Module 12 Preparing A Business Plan

If you want to start up your own business this is the document which sets out, in words and figures, all the plans you need to make. There are several ways you can present a business plan. Here we are going to give you a model on which you can base your own, and adapt to your own circumstances. A business plan fulfils three important functions: (1) (2) (3) It will help you clarify and organise your thoughts It will help you raise finance It will help you monitor your business once it has started

Let's look at each of these in a little more detail: (1) Organising Your Thoughts When you are planning a business there are so many different things to consider that it is very easy to become confused. Putting the whole thing in writing can help you clarify your thoughts and assess the whole project more objectively. In addition, you will have to answer a lot of questions to complete the plan. This forces you to go out and do the necessary research to find the answers which in itself is an excellent discipline. (2) Raising Finance If you need to apply for a loan, your business plan will demonstrate to the bank manager or lender that you have carefully considered every aspect of the proposed business, and that you know exactly how much money you need to borrow and what you will require it for. This will help reassure them that their funds will be wisely used. Even if you do not plan to apply for a loan, your business plan can save you losing all your own money. (3) Monitoring Your Progress The business plan sets down the path along which the business should be moving. When you first start your business there will be a vast number of things to do, and it is easy to delude yourself that you are doing well simply because you are busy.

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The business plan, will guide you through this period. With the plan at your side, you can review at regular intervals (every month perhaps) how your business is doing. If you are failing to meet your targets, you can then decide on what remedial action to take ... and the sooner the better! If you are doing well, you will see more easily those areas where you should concentrate your efforts.

Style and Presentation

Business plans can be set out in a number of different ways, although the information contained is usually the same. The format which we show you here is generally acceptable and should be easy to adapt to your requirements. In your own plan some sections may be shorter and others longer, but you should follow the general structure, style and content. Before looking at the sections of the plan in detail, let's start by giving some general hints. (1) Your business plan must be neatly and professionally presented. It should be typed (never handwritten), with correct spelling, grammar and punctuation. It should be enclosed in a cover or a binder which includes the name of the business, and the names and addresses of the person or persons behind it. If a professional advisor (such as an accountant) has been closely involved in preparing the plan, their name and address should also be given. The plan can be written in the third person that is, 'the proprietors' or in the first person that is, 'I or we'. Where you are going to be a sole trader, or it is a proposal for a small business, the first person is preferable. The third person is better for large, complex proposals. Avoid putting in too many exaggerated claims for your product, such as 'this wonderful product' or 'this incredible opportunity'. The tone needs to be confident but objective. As far as possible, you should stick to facts you can prove. Potential backers want facts and reasoned argument, not sales hype. The latter may impress customers, but it will only irritate bankers. Remember that potential lenders and other backers will be looking for evidence of two things in particular in a business plan: (1) that there is a market for your product or service, and (2) that you have clear financial plans. They are looking for a proposal which shows that you know what you are doing, and they want evidence that it has a good chance of success.

(2)

(3)

(4)

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(5)

The length should be as short as you can make it while including all the facts. Your business plan is a summary of what you want to do, how you will do it, and why it will succeed.

The Contents
Your business plan should include most, or all, of the following sections. But only include those sections which apply to your proposition. Introduction Product or service and business history Personnel Market research and marketing plan Suppliers and sub-contractors Premises, equipment and transport Legal Aspects Financial information Fiancial requirements Appendices

Let us look at each of these in more detail: (1) Introduction This is where you give a brief outline of the nature of the business and its proposed structure (e.g. sole trader, partnership, limited company). It should be no longer than one or two paragraphs. If the plan has been written for a specific purpose eg to support an application for a loan this should also be mentioned here. (2) Product or Service and Business History (as appropriate) In this section you describe, in sufficient detail for a stranger to understand, the product or service you will be providing. If it is a product, you should state in outline how it will be manufactured. A drawing and/or photograph, perhaps inserted at the back of the report, will help make this clearer to a reader who may not be familiar with the type of product involved. If you are providing a service, you need to explain precisely what this is. The more common the product/service, the less explanation is required eg everyone knows what a hairdresser or a plumber does.

