companies house made easy

The proof of a good business plan is steady profits. Moreover, any prospective lender will base their decision on your plan. So what does it take to produce a good one?

Unfortunately, most business people and department managers never prepare a proper business plan. Of those that do, most only do it for ‘special’ occasions, like starting the business, launching a new product or raising capital.

But a business plan should be much more than a document to impress outsiders! Used properly, it is a catalyst for creative thinking and hence a vital tool to help you develop a healthy business.

A survey by Shell LiveWire revealed that companies that undertook regular business planning had an average profit margin of 54%. For those that did not, the average was only 35%.

why lenders turn people down

"A plan is also proof – or not – that you fully understand your business and are going into something with your eyes open," says bank manager Aled Morris. He turned down a request for a loan to buy a business for this reason.

The applicant in question had worked as a manager in a shop for two years and now wanted to buy out the owner. "It wasn’t simply that he had no business plan," adds Morris. "I wanted evidence that he had considered all the implications of running the business himself. He thought he could just take over and carry on as before, even though he had no experience of some vital aspects of running a business."

common mistakes

A common mistake when preparing a business plan is building a financial forecast from the top down. People start by saying how much they want to earn, add in the costs, then work out how much they must sell.

Instead you should be thinking: my research shows that the market is this big. If I can sell to 5% of it, I will make this much, and this is how I will persuade that 5% to buy from me.

keep it simple

"A business plan also provides a structured framework to consider even the mundane areas and gauge their impact on your business," says Margaret Bowler of accountants Kidsons Impey.

"However, some businesses become bogged down in vast plans that look at everything in minute detail. These documents end up being ignored because they are too daunting to read – assuming they ever get completed!"

the key to easy plans

The key is to make your plan short, clear and realistic so that you or your management team actually uses it. You can always put any details in an appendix for reference when needed. As to content, most banks offer good free guides to preparing a business plan; some even offer free software to make it easier.

The recipe for success is to map where the business is now, where you want it to be and how you will get there, onto one page. It’s easy if you know how.

the simplest business plan in the world

Take a sheet of A4 paper and divide it into four boxes. In each box, in bullet form, outline the information below:

1. where you stand now as far as any particular project is concerned in terms of, say, employees, customer profile, media profile, turnover, profit, employees and so on
2. where you want to be by a specific date
3. what needs to be done to get you where you want to be, covering every aspect of your business, from hiring people and improving your PR profile to investing in technology or training
4. the to-do lists based on these strategies: who will do what, by when?

A good plan with short- and long-term goals helps you aim for the bull’s-eye. If you know where it is, you have a chance of hitting it. Otherwise, you are just shooting in the dark.

This article was first published by Better Business magazine, which offers practical proven ideas to help owner-managers transform their business, and have more fun doing it. Every issue is packed with down-to-earth tips, in-depth guides and inspiring case studies. Visit their website by clicking here.