant employees are CRB checked and comply with any relevant rules and regulations.
Some businesses will rely on specialised equipment and this can be extremely expensive – it may even be the reason you’re seeking investment – so include full details of any tool requirements along with prices.
Don’t forget to do some research into your key suppliers. Find out the pros and cons of different potential suppliers and try to establish accurate cost estimates, which should be worked into your business plan.
Knowing all the steps you will need to take and when you need to make them is important if you want to avoid any hiccups. Outline these details to your investors so as to demonstrate your preparedness for what needs to be actioned should you be successful with your funding request.
Step 5 – Financial Information and Funding Requirements
The financials are the nitty-gritty of any business plan. Although many of the figures for a start-up may only be projections, it’s important to be as realistic and detailed as possible.
Investors will want to see that you’ve done your sums so include detailed financial information that proves you have a grasp of the all-important monetary aspects of running a business. Unless you’re setting up a charity or social enterprise, you need to be aiming towards making a healthy profit but remember to keep it realistic!
Cash flow forecast
A cash flow forecast is one of the most important elements of a financial plan. The amount of capital you require can be determined largely from accurate predictions of cash flow. Even if your profit is high, a lack of readily available money can lead to major problems including insolvency. An example could be if you’re waiting for substantial invoices to be paid; you may be owed a lot but without cash in the bank, you won’t be able to manage your expenses. You can use a spreadsheet program to create your cash flow forecast – this will also allow you to keep it regularly updated once you start trading.
The simplest way to forecast cash flow is to list monthly income and expenditure costs, preferably with annual totals. You can also separate these figures out into various different sections (e.g. operational expenditure, bill payments etc.). Try to think pragmatically and account for all kinds of variables. For example, you’ll probably need to use more heating over the winter months so your expenditure on gas and electricity will increase. Similarly, if your product is seasonal (e.g. flip flops or wellies) then you’ll need to revise your income for the relevant seasons.
Profit and loss statement
If your business is already operating, you will need to produce a profit and loss (or P & L) statement to indicate how well the business has performed overall. It differs from the cash flow forecast in that it shows how much profit has been made (or the amount of loss sustained) over a specified period (usually a year), but it doesn’t account for actual cash in the bank. The P & L is also split up into various sections (e.g. payroll, rent, marketing expenses etc.). Investors will want to know where money is currently going in and out and how much. It also helps them to determine whether the level of investment you are seeking is viable.
With regards to investment, although you can simply specify a set figure, if you require funding over a long period you could detail the initial amount needed to get the business off the ground and agree to further investment contingent upon a certain level of performance over a specified period.
Of course, this investment will need to be repaid at some point, so do state a realistic repayment period – it’s better to overstate the time required to avoid disappointment and show that you have taken into account different possible scenarios.
An investor will want to know exactly why you need their money and what it will be spent on. You may have an excellent business idea but you’ll have to prove that the funding sought will directly lead to success and is actually required in the first place (e.g. do you have savings or other personal assets?).
Finally, the return on investment (ROI) is a key element of any business plan, showing how much effect an investment will have upon the business. Think about this carefully and use online calculators to work out how much your investors can expect to receive in addition to their initial investment.
Step 6 – The SWOT Analysis
The SWOT analysis
This is an optional part of a business plan but can prove a valuable addition as a SWOT analysis increases your business awareness, helping you to capitalise on your advantages whilst pro-actively tackling any potential issues.
Detailing this to your investors demonstrates the grasp you have on your business, the industry it operates in and an awareness of your competitors so you know what you’re up against. This should help give investors confidence in your ability to navigate your way through the market based on sound research and calculated actions. Examining your business and the sector in which it operates is intrinsically valuable as it helps you to make strategic decisions and prevent disasters by planning ahead.
The SWOT analysis is split into four sections:
Each one details the various relevant attributes and downsides to your business and the industry. They are sometimes represented visually in the form of a matrix.
Brainstorming is often a good way to begin a SWOT analysis; simply jot down any observations or ideas which come to mind and flesh them out or edit them later. Now for the SWOT itself:
This is where you can highlight the qualities of your particular business, whether it’s the skill set, industry knowledge or a specialist resource. This is where your list of USPs will come in handy.
Do you have any specific intellectual property rights? Have you secured a retail space with a particular high footfall? Perhaps you have acquired sole rights to sell a product in a particular region. Whatever gives you a head start in the marketplace can be considered a strength.
Think about the advantages of your business compared to your key competitors. If you’re able to sell a product at a reduced cost due to lower overheads – or can provide a higher quality service for the same price – this will automatically put you at an advantage.
If your business lacks certain skills (e.g. in the form of an effective sales person or a technical expert) you’ll need to find a way of overcoming this, possibly by using external contractors.
You should also specify how you plan to deal with any other lack of resources (e.g. specialist machinery), as well as addressing any weaknesses compared to your competitors.
In this section, you can make a general case as to:
- Why your business will succeed in a certain market (e.g. umbrellas in rainy England)
- Any specific opportunities (e.g. umbrellas which tap into a fashion trend)
- The possibility to claim a niche position (e.g. a reputation for durable umbrellas).
Try and be frank about any potential reasons your business may not succeed, particularly in light of existing or possible future market conditions but to counter that, remember to detail your contingency plans.
Now you should be perfectly positioned to write your business plan during your lunch break. Take the leap and start your own business!