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'Business history' only applies if you are buying an existing business. In this case, you would include the date when the business was founded and a note of any major events in its history (eg changes of location or ownership). You would state the main products or services, the market in which the business operates, and the particular features that have made it a success. In addition, this section would outline the company's present financial position. It would refer to the most recent accounts, which should be included at the back of the plan. For larger businesses, the last three years' audited accounts may be required. If you are purchasing a franchise, a brief history of the franchise should be included. Note: We are assuming that you are familiar with the terms we use in this section such as 'sole trader', 'partnership' etc. If not, look back to your Business English Course. (3) Personnel In this section you include information about the person or people who are behind the business and who will be managing it. If you intend to be a sole trader this will, of course, be yourself. In partnerships and limited companies, it will also include your partners or fellow directors. You should describe briefly your past work experience, especially where this is relevant to the new business. You should mention any educational or occupational qualifications, and any previous experience of running a business. You should also mention here any training you are undertaking, including this course. If you are receiving active advice and support from a business development agency (for example), state this here also. Your overall aim is to demonstrate to a potential lender or backer that you, as the person behind the business, are well prepared for self-employment, and have the experience and training to make it a success. Finally, in this section you should mention whether you intend to employ any staff. You should indicate how many you will need, what skills they will require, how much you expect to have to pay them, whether they will be full-time or part-time, and what training they will need. In many cases, this section would indicate an increase in staffing over time as the business grows. (4) Market Research and Marketing Plan This is a very important section. Its purpose is to convince the reader that there will be enough demand for your product or service to make the business viable within the market in which you intend to operate.

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This section should therefore summarise your market research, and in particular answer the following questions: (1) (2) (3) (4) (5) (6) Who will be your customers? Why will they buy from you? How large is your potential market? Who are your main competitors? What are the main threats from these competitors? What are your advantages over them? Or, to put this another way, why will people buy from you rather than from them?

All your answers should be backed up with as many facts and figures as possible from your market research. When you are describing the market size, for instance, you should explain clearly how you have arrived at this figure. Statements such as 'There is considerable demand for ...' or 'Many people require ...' are worthless without some market research data to back them up. Also in this section you should describe your marketing plan. This concerns how you will advertise, promote and sell your product or service. Specifically, it should answer the following questions: (5) How and where will you advertise your product or service? What other forms of promotion will you use (eg direct mail, exhibitions, telephone selling)? How will your product or service be sold (eg wholesale, retail or through agents)? What is your pricing policy?

Suppliers and Sub-contractors Many businesses rely on other businesses to supply them with raw materials, components or services. Any problems in obtaining these can result in disaster for the business, especially if it is a new one. In this section you should explain who your main suppliers and subcontractors will be and why you have chosen them, and give alternatives wherever possible. You should also comment on any discussions you have already had with suppliers, agreements reached, credit facilities negotiated, and so on.

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(6)

Premises, Equipment and Transport This section states the type of premises required eg retail, warehouse, workshop, factory, office and floor area needed (usually quoted in square metres). It will also mention the desired geographical location, giving reasons, and other requirements such as parking space, connections with public transport, loading bays and so on. Where you have already found suitable premises, this section should explain where they are, and whether they will be bought, leased or rented and the cost. Similarly with equipment and transport, you should explain what you need, how it will be obtained eg by leasing, hire purchase or outright payment and whether it will be new or second-hand. If you require a lot of equipment, it is best to include full details in an Appendix.

(7)

Legal Aspects In this section you should include details of any legal matters or requirements which may affect your business. For example, if your particular business requires a permit or a licence, you should state how this will be obtained, what it will cost, and what are the criteria you and the business will have to meet to qualify. Also in this section you might mention patents (where you are manufacturing a product and wish to prevent others copying it), planning permission (where such permission is required to operate your proposed business from the premises you intend to use) and so on. It is most important that your business fulfils all the legal requirements before you start trading, and backers will want to see that you have taken this into account.

