Although the UK is one of the easiest places to start a business, many new businesses mistake the simple processes involved in starting a business (such as choosing a business name, registering with HMRC and setting up a bank account) with the day to day realities of making your business a success. Developing a detailed business plan is essential to help you navigate the first weeks and months of your new business, and to set a strategic direction after that. So, what makes a great business plan?
Market Assessment
A business plan should serve as a realistic assessment of your business’ opportunities as much as it should set out a roadmap for its success. Are your customers UK based, across Europe or global? Are you in the business to business space, or will you sell direct to customers? Going into business without a firm understanding of the size, growth and characteristics of your target market is generally a recipe for failure.
Equally, many businesses have failed because founders saw an opportunity but failed to recognise the myriad of competitors who were also responding to that same opportunity. Your business plan should clearly identify your target market, their needs and the competition that is already in place.
Unique Selling Points and Innovation
Your business plan should set out how your product or service will be innovative or unique. In the rare event that your target market is poorly served, this analysis will be fairly straightforward. However, if you plan to compete with other businesses, you need to consider your unique selling points. How can you provide a better product, or how can you provide a similar product faster or cheaper? Simply assuming that your target market will buy your product is not reasonable.
What is Your Growth Strategy
Although many business plans focus on the short term financials, the best business plans place long-term growth above short-term profits. A small business is likely to be more profitable if it can expand its market share, and business owners that plan to extract as much profit as possible out of the business in the early years are unlikely to invest in expanding the business compared to founders with a long-term growth strategy. For example, a distribution business might focus on reducing long-term shipping and ordering costs rather than focussing on short-term revenue.
If your business is aiming to attract early stage investment, a focus on creating value in 5 to 10 years’ time is crucial as most investors have long term investment horizons and are looking for unique growth opportunities in the long run.
Financial Projections
Although long-term thinking is critical, this does not mean you should ignore the financials. Your financial projections should account for a conservative revenue estimate, and should assume reasonable expenses. Although generating a profit is ideal, investors are ultimately concerned with the robustness of the financials. Are your estimates of costs such as professional fees, marketing costs and ordering costs reasonable? Provided that the financials are realistic, if a business plan has long-term opportunity, many investors will be interested even if short term losses are expected.
Key Milestones
Accountability is very important to ensure that investors, staff and any co-founders maintain momentum and continue to have faith in the business. Your business plan should set out some key milestones. Not meeting these does not spell the end of the business; what is important is that some thought has gone into the future, and that there are regular opportunities for everyone to check in and assess progress.
Clarity and Structure
A business plan might be future focussed and assess the market and unique selling points in considerable depth, but if it is not clear and easy to follow, readers (and, in particular, investors) are likely to be put off. Use easy to read language, headings and visuals and consider including an executive summary for those who are short on time.