Business Planning Is Essential.

So, you have decided that you want to set up and run your own business.  You have found the perfect product or service to offer customers or companies, and you believe that it will make enough money to make it worthwhile. Perhaps you are leveraging the skills and knowledge you have built up working for someone else and feel that you can go independently.  Maybe you have found a gap in the market and have something that lots of people need.  But what now? 

The temptation is to get on with it and turn your dreams and passion into reality.  Maybe it's registering your company at Companies House, buying raw materials or finished product for reselling.  Perhaps finding premises, building a website, advertising on Google, Facebook etc.  This hasty approach will more than likely end badly.

Before you commit to any cash outlays, I urge you to do your homework and go through a tried and tested process that thousands have adopted, if not millions, globally. The first thing you should do is create a business plan followed by a strategic plan.  

What are business and strategic plans?

The business plan will provide a practical framework for your business, test your assumptions, and model your financials such as revenue, costs, profit, and cash flows.  After creating the business plan, you can move onto the strategic plan that lays how and what you need to do to achieve the goals identified in the business plan. 

In summary – the Business Plan maps out the company's purpose (Vision and Mission), the key financial and success factor goals. The Strategic Plan maps out how you are going to achieve these goals.  

What goes in a business and strategic plan?

The diagram below shows the significant parts of each plan and the inter-relationship. More detail is provided later for each of the components.  The output from these two plans will then drive out a series of milestones and tasks that you need to undertake.

Note that your plans should be living documents and updated regularly as your company evolves and you learn what works and what doesn't

Business plan components

Vision:  A description of the value your business will provide to customers or society in, say, five years.

Mission: A high-level description of what you will offer (products/services) to achieve your Vision.

Key to Success:  What are the high-level goals for the business for the next 12 to 24 months? This will include financial plans and KPIs (key performance indicators) such as the number of customers, product launches or geographic rollouts. 

Products and Services:  A detailed list of what you are going to offer to your customers

Market Analysis: A review and analysis of the market you want to operate in, such as your target customer base, competition, pricing, and your strengths, weakness, opportunity, and threats.

Strategic plan: Lays out what you will actually do to achieve the business plan goals. Looking specifically at Branding, Staff, Suppliers, Premises, Digital and Sales and Marketing and possibly other specific areas to your business. The strategic plan can either be a part of your business plan or a separate document.

Market analysis breakdown

Customers:  This is a detailed analysis of your target market and should include demographics (location, age, gender, marital status), Interests, employment status, etc.  This will help you tailor your product to your potential buyers or users of your service.

Competition: It is vital to understand your competition, the products or services they offer, their location, quality, customer service and pricing.  You may want to win customers by delivering a better-quality product/service or a lower quality product with fewer bells and whistles but at a lower price.  Either way, understanding your competition deeply will play a massive role in your strategy. Just replicating your competition leads only to a price war and, therefore, a low margin business which is not great.

Pricing:  Follows on from customer and competition analysis.  After all, you are trying to get customers to buy from you instead of your competition. Pricing should be one of the last activities you do.  Pricing and discounting strategies will ultimately influence the success of your business.

SWOT:  Stands for Strengths, Weaknesses, Opportunity, and Threats.  This should be your view of your business and your capabilities. 

• Play to and maximise your strengths. Use them to differentiate your products and services. 

• Overcome your weaknesses by bringing in skills, work with a coach/mentor, improve quality, customer service etc.

• Look where your opportunity lies.  Have you a better product than your competition.  Has a great location opened up?

• Threats should always be taken very seriously.  Continuously monitor the competition and their pricing and product range.  Ensure that you have excellent supplier relationships and there is no risk in supplying goods or raw materials.  Watch your customers behaviour.  Is it changing? Are the demographics moving in another direction?  Is online threatening your business?

Financial Forecast Plan Breakdown

At a minimum, you should include

Revenue:  This is a monthly track of your expected sales by product or service, Detailed for the first year of trading and a summary for the second.

Costs: This is a monthly track of your expected cost by product or service for things like materials and directly attributed people costs as well as overheads such as marketing, management, premises etc. Detailed for the first year of trading and a summary for the second.

Cashflow:  This is the forecast or actual cash entering and leaving the business such as payments from sales (incoming) and payments out such as raw materials, marketing, salaries etc. It is essential that the business has enough cash (working capital) to pay salaries and suppliers as these costs will be incurred before receiving any cash from sales.

Profit and Loss (P&L) statement:  This is primarily derived from the revenue (sales) and costs forecast and represents the gross and net profit of the business.

Strategic plan breakdown

Branding: This is where you create your identity for your business. You are covering areas such as your logo, website, business cards, invoices, social media posts, van livery, uniforms etc. It is so important to get this right to present your business with the correct perception.  You may want to project a professional, high quality, premium, or friendly impression - each will be branded very differently.  I would suggest it is worth paying a design agency to do this for you. I have a blog dedicate to branding.

Staff:  If you have staff, your people will be the lifeblood of your business and will be the most significant influence on customer service.  Detail how many people and what skills they need. Will you be using contractors/freelancers or hiring permanent staff?  Your staff costs will be one of your most significant expenditure areas – so vital that you get this right.

Suppliers:  If you are making or reselling goods, ensuring that you have great relationships with your suppliers is essential and ensuring consistent quality and reliable supply. Selecting and negotiating prices with your suppliers will directly impact the profitability of your business.

Partnerships: Do you have gaps in your capability?  Perhaps consider partnering with another business you help you provide enhanced products or services. Maybe working with an installation company allows you to offer an end-to-end service, hence differentiating your business from the competition.

Premises:  Do you need premises?  What kind of premises?  Do you know the commercial property class appropriate to your business?  Will you lease or buy?

Digital:  This covers all things IT and technical.  Who will design and host your website?  What digital process automation do you need to reduce people cost?

Inventory: What is your strategy regarding inventory.  Will you be importing to reduce costs?  Will you buy the product or ask for it on consignment?  How much will you buy and at what price?  Where will you store it?

Sales and Marketing:  How will you raise the profile of your business?  How will you get new customers?  How much do you plan to spend on digital marketing versus print etc.?  Do you have effective marketing and sales processes?  Can they be automated?

Summary

A business plan is like a pilot needing a flight plan. It provides a destination, goals, and a roadmap on how to get there. It also identifies potential risks, issues, and problems that you may face along the way. A strategic plan is like a jigsaw, with the pieces representing the elements you need to address to achieve your goals. 

Identifying potential threats, risks that could affect the business, and being able to develop mitigating strategies proactively rather than in a reactive way, is key to business success.

It's also a great way to share information about your business, develop your thinking, and test scenarios before you make any changes (like leaving your job and going it alone). It gives you a way to measure how things go when you do a start-up.

And if you're looking for finance, then a business plan is essential as most banks and lenders will require to see a coherent, well-structured and credible plan before lending money.

Alex Miller is a professional business coach and mentor, working with start-ups and small businesses in the UK.