(8)

Financial Information This is probably the most important part of the whole business plan. It will demonstrate to potential lenders or backers that you have a clear plan and targets for your business' finances, both now and over the coming months. Specifically, it will show that you know how much money you need, what you need it for, how much you expect to receive and to pay out during the first twelve months, and how much margin for error you have given yourself. With products you should explain the percentage mark-up you intend to use, while for service businesses you should state your hourly rate. It is customary to mention the normal mark-ups or hourly rates of your particular industry, and give the reasons if yours differ from this. This is very important, as new businesses are prone to under-price, often with dire results.
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This section should also include your sales forecasts, your operating budget and cash-flow forecast. In all of these you should avoid being over-optimistic, and allow reasonable amounts to cover unexpected events or expenses. You should also state any assumptions you are making, eg concerning credit you are given by suppliers and have to extend to customers. (9) Financial Requirements This is a crucial section, especially when the plan is being used as part of a funding application. Here you state clearly the total capital the business requires, how much you (and your partners/fellow directors) are putting in, what loan will be required, how much share capital (where the business will be a limited company), and what overdraft facilities, if any, you may need. Where you are applying for a loan, you should also state here what security you can offer (eg your house, or a friend/relative who will act as guarantor). (10) Appendix This is where all the supporting documents or extra information go. A variety of things may be enclosed in the Appendix at the back of the plan. They may include: CVs (Curriculum Vitae) of the people behind the business. Projected profit-and-loss account and projected balance sheet optional for small businesses, but essential for others. Alternative cash-flow forecast showing the effect of reduced sales. Most recent set of trading accounts (if taking over an existing business). Detailed product information and technical data (where appropriate). Detailed information about equipment and machinery. Plan of business premises. Detailed market research information. Correspondence or agreements with potential suppliers and customers. Sales literature, leaflets, photos and so on.

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Length
As mentioned earlier your business plan must be long enough to contain all the facts without being so long that nobody wants to read it. As a general guide the plan for a small, simple business should be no longer than two or three pages, plus the financial forecasts. As the size and complexity of the proposal increases so the plan increases in length. This will be because of greater explanation and more supporting documents. If you are concerned that your plan is getting too long, revise it and see what you can put into the appendix. Though your plan must contain all the essential information avoid any unnecessary 'padding'. In order to help you organise the outline of your plan, here is a summary of what your plan could contain. Obviously, you should only include the items that apply to you and your proposition. It will be easier to see how to apply this after you have studied the example which follows: 1. Introduction This summarises the whole proposal. (a) (b) (c) (d) (e) (f) 2. What is the business (what are you selling and to whom)? Type of business organisation (eg sole proprietor, limited company etc). Capital investment required. Mention of profit forecasts. Loan requirements. Any special circumstances that might apply.

Business History This only applies if you are considering buying an existing business or franchise. (a) (b) (c) When was the business founded? A brief description of its recent history and trading record, including the last three years' accounts in the appendix. Briefly why the business is now for sale.

3.

Management This is about yourself and any partners or employees. (a) (b) (c) (d) A brief account of your employment and training history. If it will help, put your CV in the appendix. The qualifications and experience of the people working with you or for you. Why you believe you are a suitable person to run this business. Any further training you plan to undertake.
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(e) 4.

An organisation chart (only for larger businesses proposing to employ many people).

Product or Service Here you describe what you are supplying. (a) (b) (c) (e) A brief description of what your product or service is, or does. If it is well known, such as a taxi service, no further description is needed. Any features which make it unique or stand out from the competition. Any ideas for the improvement or future development (this applies to products and their characteristics). Any patents applied for.

5.

The Market This is one of the most important sections. (a) (b) (c) (d) (e) (f) Who are your customers? The size of the market. Market trends ie growing, static or contracting. Your competitors and their likely reaction to your business. Outline of your market research. Any ideas for new products or services once established.

