Small Business Resource - Writing a Business Plan

Writing a Business Plan

by Michael A Watson FCMA, MM.

Why Plan?

Whether you are seeking finance for a new business venture, additional finance to help an existing business grow or funds to support a management buyout, it is essential that you communicate your plan (idea) to prospective financiers.

The type of finance may range from a bank overdraft or medium term loan to new equity capital. Most financiers - and professional advisers, too - prefer to see an executive summary before they look more closely at the detailed plan. From this summary they can quickly determine whether it is the type of business they generally support and whether the management has a clear understanding of the essential facts about the enterprise.

The business development plan is usually the first opportunity a company or individual has to impress prospective financiers with the viability of a business and its prospects. It should always be written by the management team, and not their professional adviser. Prospective financiers will be assessing an investment in the management team rather than the adviser, so it is the management's words, plans and aspirations which they wish to read. The role of the adviser is to give guidance on preparation and to review the plan.

Objective

The objective of the business development plan is to raise money. It therefore has to convince a potential financier that the business is a worthwhile investment.

To do this, the plan should:

attract the financier's interest and attention
emphasise the strengths of the business and its position in the market, especially compared with its competition
recognise the risks and
project the development of the business.

The financial forecasts are a critical part of the plan. Consideration should be given as to how each piece of information in the plan affects the plausibility of the forecasts. Therefore the plan is the justification of the financial forecast and adds creditability to the forecast.

The financier needs to be convinced that management has the expertise and committment to realise the potential of the business. Preparing a business development plan is a useful displine for all businesses because it clarifies management's view of how it sees the business developing. A good management team will already have prepared a corporate strategy written for their own purposes, which may form the basis of a plan to raise finance.

Length

The plan should be brief - most are 10 to 15 pages. A balance needs to be struck between ensuring the document is concise and well presented and providing sufficient information. The financier will often conduct his own investigation and therefore will not always need detailed explanations. Any detailed information should be provided in the appendices.

Verification

Where possible, reference should be made to external data or publications to support the information given. Unsupported opinions and assertions show a lack of preparation and professionalism.

The business development plan should indicate where financial support (including government assistance) has already been given or offered.

Essential points

A considerable amount of information is required in a business development plan.

Bear in mind the following points:

Pay particular attention to presentation - first impressions are important. Appoximately 95% of business plans are rejected, often because their presentation lets them down.
Be frank. If you misrepresent something, the astute reader will see through it and will not be impressed.
Make every effort to substain the reader's attention from start to finish.
Ensure the logic, proposals and assumptions are consistent throughout the business development plan.
Do not underestimate the time taken between presenting the business plan and receiving the required finance. Depending on the type of finance required, the delay could be anything from a few weeks to several months.

As a general rule the business plan should be structured into three parts:

the main text
the schedules containing financial information and
detailed appendices to support information and opinions expressed in the main text.

The main text must deal with specific matters:

executive summary
the business
markets and marketing
competition
customers
products, services and development
the operation and its suppliers
management, location, ownership and structure
financial projections and analysis
exit routes

A common mistake is to underestimate the funding requirements. The business development plan will not be more attractive to the financier merely because the amount of finance requested is modest. Funding requirements should take into account the development of the business over at least three years and should allow for contingencies.

How can the adviser help?

Preparing a business development plan is extremely difficult. An adviser should have extensive experience in assisting a new and growing business in all aspects of raising finance, including:

advising on the feasibility and preparation of business development plans
introducing you to the right people for the appropriate sources of finance
assisting with negotiations for suitable financial packages and
advising on the continuing financial requirements of your business.

It must be remembered that an adviser should not do the Business Development Plan, the plan should be written by the management team and it is their plan not the advisers.

Michael Watson of Accountancy Services for Business is a Chartered Management Accountant with a Masters in Management from the much acclaimed J. L. Kellogg School of Management at Northwestern University, Evanston, nr Chicago, USA. With 30 years experience in accounting initially trained in Practice, then over 20 years with a USA fortune 500 company operating in the UK and Europe. He has held senior Management accounting roles including director for UK and European operations. Experienced in compiling accounts for small businesses, completing tax computations, business forecasting, financial modelling, budgets and strategic planning, UK statutory accounting and Company Secretarial.

To contact Michael, phone 01932 346765 (UK), or email him via IRL.

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