BUSINESS PLANS by dfhercbml


									                                     BUSINESS PLAN


A business plan is an important document for any business and it can be written for a variety
of reasons. Internally, it can help owners and managers crystallise their ideas, focus their
efforts and monitor performance against established objectives. Externally, the business
plan can act as a medium for attracting finance for start-ups or expansion.

There are many books and publications, which tell you how to write a business plan, what it
should contain and how it should be used. This one is different. This is a workpack
specifically designed for those who wish to raise finance.

For many of our clients, the experience of raising finance is a new one. The importance of
the plan to this process cannot be over-emphasised. Many opportunities presented to
financiers are subsequently rejected. It is essential, therefore, that the entrepreneur
prepares a quality document. The objective of this workpack is to help you prepare just such
a document by providing you with the headings which need to be covered.

We will work with you in helping you to prepare the plan, particularly by focusing on the
possible problem areas. These issues need to be considered at the outset because, if they
are not, they will certainly be raised later by potential investors. We see it as our role to
address the problems upfront and, in so doing, ensure that none of the questions asked
later by investors come as any surprise.

The sections, which follow, outline the contents of the business plan. We hope that you will
find the comments relevant and thought provoking and that you will be able to use these
thoughts as a basis for preparation of a business plan which will adequately convey your
ability to succeed.

The business plan should summarise the proposed activity and the prospects for success
for the venture, paying particular attention to factors that are critical to success or failure.

The contents should be tailored to the particular individual requirements, circumstances or
characteristics of the proposal. However, in general, they commonly fall within the following

      Summary

      Current position

      Objectives

      Marketing plan

      Operations plan

      Management and staff

      Financial plan

      Information and control

      Risk factors and rewards

We believe that the business plan should be written by you, the management, albeit with the
help of professional advisers. The investor is backing the management and the plan must
be an expression of your objectives. Experience has shown that the advisers provide a
useful role in helping to determine the overall structure of the plan and can provide helpful
ideas and reactions.

Although preferably written last, the summary should appear at the front of the proposal.

It is essential that the summary 'catches the eye' and grasps the imagination of the reader
by providing enough information for him to decide in principle if he could be interested in the

Financiers have different preferences and are looking to invest in different situations. The
summary must be clear enough for them to establish from the start whether the case is
worth pursuing.

The summary should include:

          What your product is;

          What your market is;

          The financial highlights, by product if relevant;

          The finance required;

          Management experience;

          The potential 'Exit" routes for the investor;

          The unique aspects of your product;

          Why customers will buy from you rather than your competitors; and

          In the case of new or innovative products, what barriers there are to prevent
           competition entering the market?

This section should be a brief resume of the stage the business has reached and how the
company has developed in the last few years, with reference to factual information

The following questions should be addressed:

      What is the corporate structure?

      Who owns the company?

      Who are the senior managers?

      What is the management structure?

      How many employees are there?

      What is the location?

      What is the trading history?

      What are the key financial ratios?

      What are the strengths of the business?

      What are the weaknesses?

      Which areas could be improved?

The business plan should include a clear and concise statement of the current objectives.
Some factors are easily measured such as turnover or profitability targets. Others are,
however, more qualitative in nature and these should not be disregarded simply because of
their subjective nature. It is important to recognise that performance will be monitored
against these targets by external investors at a later stage; consequently they must be
achievable. Future positive and negative variances will have to be explained.

You should state the following:

          Any turnover targets by product, if relevant;

          Any profit or cost reduction target;

          Any market share -target;

          Any non-financial objectives such as improving your

          customer service;

          industry reputation;

          product quality;

          Any relevant personal objectives.

This is a vital area, which should be explained in detail. The location and size of your market
will need to be defined, together with your share of the total. Where relevant, you may need
to involve third parties to substantiate your claims; guesswork will not do!

You will need to demonstrate the steps you are going to take in marketing your businesses
and the impact you expect this to have. Are you assuming that your market share will
increase? If so, explain why. Dependence on success from large increases in market share
will often be difficult to justify.