6.

Selling Operations Here you detail how you will promote and sell your product or service. (a) (b) (c) (d) (e) (f) (g) How will you sell your product/service? Why will your customers buy from you (the benefits you offer)? Any U.S.P. (unique selling point) you possess. Plans for advertising and outline expenditure. Any other promotional methods you intend to use. Your pricing policy. Summary of your sales forecasts (put details in the appendix).

7.

Financial Factors (a) A summary of your budget (full details in the appendix). (b) A summary of your cash flow forecast (full details in the appendix). (c) Capital requirements a summary of where this is coming from. (d) Forecast balance sheet (for larger propositions only). (e) Forecast profit and loss accounts (for larger propositions only). (f) Audited Accounts for three years (if available or appropriate). (g) Any assumptions behind the forecasts that a lender needs to know about. (h) What are the most significant risks?

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8.

Operating Details Here you show how you are going to organise and operate the business. (a) (b) (c) (d) The location and premises plus any alterations needed. Your suppliers if there are plenty of suppliers, just mention them generally, e.g. 'local printers', 'local Cash and Carry Wholesalers' etc. Any equipment needed and an indication of cost. Manufacturing facilities or other relevant details.

9.

Conclusion This rounds off your business plan. (a) (b) (c) State briefly your longer term objectives. Your mission statement. This is a brief statement of your aims and objectives. Any other relevant information.

Below is an example of a business plan for someone wanting to set up a kiosk selling drinks, snacks, newspapers and cigarettes at a local bus station.

Business Plan
Introduction This is a proposal to form a limited company which will establish a retail kiosk at the new bus station, now under construction, in Martin Street. This will trade as 'Pete's Kiosk' and sell a range of sweets, chocolates, biscuits and snacks, tobacco, smokers requisites, newspapers, magazines, books, pre-packed sandwiches and cakes, canned drinks and other items required by travellers. The capital required is 16,000 and budgets forecast a nett profit of 9,140 for the first year's trading. I will invest all my savings of 6,000. Loans of 10,000 in the form of 6,000 as a medium term loan and 4,000 as an overdraft for working capital are required. Security through a second mortgage on my home is available. The proposed site at the bus station is subject to competitive tender. Tenders have to be submitted by the end of May. (Because this is a new venture, there is no business history to include in this plan.) Management The business will be managed by myself, with part-time assistance from my wife Mary.
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I am 30 years old and we have two children. For the last eight years I have worked for General Wholesalers, a cash and carry wholesaler. I have a good knowledge of financial matters having worked in the accounts department for the last three years. My work has brought me into constant contact with retailers and has given me a good insight into the retailing business. This has been reinforced by my recent research and discussions with retailers. I am ambitious and keen to build my own business. I am enthusiastic about this proposal and prepared to work hard to establish the business, and I believe I have the knowledge and experience to make a success of it. (The products sold have already been covered in the introduction, so there is no need to add anything further here.) The Market The potential customers are travellers and the general public passing through the bus station. Research indicates a potential of 562 customers a day giving a turnover of approximately 5,000 per week. It will take about four months to build to this sales level as the bus station becomes fully operational. A summary of the research is in the appendix. The full workings are available on request. The immediate competition is low. There are no similar kiosks nearby and I have been assured by the Council that none of the other retail units at the bus station will be let to a similar business. Their policy is to have a variety of different retail services offered to the public. Selling My policy is to sell the leading branded goods in order to maximise sales. The most popular lines will be prominently displayed. I will keep my prices competitive with retailers and kiosks in other parts of the town. The goods I will sell are price sensitive and I do not want customers passing my kiosk to buy elsewhere. The main reason why people will buy from me are the location, the range of popular branded goods stocked and my competitive pricing. I also appreciate the need to project a cheerful, friendly image to attract and retain customers. Finance The budgets indicate a profit of 9,140 in the first year after my own and my wife's salaries and a profit of 14,000 in the second year. The first year's sales budget, purchasing budget, fixed cost and capital budget are in the appendix. These are based on detailed market research and actual costs wherever possible. The basis for all estimated costs is shown in the appendix.
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The capital required is 16,000: 4,000 for fixtures, fittings and equipment; 6,000 for rent in advance and 6,000 for working capital for the purchase of stock, incidental expenses and to cover the early trading losses while business builds up. The cash-flow forecast shows that there is a reasonable margin of safety if the build-up of business is slower than anticipated. The lease on the proposed site is subject to competitive tender. I propose to tender 24,000 a year for a fixed period of five years. This figure is in the budgets. Rent is payable three months in advance. Investigations at the Council indicated that a minimum tender price of 20,000 a year was required. To secure the lease I believe a tender price in excess of this is necessary. I have a target to make a nett profit of 15% of my gross profit (33,114 in the first year's budget), which leaves a surplus for rent of 24,121. My proposed tender price was the last cost item to be inserted into the budget. I believe a tender price of 24,000 has a good chance of succeeding. The business can afford this and still produce a good nett profit. A higher tender price would reduce profit too much and increase the risk. Loan repayments and interest are already allowed for in the budget. (The person preparing this plan felt it necessary to give some detail of how he had arrived at his tender price. He wants to show it was carefully considered and that he had good reasons for selecting this figure. Go into this sort of detail when you feel it is necessary for understanding and credibility.) This is a low-risk venture in that there is no adjacent competition and none is likely in the foreseeable future. The most significant risk is that sales will be below forecast because of lower than anticipated usage of the bus station. Because of this the sales forecasts were made on a cautious basis and I believe they are realistic. (The writer wanted to show in the last sentence that his enthusiasm for the business had not led to over-optimistic forecasts. He was careful to indicate that his assumptions were realistic and achievable. This is something you should always try to do.) Conclusion My long term objective is to build a sound, profitable business to support my family. My mission statement for this business is: To establish a business running a Confectionary/Newspaper kiosk called Pete's Kiosk. To reach a break even point as soon as possible, then earn sufficient profit to provide a decent living for myself and family. Later to expand the business by re-investing profits as opportunities arise.

