There are very few finance companies that are willing to take on the risks associated with start-up businesses, and certainly most banks would rather wait until you’ve got a few years under your belt before they’re willing to consider lending you any money. So how do you go about showing you’re a good bet? It all starts with a plan.
Although I’ve never seen a business plan to fail, I’ve seen plenty that fail to plan (and there’s an old saying that those two things are pretty much the same). A good business plan can make all the difference between obtaining finance and not, but much more importantly a good business plan can be the foundation stone of turning your entrepreneurial dreams into reality. So where do you start?
Firstly, talk to your Franchisor or business advisor and find out whether they have a template you can use. There’s no sense putting all your effort into starting from scratch when what you really need to be interested in is the content. To help get you started I’ve also included a link to a simple business plan template at the end of this article.
Involve others – Don’t fear criticism, it will help you hold yourself to account. If you already have a team or key people involve them heavily in the planning process, from that first cup of coffee where you talk about the idea to the final draft. Not only will you gain useful insights, but you’ll gain commitment and set yourself up for a future where everyone feels responsible for delivering the planned outcomes.
Be realistic – I can’t stress this one enough, in all aspects of your plan you should be realistic. Include contingences (what if’s). What if it takes much longer to get started than you planned? What if your competitor gets to market first? What if you get sick or injured? Don’t just rely on everything going well. Lenders particularly see straight through overly optimistic plans and forecasts.
Keep it simple – Don’t fall into the trap of using technical jargon or itemising every paperclip in your expenses. Set out where you’ve come from (personally and as a business), what is the ownership structure, what products and services you will provide and who will buy them. How are you different from your competitors, and how will you get from where you are now to where you need to go.
Know your customers – Give some insights into the market you serve. What does your typical customer look like? How many do you need? And how big is the pond you’re fishing in? How will you grow your customer base? Explain how your products fit and attract your target market.
No business exists in a vacuum – Be realistic about who your competitors are but take some time to explain why you’re different. Competitors might be direct and indirect. If your business sells sushi rolls and the business next door sells sandwiches then you’re still competitors. You might also benefit from being so close together, for example you might both attract the lunch crowd.
People matter – Provide some insights into your key people or management structure. What experience do people bring and what is their role in the business? How many staff do you need, and have you been realistic about their costs? Don’t forget to pay yourself! If the business will be your only source of income you should include your own costs in your business plan and be realistic about what the business should pay to you, both in start-up phase and once established.
What SWOT? – Some years ago I presented a SWOT as part of a business plan. Somebody asked me Isn’t that a bit old fashioned? Maybe, but I still haven’t found a more succinct method of setting out and focussing on your Strengths, Weaknesses, Opportunities and Threats. Perhaps most importantly I find that once you start categorising things in that way it causes you to be quite real with yourself and to test and challenge the things you think you know. Sometimes ‘Opportunities’ seems like the hardest part to get started, but don’t ignore it! Once you start thinking about all the ways you can establish, grow and improve upon your business it can be hard to stop. If you do nothing else in your plan, do a good SWOT! Actually, please don’t just do a SWOT, at least do a SWOT and a good Financial Forecast. Those two things alone can help set you up for success.
I’ve never met a forecast I didn’t like – It’s a bit of a running joke for anyone that’s seen a lot of financial forecasts, they very rarely forecast doom and gloom but will often have what we call a ‘ski-jump’ trajectory, where things start off ok, then some magic happens, and suddenly revenue and profit reach for the stars. Sometimes that does happen, but honestly it’s rare and it’s also probably not preferred. Instead, what financiers (and investors) want to see are realistic numbers, well thought out, with a contingency around key aspects such as customer numbers and revenue.
You should provide at least two years of financial forecasts with at least a Profit & Loss Statement and a Cashflow Forecast. For many, the Cashflow Forecast is an afterthought but it is perhaps the most important of all of the financial forecasts. Businesses might forecast and expect a loss in their first year, but typically when you run out of cash it’s game over.
Make sure your forecasts align to your business plan, and that your assumptions around expenses make as much sense as those made for revenue. It’s amazing how many plans forget that as you grow you’ll often need to add staff, or increase software costs, or move into bigger premises, or all of these things and more.
And that’s it (almost) – Once you’ve prepared your plan, reviewed your plan, shared your plan, tweaked your plan, it’s time to work the plan. Don’t just pop it in the drawer. You should be looking at the key aspects of your plan every month, reviewing how you’re traveling in more detail every quarter, and revising your plan every year. Your business plan is now a living and evolving roadmap to your continued success.
You can find Business Plan and SWOT Templates on our website here