Developing a business plan
Article by Pat Sutton in Sundays Business Post 17 April 2014
I’ve often been asked by business owners what’s the most important aspect of a business plan. My answer sometimes surprises when I say it’s the journey you take in preparing the plan and not the plan itself.
A business plan is a road map for success in the future based on your knowledge at a point in time. For established businesses the plan will be reviewed annually whereas for start up businesses the plan should be reviewed regularly, monthly in early stages and then quarterly. The business plan must be continually updated as the business evolves.
A business plan follows a standard format and includes an executive summary, business description including its objectives, goals and strategies, product and service analysis, operational and management team, market strategies, supplier details, competitor analysis, capital required and financial forecasts. Whilst the plan may be shared with third parties to secure funding it should be principally for the business owners own use. A business plan will start with a very strong and clear executive summary outlining what promoter is trying to achieve. This is perhaps the most important element of the plan as many readers won’t go past the executive summary if it doesn’t capture their attention.
A business plan guidance sheet has been developed by the fours accountancy bodies (CCAS-I) and the Irish Bankers Federation to help SME’s develop their business plan. This guidance can be found on any of the bank websites. There are many pro format business plans available on line so you will have no problem identifying the various headings required.
Sam Waldon founder of supermarket empire Walmart once said “capital isn’t scarce, vision is”. Sam was a humble shopkeeper but wanted to build an empire. He spent a lot of time thinking and researching and working on his business plan. The time invested in developing the plan for any business is where the foundation for success is created. Vision is what drives the future strategy of the business. Sam Walton’s vision was simple, he wanted to stay ahead of the opposition. In the early years he decided he would meet with his employees every Saturday morning at 6.00am. There they would review the previous weeks results and customer feedback and based on the results make decisions for the following week, on products, pricing, promotions, logistics, store layout, staffing, reports etc. He said whilst he was making these decisions weekly his opposition was making them monthly or quarterly. His strategy clearly worked.
Before you jump in and start writing a business plan I encourage you to carry out brainstorming sessions. If you are on your own then borrow family or friends to help. I suggest where possible you work with an experienced commercial accountant or business professional who can facilitate the thinking process. This will add value and challenge the initial assumptions. Get a white board and populate it with critical information. A business plan by its nature is inherently strategic where you typically set long terms goals of 3 to 5 years and set out plans on how you intend to get there. At O’KellySutton we have a series of questions we ask under a number of headings to help develop the strategic intent including value proposition, customer segments, customer relationships, channels, key activities, key resources, key partners, cost structures and revenue streams. For example the value proposition is fundamental to the underlying trust of the plan and it addresses questions such as; what value do we deliver to the customer; which one of our customers problems are we solving; which customer need are we satisfying; how will we satisfy the customer need:
We recommend an action or implementation plan be added to the business plan. The will help with setting timelines, allocating resources and responsibilities against the actions required to deliver on the goals and objectives. This gives discipline and rigour to the process.
The business plan must be underpinned with robust financial forecasts including projected profit and loss, projected cashflows and projected balance sheets with underlying key assumptions. Many investors will want to see ‘what if’ analysis carried out to help assess the risk of the project. For example what if some variables are different than expected such as sales 10% or 20% lower, gross profit percentage 10% or 20% lower, overheads 10% or 20% higher, credit terms turn out to be 30 days longer than expected and so on. The investor will want to see what level of wriggle room is available for slippage and leakage. Too many plans are built on a knife edge where if some element doesn’t work out according to plan then there’s a massive problem from a cash flow point of view. In addition the assumptions used to prepare the financials should stand up to cross examination.
In conclusion we recommend you embrace the exercise with lots of enthusiasm and use it to get your thinking clear. Patrick Sutton, O’KellySutton Chartered Accountants and Business Advisers, Kildare, Sutton@okellysutton .com