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I believe the proposition described in this business plan has a very good chance of success. A decision on the loan application is required within the next month in order to meet the tender deadline.

The business plan which we have just looked at is not long, yet it contains all the necessary information. We are not going to ask you to prepare a business plan as part of your examination. This is because many of you will have no intention of setting up your own business. But, for those of you who may be considering it, this short section provides invaluable advice. Here is a brief summary:

Summary
A business plan serves three purposes: (1) it will help you clarify and organise your thoughts. (2) it will help you raise finance. (3) it will help you monitor the progress of your business once it has started. The plan must be well written and presented. It can be written in the third person or the first person. The style should be factual and realistic. You should avoid using phrases such as 'This wonderful opportunity' or exaggeration in any way. Remember that potential lenders will be looking for two things: market research, and financial planning and control. The actual plan should be arranged in a series of sections such as 'market research' and 'financial information'. These correspond to areas discussed earlier in the course. There should also be an Appendix in which you can include such things as budgets, cash flows, detailed product information, plans of premises, and so on. According to the type of business, some sections of the plan may be longer or shorter than in the examples shown. Certain sections (eg business history) may be omitted altogether if they do not apply. Note: If you are interested in starting your own business, we can provide a full course showing you step-by-step how to go about it. For further details contact us at the usual address or email [email protected]

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LOOKING AHEAD
You have now reached the end of your course with us. We hope that you have thoroughly enjoyed your studies and that as a result you feel your writing has improved. In other words, we hope you think it has been a good investment for you. As you can see there is a lot of information and good advice in the course. We suggest that, from time to time, you continue to refer back to those parts which you feel will be most helpful to you. We also hope that your improved writing skills will help you with your career. We would like to hear how the course has helped you and particularly about any promotions or new jobs you feel it may have contributed to. If you have any ideas on how we can improve the course or service, these would be most welcome. We can then do something about it for future students. Finally, thank you for being one of our students. Our very best wishes go with you for your future success.

