Lesson #11 - Formalising Your Business Plan

Hopefully, you'll have your realistic cash flow forecast for the coming year prepared now. If you haven't, don't worry, you can continue working on it as you follow this lesson and it may indeed help you work out some of the more challenging numbers.

A Standard Form of Business Plan

Because I know you need life to be made as simple as possible, I'm not going to confuse you with the thousands of options available for business templates that are out there. In the end they all work to the same basic format and you can download that from here:

http://www.businesslink.gov.uk/Starting_a_Business_files/Business_Plan_Template_v8.4.doc

If the link above changes you may need to do a search on the Business Link website but, seriously, don't waste your energy looking for anything prettier or more complicated.

Completing Your Plan

The sections of the plan are as follows:

• Executive summary
• Business details
• Key personnel
• Vision
  • The business idea
  • Business goals
  • What the business does
  • What makes the business different
• Legal requirements
• Sales and marketing
  • Market research
  • Profiling customers
  • Profiling competitors
  • Managing market risks
  • Pricing
  • Promotion and advertising
• Running the business
  • Staff
  • Premises
  • Suppliers
  • Equipment
  • Managing operational risks
• Finance
  • Start-up costs
  • Sourcing finance
  • Managing financial risks
  • Profit and loss forecast
  • Cashflow forecast

That might look a little daunting but, for your business, it should actually be quite simple to fill in the details. The first thing to remember is that you start at the end and work backwards. That's why we started last time with the cashflow forecast.

Remember our friend Ken Cooper? We'll be continuing to use his business model as our example where it will help. Let's get cracking.

Finance

Start-up Costs

These are the costs you have already spent setting up your business and any others you will need to take it to the next stage. Include everything here, as if you are going to make a taxable profit you can set these costs against your profits for revenue purposes.

Additionally, you need to include all the costs that you'll need to spend to formalise your business e.g. getting your terms and conditions and privacy policy checked by a professional advisor or any software or other tools you'll need to get your book-keeping systems working.

Sourcing Finance

Here you explain where you got the money to start your business, be it savings, money from a rich aunt (I wish) or, as in Ken's case, redundancy payout. If you've maxed out your credit card you'll need to fess up here and make sure your repayment plan is reflected in your cashflow forecast!

Managing Financial Risks

How will you know that your business is heading for a train crash and what will you be able to do to stop it? Knowing that you are putting a limit on the risks and aware of what dangers are out there increases your ability to cope when your business hits a tough time.

Profit and Loss

We'll come back to this later as it is calculated from your complete Cashflow Forecast.

Running the Business

Staff

This could well be just you, or you and your partner. Ken also intends to outsource some writing to freelancers using websites such as http://www.studentgems.com/ or http://elance.com and will mention that here as well as how much he'll be budgeting for outsourcing.

Premises

Your kitchen table or spare bedroom are perfectly legitimate places to do business. You can also set off some of your household costs against tax when you start making big money. It's a good place to draw up your thoughts here, e.g. Ken Cooper might say "will dedicate one room of the house as an office and accordingly allocate 12.5% of household heat and light bills accordingly by square footage in relation to the rest of the property".

Suppliers

Here you'll list your ISP, hosting provider, the affiliate networks you've signed up to and any raw materials suppliers for tangible goods.

Equipment

Your computer, printer and ancillary hardware may be all you have to list here but you should add your desk, filing cabinets and all the stuff that makes up your office.

Our man Ken did not actually buy anything for his business but he wisely wrote a list of all the things he was now using for business purposes and allocated a nominal cost to them. Including those in his start-up costs as capital outlay he can set these against his first year's profits for tax purposes. A canny move, but it needs to be recorded and remembered for the day the tax man comes calling.

Managing Operational Risks

What will you do if your hard drive crashes or your ISP goes bust? Do you need or have insurances in place?

Sales and Marketing

Market Research & Profiling Customers and Competitors

For small businesses it is perfectly acceptable to combine these three sections though sticking to the template form is also fine. The key thing in market research is not to overdo it as can be very tempting. All you need to be able to "prove" is that you will be able to sell enough of your products and services to achieve the projections in your cash flow forecast.

In other words, Ken Cooper's market research has to prove that he can sell three eGuides per day. If your market research suggests you can sell more then great but that's not required.

Managing Market Risks

What if trends change and your products go out of fashion? Are you going to be left with a warehouse full of unsaleable product? How will you be monitoring your market and trends so you can get early warning if circumstances are changing that are outside your control?

Pricing

How did you set your prices? Are they comparable with your competitors?

Will your customers perceive your prices as value for money?

Promotion and Advertising

How will you be promoting your products and services?

What will you be spending on promotion and advertising and how will you measure the effectiveness of your efforts?

How much do you expect each customer to cost you to find?

Legal Requirements

In the case of internet based businesses there are some very clear legal requirements that you need to be aware of:

• Intellectual Property Law - How are you protecting yours and what are you doing to ensure that you are not violating others?
• Data Protection - Are you holding personal details about your customers or leads and what are you doing to protect that information? Do you need to be registered under the Data Protection Act?
• Spam Regulations - What are your policies in regard to mailing your customers or leads and how will you be able to prove that you are complying with European regulations.

In order to ensure that your business is acting within the law it is well worth using the work sheets at the Business Link website here:

http://www.businesslink.gov.uk/bdotg/action/layer?r.l1=1073861197&r.s=tl&topicId=1074448560

You should also put details of your returns and refunds policies and how you'll be dealing with potential chargebacks.

You also need to explain here your legal set-up, whether you are incorporating as a limited company or partnership and whether you'll be registered for VAT and what your tax arrangements will be.

Do you need any licenses or insurances and if not, will you be able to protect yourself from any claims made against you?

Vision

This is the section that you have already filled in in your mind some weeks ago, when you were dreaming up your new venture and should be pretty easy to put into words by now, I hope.

The Business Idea

What, in a few short sentences is your business all about? What are the products and services that you provide?

Where is the demand for your business and what problems will you be solving for your customers?

Business Goals

Are you aiming to be the next BP or Virgin Group or are you aiming to have a new television next year? It's all about putting your dream into words that are credible not only to you but also to those who will be looking at your plan.

How long do you give yourself to reach these goals?

This is where you'll come back in twelve months to see how you are doing compared with your dreams and, quite probably, making some changes in the light of experience.

What the Business Does

What are you doing right now in your business? What websites have you got running now and how are you selling product to your customers?

What Makes the Business Unique

How do you differ from your competitors? Why are you going to be the best at what you do and why are your customers going to choose you over your competitors?

Key Personnel

This section is all about you and does not need to be a full autobiography or curriculum vitae. It does need to explain why you are qualified to run your business and why you will succeed.

If you are working with a partner or have engaged any key advisors in the setting up of your business, mention them here too.

Business Details

Your trading name, address and contact details should go in here. If you are incorporated you will also include your company registration details here.

It's also worth listing your website details here too.

Executive Summary

Ken started his last week, if you remember. This is where you turn your elevator pitch into a short piece of prose that will excite and interest your business colleagues or bank manager.

Remember your audience for this piece, who are likely to be financiers and professionals rather than customers so you're not selling your products and services as such but you are selling your confidence in your ability to create a viable and successful business.