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So What Makes a Great Business Plan?

A business plan is usually required for any new business that is looking to start up and is looking for some kind of funding, be it bank overdrafts, loans, mortgages, grant funding etc. It is also necessary when looking for larger funding to expand a business, and perhaps to acquire equity investment. There are many sources on the internet that will cover a mass of detail that should be included in a business plan, a one-size fit’s all plan if you like. As a template and source of ideas this is okay, but rule number one in producing a business plan is “tailor it not only to your audience, but to your specific business and how you will achieve the goals in the plan”.

Too many plans revolve around what the target audience wants: “What do we need to say, and how do we need to say it to get our hands on those funds?”, this can be a major mistake and may well backfire on you. Sure, you want the funds but not at any cost. Imagine you suit the plan to the reader’s needs and then fail to hit targets in 3 months time, knowing that you couldn’t have met them anyway but needed the funding, what then? Understand what the funder wants from you, and make sure that you include all of the relevant core detail they need to help make a decision. But use your business plan as two things, a tool to manage your business ongoing and to help meet those targets you are setting, and as a marketing document that sells your business idea and strengths to your audience. You may only get one chance, make it count first time, every time!

A business plan is like a story. It has a start, middle and end. It has a plot, that needs to unfold in front of the reader’s eyes, taking them on a journey that throws up a host of challenges and shows them how the characters can overcome, and succeed! There is always a happy ending in a business plan, but along the way there are real terrors and dangers which the reader needs to be convinced can be conquered, and at the end they are confident the main characters are the one’s to do it! It is not a cold and mathematical document…bring it to life, make it real. If it looks and feels real, then with hard work and the right people it can become real.

The main components of a business plan, and the key way to approach them, should be:

1. An executive summary:  This is where you set the scene and outline the ‘plot’ of your business plan, where you bring the characters to life. Explain why your product or service is so good, why it is unique or better than the next best thing. Tell the reader who the characters are, what makes them so experienced and special that they have the mental and technical skills to make the plan work. Build the confidence, build the belief. Present the figures for cash flow and profit and loss, do it graphically and include a second graph to show a ‘what if’ scenario. Let the reader know you have thought about slow sales, slow cash collection, cost increases, and that even in the worst case this is how you are going to see a return on your money!

2. Aims and objectives: Let the reader know what makes you tick, why you are wanting to do this and what you want from it, not just financial. That helps build the confidence in your drive and resilience, but also shows how much you’ve thought about things. The action points in your plan should also drive you down the route towards achieving these aims.

3. Business description: This is a bit more methodical in that you need to describe what you will be doing, but give it a warm feeling that shows your passion for what you do. Tell them what makes your business different, and how you plan to differentiate yourself. Include a small section here on regulations and licenses here if they apply, this makes sure you have factored in costs and ticked the legal boxes.

4. Managing your business: You need to let people know that you have everything in control, that you can manage every bit of your business and if you don’t have the resource then your plan explains how you will acquire it. Split it into easy sections covering finance and accounts, marketing, sales, HR, administration, health and safety etc.

5. Customers and the market: To get confidence in your plan you need to do your homework and not just about the key players in your target market. You need to show you understand them, what drives them, what their aims are and how you can satisfy them. How will you persuade them that your product is better? A thorough understanding of the competition is key too. Who are they and what are their strengths and weaknesses, and those of their products? How are you going to overtake them, can you add value to an existing product, or release something that complements it? How will you differentiate and catch the eye of the customer? Show the reader that you have tirelessly done your research, and that you have those entrepreneurial skills to better your competition.

6. Marketing plan: Include your strategy for marketing, and how you will gain access to your planned customer base with what methods. Describe your approach, who will be doing it, the timescale for enacting the plan. If you lack marketing experience look at grant-funded consultancy to bridge the gap.

7. Sales plan: How many units are you going to sell to whom? What services are being purchased from your business? Are the sales one-off or recurring, where will new customers fall into your plan, what are the prices and who is driving your sales effort? These all need to be answered, but make your business plan stand out by not making it matter of fact statements. Write it like a diary almost, tell the reader what you will do on what day or week or month, how you will do it, who will do it…it’s like a bulleted action plan of sales achievement. Include a section on courses of action if your plan slows down or customers are not won. Sensitize the sales line to prove you are also a realist, but that you have a backup plan.

