The Business Plan
The business plan should be seen not just as a means of obtaining finance, but also as a means of focusing your objectives and imposing disciplines on yourself. It should enable you to foresee problems in the future, and thereby to take the necessary action before the situation becomes too critical. Once the business has commenced, the figures should be adjusted where necessary to take account of the start of trading.
The length of the business plan will depend upon the size and complexity of the proposed venture. Even if it is very small, you should at least prepare a cash-flow forecast, together with some background notes about yourself and the proposed business.
The object of the business plan is to inform and persuade. The report must be honest about the business, its owners and managers, its competitors and its prospects. In preparing the plan, the writer should be aware of the readers of the report, so the use of technical terms should be kept to a minimum, or included in an appendix or glossary. The report should also be concise.
The business plan should include the following material relating to the business:
- a summary;
- any trading history (if applicable);
- planned products and markets;
- your production capabilities (if applicable);
- management information and history;
- financial information;
- any appendices or a glossary of terms (if applicable).
The summary will tell the reader about the proposed venture, the owners and managers, the purpose of the finance, how much is required and how it will be repaid.
The section on the history will only be relevant where an existing business is being purchased, or where there has been a past trading history. Where you are buying an existing business, you should seek the advice of an accountant beforehand as the information received may not be accurate. Some checking of the vendor's accounting records may be required.
The third section should state the range of products being sold, their relationship with other companies' products and likely future developments. You will need to state the size of the market, the main competitors, their advantages over you and your advantages over them, and the form of marketing that you will adopt.
The section on production will only apply if you are manufacturing a product and will include details of minimum and maximum capacities, the costs of increasing capacity, the types of machinery required and the levels of stock holding.
The section on management or on the owners of the business is vital. Successful businesses depend upon good management, especially at the start, and the quality of the management is the main thing that a lender will look at. They should have experience of the market and of management. Their previous history should be shown, together with past successes.
The financial information should include the following:
- any previous accounts;
- monthly cash-flow forecasts;
- a projected profit and loss account;
- a projected balance sheet;
- any assumptions made for the projected figures, such as on sales, gross profit margins, employee costs, overhead expenses and contingencies.
In addition, a review of the major risks in respect of forecasts, together with break-even analysis, can be shown. Sensitivity analysis can also be used to show the effect on profits as a result of changes in the variable costs.
The use of appendices will make the reading of the report much easier, and will create a better impression.
This is an example of how to work out your Break-even analysis- Click Here