Many small businesses don’t have a business plan – it’s not surprising when you see some of the gigantic downloadable templates and software out there, that put people off before they even start.
If they do have a business plan then unfortunately it may have only been prepared in order to get finance, and then put away and never looked at again.
We’ll cover the importance of a business plan in bringing together all the elements of your business intentions.
By the end you will have the roadmap of where your business is going, and as a result be able to steer towards your goals and make adjustments along the way using an easy to use simple template that you can download.
A business plan should be a guide to help you and should be regularly updated – it is a projection of what you are aiming towards, and included within that is the budget which will depict where the money will go along the way.
Before we start on the plan, you need to consider how much you will charge. This is much easier today, as you can use the internet to research competitors offering a similar service or product.
Combined with the level of your own experience you can then decide on how much you are going to charge. You can revise this later as the business develops but you will have a base figure to work with. From that you can work out your expected earnings from the sales you hope to make.
This will of course be a rough estimate to start with, but you can refine it as the business develops. You should remember that if people don’t see a price they may assume that you are up to 50% more expensive than you actually are, so it is always worth publishing your prices (or a guideline) online once you have decided on them.
Remember your time allocation is an important part of the business plan – work out how much time you have available, and how to allocate it. This will also show up shortfalls where engaging different professionals can help you make the most of a limited resource.
Many people get disheartened when looking at a business plan for the first time, indeed some of the free ones available to download run to over 30 pages, which puts people off before they even start.
A business plan is just a document that sets out what you want to do, and how you are planning to achieve it, so the one I am going to give you in the resources is only 2 pages long. You may want to print this off now to refer to. Combined with your marketing plan, which we’ll cover in the relevant section, they will guide you along the way.
A simple business plan that you actually use is infinitely better than a complex one that you don’t.
By not seeking finance, and instead using cash – particularly if you have built up a buffer, then you can be more in touch with your finances than someone who has a finance amount raised and is looking to spend it. When we had the last credit crunch businesses were forced to become more resourceful with their limited budgets.
This is what the budget and cash flow side of a business plan looks like. As part of the planning process you should prepare projected cash flows into and out of the business over the period of a year. If you are starting the business part-time then you may have additional funds that you can invest in the business as you go along, rather than having to rely on finance or sales initially to fund expenses.
Looking closer at the start of the plan I’ll run through the sections so you can see how the plan works. The budget and cash flow shows where any shortfalls may lie over the coming twelve months, and you can then build up or invest funds in advance to ensure that they are covered.
On the top we have the income section, where you would put your projections for sales each month for the next twelve months.
Below that we have your expenses, here you would list all the expenses you are expecting to pay out each month. You’ll notice an item called the sinking fund, I’ll come back to that shortly.
We then have your profit or loss calculated for each month of the year. Perhaps your business is seasonal, in which case you may project that you run at a loss for several months before reaching profit later in the year.
At the bottom of the plan we have the cash flow section. This often catches people out but all that it is is a running total of how much money you have left. We have an opening balance at the start of the month, then either we take money away for a loss or add it for a profit. This gives a closing balance at the end of the month. We then carry this forward to the following month and repeat.
The great value of a cash flow is that it shows you what will happen in a few months’ time, so you can perhaps highlight in the future when your reserves have gone, but if you can see that if you could perhaps keep going for a month or two longer then you would hit the months when profit is generated and the fund can be replenished.
If you are operating with cash, all you would do is save some more before you start to build up the fund so that it always stays positive in the months before expected profits.
Looking at the cash flow, you never want to run the fund right down in case of unexpected expenses that you couldn’t cover, so you’ll want to save a buffer on top – I like to call it a personal underdraft facility.
Once you have the estimates then you would update these regularly to see how you are progressing. It’s completely normal for there to be big changes based on your initial documents – a lot of things will have been assumed when you created them, without actual real data as a basis.
One item to include in your budget is the sinking fund that I mentioned, that is an amount that will go to replacing equipment when it reaches the end of its projected life. You just work out how much an item will cost to replace and start saving the monthly amount now so that you can replace it from cash saved when the time comes. For example, most IT has an expected life of 2-3 years, so when you buy it you also immediately start saving monthly to replace it.
You should also perform your own stress test on your business plan – What happens if only 50% of your planned income is received, or your costs are actually 150% of the budgeted amount? You should plan to cover these contingencies and also remember to include tax as a business expense, it needs to be accounted for.
A business plan may throw up issues right at the start – it’s for you to decide whether the business is viable, if profits don’t look likely within a reasonable timescale then you’ll have to make a decision on whether to proceed. But it’s much better to be making that decision yourself now rather than be forced into in down the line having invested much time and money.
Remember this is your own planning document to be used and refined as the business develops, and the projections updated when you have actual data.