8. Operations: Every plan should cover the things you will need to operate effectively. These can include staff, offices, factory units, storage buildings, capital equipment, licenses and authorisations, statutory requirements like rates and insurances, suppliers for you processes, distribution centres, vehicles etc etc. There’s generally nothing sexy about the operations side of a business but think of it as the engineroom on a ship. If it doesn’t work, the passengers are going nowhere. Explain how each area is covered in your plan, and how you and your team will use their skills and drive to make it as efficient as it can possibly be.

9. Financial forecasts: It is worth having this done professionally, or at least audited by a professional. The profit and loss is important but even more so is the cash flow forecast.  The timing of purchases and collections from debtors can seriously impact on your cash requirement. Take time to ensure you have made realistic assumptions and also to do some sensitivity on it. What if you have a major breakdown and need to find £2,000 up front, what if your debtors slow down from 30 days payment to 60 days, what if your energy bills go up by 15%? All of these examples hit your cash flow, meaning your nicely prepared cash flow forecast that said you could manage in 6 months time has been blown out of the water. Be realistic, have a plan that lets the reader see what your contingency is.

10. Business Risks & SWOT Analysis: Not every plan includes these but it is worth including them to ensure the reader sees you have covered all of the bases, and put ideas at least in place to combat any potential risks. A good SWOT analysis shows that you are a realist who understands that your business plan isn’t based on you thinking you are perfect, or that threats do not exist from day one.

So make your business plan come to life as it is being read. Make it clear and concise where appropriate, and always be thinking of a ‘what if’ situation in every part of the plan…after all, the reader will be. If you answer the question before it can be asked, that’s the best way to convincing your audience that you are serious, realistic and can adapt and overcome. Let your business plan become the blueprint that you can work to in the first 12 months of your business. Amend and update as you go, but don’t lose sight of those original aims and just how you told people you would achieve them!

Good luck with your business plan! 

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System Thinking For Business Success

In a challenging economy, or economic recession, many business owners tend to panic with respect to decisions that need to be made about the business.  Instead of planning, thinking through and making the best decisions, they tend to make decisions as though they are chopping away at a piece of wood.  Instead of strategically looking at the business, they tend to react to the environment.

Instead of reacting haphazardly to disruptions in the marketplace, looking at your business as the system that it is will afford you the opportunity to make good, proactive decisions about your business that may help your business not only survive, but thrive.

For our purposes, we’ll define a system as am organized group of things that work together to form a single entity.  If you think about your family as a system, they are a group of people that started off, at some point in the past, as two people.  Their goal was survive.  They required inputs in order to do so, such as food, water, clothing and shelter.  They also had to think about each other’s safety – how they would continue to survive.

Eventually, this couple would procreate.  However, the primary needs still had to be addressed – they would not go away.  They learned, quickly, that the younger generation could not care for itself, and thus, their basic needs expanded.  Eventually, through procreation, this small family became a group, and by combining with other families, the group become some sort of village or community that worked together to provide food, clothing, shelter, safety, education and growth for themselves.  They depended on each other to bring their gifts, talents and abilities to provide certain inputs for the continuation of the community or system.  When there was something lacking – food, water, shelter, safety, etc., the community suffered.  When there were excesses, the community grew.

Your business probably started the same way: you started off as a single operator, or with a partner or two, with some vision of growing the organization.  You found a name, a market, products or services, resources, etc. in order to grow the business.  Your inputs include a market, customers, cash, talent, etc..  Just as the village, when there is a shortage of one or some of your basic needs, the business suffers.  When there is an excess, the business prospers.  It is a system

What happens with many businesses and business owners is that the system is not functioning the way that it could because the system is not organized.  It is like a wooden wheel with one flat side: while it will continue to role, it will not be as effective as a wheel that is completely round.  Like a cart with a broken wheel, while that broken wheel is a problem by itself, continual avoidance of its repair will lead to other problems, such as destroying the structural integrity of the whole cart.  The cart is a system.

One of the toughest parts of organizing is prioritizing - keeping first things, first.  If you clean and polish the car, but don’t manage the failing engine, while you might look good, you won’t go anywhere.  You must prioritize the needs of the business, and address each in a very deliberate manner.  Like a car, different parts of the business will need to be monitored at different frequencies – some things, you’ll want to monitor every day.  Other will be less frequently.  Ensuring that all parts of the system are working together, from its core level, outward, is another key to business longevity.