Please turn to the next page for your examination paper.

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EXAMINATION PAPER 6
This is your final assignment and you should now be very near to achieving your Diploma. But please don't forget to attach the cover sheet and put your name, student number and assignment number clearly on the front and each subsequent sheet of your examination answers. Good Luck! In today's fast-changing world of work, it is important to know how to market your own skills. Competition for the best jobs is severe, and good presentation can make all the difference between success and failure. 1. You are Jane Peterson, and you work in the Sales Department of Coronet Ltd. You wish to apply for the position of Area Sales Manager at a rival firm, Jumbo Leisurewear plc. The advertisement that you have seen is given on the next page. Using the notes below: (a) (b) prepare a full CV for Jane write a letter of application to send with your CV. [15 marks] [15 marks]

NOTES Date of birth: 2.3.1972 Address: 23 Fairmount Gardens, Sunderland, Tyne & Wear Work - started at Highstream Ltd (swimsuit manufacturers) in 1990, aged 18. I'd just left college after my BTEC. Worked in the cutting department for two years, then trained as a sales rep and went out on the road. Left and went to Coronet Ltd in 1995, as a senior sales rep. (Coronet make designer sportswear, as do Jumbo Leisurewear). My territory is the North-East, so I know Jumbo's pitch pretty well. I supervise three junior reps. Last year, my commission was the second highest in the whole of the Coronet group, and I was awarded Rep of the Month three months in a row. I quite like working for Coronet, but I've seen it all and done it all I want a new challenge, fancy a bit more responsibility. Education Fairview Primary till 1983, then Brook Manor High till I was 16. Left to go to Grosmont Technical College to do my BTEC National Diploma in Business and Finance. Passed with credit in 1990. I've got six 'O' levels as well (1988).

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Hobbies ski-ing, cycling, reading, swimming, learning languages (I speak German and Italian fairly fluently). References: Dr A. Bowler, Sales Director, Highstream Ltd. Mrs M. Hughes, Sales and Marketing Director, Coronet Ltd.

The job advertisement:

JUMBO LEISUREWEAR plc are seeking an experienced AREA SALES MANAGER For the North-East of England. The successful candidate will be aged between 21 and 35, and will have significant experience in the field of designer leisurewear for the fashionable teenager. The job will involve supervising the work of ten sales representatives, as well as co-ordinating the work of our small overseas section (a knowledge of one or more European languages would be helpful, though not essential). Car provided. Company pension scheme and free health insurance. Substantial basic salary, plus excellent rates of commission for the right candidate. Write, with full CV, to: Adrian Parkes, Sales Director, Jumbo Leisurewear plc, Unit 93, Gateshead Industrial Estate, Gateshead, Tyne & Wear.

NB

Alternative to question 1: if you prefer, you may draft your own CV, and write a letter of application for a real job. (If you choose this option, please enclose the job advertisement with your examination paper.)

2.

Many large organisations publish their own in-house newsletters, and even in small organisations there is often a need to write articles, press releases or letters to the media.

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This question has been designed to be flexible, so that it can fit in with your own interests and enable you to use your skills to best advantage. So, please answer either part A or part B. DO NOT ANSWER BOTH. (A) Write an article for your in-house newsletter, or for a trade or professional publication. Name the publication your article is aimed at. If possible, send in a copy of the publication with your assignment, as this will help your tutor to assess the suitability of the piece for your chosen readership. [20 marks]

OR (B) You are Communications Officer for Cygnet Cybernetics. Your firm has just won a prestigious export award for its industrial robots, and the award is to be presented by the Trade Minister in a ceremony at the Town Hall next month. Produce a press release, announcing the award, giving information about the firm and detailing arrangements for the award ceremony. [20 marks]

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