How influential are your competitors and to what extent are they in a strong position to
influence your market share? Is your market dependent on external factors over which you
have no control? If so, these need to be predicted and planned for.

In summary, include the following:

          Absolute size of your domestic market;

          Absolute size of your export market;

          Trends and developments expected in the market in the future;

          Your market share;

          The factors influencing the market; and

          The risks associated with new markets.

          Furthermore, you should have investigated both the competition and your
           customers and be able to state:

          Who they are;

          What the strengths and weaknesses of your competitors are;

          What the response of the competition will be;

          How your product is superior; and

          The relative importance of each customer and competitor.

This section may seem more relevant to a manufacturing business but applies equally to
other industries and service companies. Existing products or services should be considered
in turn, and thought given to how each can be improved, developed or replaced to maintain
competitiveness. Furthermore, if goods are being manufactured, or a new service is being
offered it is important to consider the side effects. For example, more staff and production
space may be required; raw materials purchased and stocks held may need to be
increased, or specialist staff recruited. The operations plan should state how all these will
'come together' to achieve success.


      Products or Services;

      Highlight unique qualities;

      Identify plans for diversification;

      Facilities;

      Manufacturing processes;

      Plant and machinery used in processing;

      Organisational structure:-

      Identify key positions, roles and responsibilities.

It is said in the industry that financiers back people not businesses. The quality of the
management team is recognised as the key factor in any investment decision. The
importance of this should be borne in mind both when preparing the plan and during
negotiations with potential backers.

It will be important, too, to demonstrate that the team can work together and that there are
unlikely to be conflicts or confusion of roles in the future. If there has been a high turnover of
senior staff in the past, explanations will be required.

The plan should include:

          Evidence of the track record of key individuals;

          Their experience in the industry;

          Future executive requirements;

          Curricula vitae for senior managers (usually relegated to appendices);

          Identification of the key function areas e.g. marketing, finance etc. and that each
           of these is covered by management with appropriate experience;

          The financial rewards to the senior executives;

          The likely share ownership structure;

          The ages of the senior executives. If they are likely to retire soon, what
           provisions have been made for succession;

          Identification of the team leader.

Many business plans fail to raise finance due to the inadequacy of the financial information
provided. Investors will be assessing the projected funding requirement and the anticipated
profitability to establish whether the proposition is commercially viable, and the potential
return sufficient. Ensure that the financial plan reflects the objectives set out in the other
constituent parts of your business plan.

Include the following:

      The funding requirement;

      A summary of the projections;

      A summary of key financial statistics;

      The detailed assumptions behind the forecasts;

      A summary of the sensitivity of the forecasts to the key assumptions.

      The following must be appended:

      The detailed projections for up to 3 years including profit and loss accounts, cash
       flow statements, and balance sheets;

      The most recent financial statements; and

      Details of any sensitivity analysis.

Writing a business plan is not a one-off exercise. It becomes a more valuable management
tool by being used and reviewed regularly as the business develops.

Internal review of the business is only possible by ensuring that adequate management
information and control systems are in place. Furthermore, external investors are likely to
require that regular financial information is forthcoming from the company.

          The business plan should therefore contain the following:

          An outline of the transaction recording systems;

          Details of the regular management reports;

          A demonstration that the business has staff with adequate financial skills;

          Details of how the business will be managed on a day to day basis.

It may seem strange to include risk factors in what is intended to be a selling document;
however, it has the definite advantage of lending credibility to the proposal.

By including the major risks, financial and otherwise, that are likely to affect the business it
demonstrates that the entrepreneur understands that all businesses have potential
stumbling blocks and has taken steps to identify these and developed a strategy to
overcome these problems.

The best method to consider risk factors is by a sensitivity analysis of the forecasts. Modem
computerised spreadsheet packages are capable of being used extensively in this

The main results of such analysis should be incorporated into the plan particularly with
regard to sales not reaching budgeted levels and the resultant effect on cash flow which is
the demise of many new ventures.

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