The benefit of operating and observing your business like this is that, like the community we discussed, you can begin to predict when environmental dangers are approaching.  The community had to exist in a much larger system – nature.  Your business also exists in other, larger systems, as well, including the market, the environment, the community it serves, etc.  You need to see the signs of an approaching economic storm, or a change in the market or even internal disruptions, such as technological obsolescence, training issues or staff changes.  Monitoring these approaching storms will allow you to think and be proactive in all of the decisions around your business.  Your business will be agile in the marketplace and more often than not, be ahead of the curve when changes occur.

So, in a nutshell:

1.        Realize that your business is a system: all parts of your business work together

2.        Define and prioritize your business’s needs – keep first things first

3.        Be aware of the key items that you need to monitor and with what frequency you need to monitor them.  These will include your key inputs

4.        Watch the external systems- look out for signs of approaching internal or external disruptions to your business

5.        Be proactive.  Make good, informed decisions that will ensure the likelihood of the continuance of your business

Your business is a system.  It requires ongoing observation, adjustments and inputs in order to continue for any length of time.  Ignoring the signs around you will ultimately lead to its failure.

5 Costly Mistakes to Avoid When Starting a Business in 2009!

If you want to start a business, it’s imperative to safeguard it against failure. If you know the mistakes to avoid before you start your company, you’ll increase your odds for success.

Many business owners are so enthusiastic to get started that they fail to understand the risks involved when starting a business. Although a high percentage of new businesses fail within the first three to five years, you can be one of the fortunate ones and beat the odds.

Here are 5 costly mistakes to avoid when starting a new business in 2009:

1. Forming a sole proprietorship. It may seem like the easiest and quickest route to take, but you’ll put yourself at risk if you don’t separate your personal finances from your business. Form a separate business entity like a corporation or LLC, even if you work from home. The biggest mistake that entrepreneurs make is leaving their personal assets vulnerable to business liens, lawsuits, and creditors. Keep your business separate from your personal accounts, and you’ll sleep better knowing that in the worst case scenario, all your personal assets are safe. Plus your risk of an IRS audit increases when you file a Schedule C!

2. Using personal credit to finance a business. Never use personal credit cards to finance your business ventures. Starting from day one, keep all personal and business finances separate. It will be easier for bookkeeping purposes, and you’ll keep your personal line of credit safe. The key is to keep your personal revolving debt low and to use a business credit card in the name of the LLC or corporation. Yes, the debt will be personal guaranteed. However, being under the EIN of the LLC or corporation, it will not show up on your personal credit report! This will help your personal credit score also.

3. Maxing out credit cards. Here’s the problem. If you spend like crazy using your personal credit cards, it will negatively affect your revolving debt ratio. This will have a negative impact on your ability to obtain a business line of credit. Even though business and personal lines of credit are separate, the bank will consider your personal credit rating when determining your eligibility for a loan. If you max out your cards, the bank assumes that you have a negative cash flow. The other problem is when you apply for a business credit card in the name of the LLC or corporation. 95% of the formula by the bank to determine if and how much to give credit to your brand new LLC or corporation is based upon your personal credit score and revolving debt ratio. If your revolving debt is above 40% or higher (5-20% is ideal) you may get rejected for any business credit card! Keep balances on credit cards low, and you’ll be more likely to get credit when you need it.

4. Applying for business credit when strapped for cash. The time to establish a business line of credit is before you’re out of money. Lenders want the assurance that you can pay credit card balances and loans. If you’re strapped for cash, you’re living beyond your means. If the company vehicle breaks down or you have an unexpected business expense, you may get behind on payments. Establish your line of credit when the cash flow is positive and you’ll have a soft place to fall when and if you need to use credit.

5. Failing to plan. Before the world becomes your customer, keep in mind that you need more than a wing and a prayer to succeed. The first step is to stop operating your business as a sole proprietorship and incorporate or form an LLC immediately! Next, obtain a business credit card in the name of the LLC or corporation and stop using your personal credit cards for your business. In about six month, your LLC or corporation may be in a position to obtain a business line of credit, a business loan or perhaps a merchant account cash advance (the last one is the hottest form of lending to businesses today, but the least understood). Plan ahead, build that foundation and your business will keep standing when the unexpected expenses arise.

Start with a plan, do your research, and you can avoid the 5 costly mistakes that sink most new businesses. It’s a new year. Make 2009 a prosperous and profitable one.