Preparing a Business Plan is one of the most effective ways of resolving uncertainty, not just for the Directors but also for the other Stakeholders, such as Shareholders and Employees. A clear sense of direction is exactly what everyone expects but this can be difficult to achieve if there’s nothing in writing and no clear understanding of how to prepare a plan in the first place.
A well thought out written Business Plan doesn’t have to be fifty pages long – it could be on just one page but more likely to be on twenty to thirty pages, depending on the amount of time, effort and content that you’re prepared to put in! And then it shouldn’t be just down to the CEO, Chairman or MD to prepare the plan – the top management team at least should be involved and no reason why others shouldn’t be asked to contribute too. Ultimately, it’s for the Directors to produce the plan as they are, after all, responsible for the direction of the company!
The problem is, that many business people get muddled up between mission, vision, strategies, aims and objectives. If your thinking is muddled to start with, then it’s difficult to have clear thinking and understanding and so the objective of this article is to try and explain everything as simply as possible.
In effect, the purpose of the business plan is to figure out “Where you want to be? What needs to be done? How and When?
All these questions are on-going for most business owners but more often than not, they are not written down in any detail, or indeed thought through properly, or even shared. A good beginning would be to start asking the above questions with your top team, preferably away from the business such as an hotel where everyone can focus, think more clearly and strategically, and not be distracted by the day to day problems of running a business.
If for example, selling the business is the ultimate aim of the business owner, then it needs to become “Exit Ready” and part of your Grand Strategy, with the Objectives, Strategies and Action Plans in place to achieve that aim. To sell a business, it needs to be “exit ready”, saleable and preferably at the right value to the to the business owner and other shareholders.
Although I will provide the key components of a business plan, the important thing is to get the key parts of the plan down in writing, listing all the action required. You cannot do this effectively, if the plan remains in your head – unless you want to be the same as the other 97% of business owners, without a plan! Certainly, it’s been proven that the 3% of business owners who so have a written plan, earn more that the other 97% who don’t!
Anyway, moving on, assuming you want to do this properly, let’s look at the key components of a business plan:
Executive Summary
This is basically a summary of the overall plan where any interested party (e.g. stakeholder, shareholder, management team etc.) can gain an immediate view of what’s in the plan, without having to go into all the detail. The Executive Summary will include a summary of Key Financial Figures covering five years: the previous year, the current year and the next three years. The figures should include: sales turnover, gross profit, net profit before tax, profit after tax and balance sheet (net asset value).
Included within the Executive Summary, will be the main objectives of the Company and the major strategies involved in achieving them. Although the Executive Summary is the first item to appear in a business plan, it is the last item to be prepared. Once prepared, you need to make sure that it’s clear and concise, that it summarises the plan properly and check for any omissions.
When selling a business, a potential buyer will be particularly interested in the future prospects, so the Executive Summary (or the plan itself, subject to confidentiality) could become a useful discussion document, helping to provide confidence in proceeding with the sale.
History and Background of the Company
In some respects, this part of the plan is the easiest to produce, as it’s already happened! This is basically an historical account to set the context and the base from which the plan derives.
- When was the Company formed?
- What type of Company is it?
- What products did it sell and to what markets?
- What were its previous strategies?
- What are the Company’s present products and markets?
- Who was involved with the Company?
- Who is currently involved?
- What is the turnover/profit history?
- Management structure.
Once prepared, check that it’s all relevant and understandable. Any buyer for a business is going to be interested in the history and background of the Company, so at least make sure it is well documented.
Grand Strategy (often known as the Vision)
First of all, “Grand Strategy” is used instead of “Vision” as people have “Vision” not Companies. Anyway, only the business owner or CEO can have the “Vision” for the business, which is best described as “the owners dream for the business, tempered by reality – with a commitment to see it happening.” If you are selling the business for your magic figure of £xxx then the Grand Strategy might be to make sure the business becomes more saleable at the right value for when the time comes to sell.
The types of questions to ask are where do you see yourself and your Company in 3 to 5 years? Even 10? (Assuming you’re not selling!). The Vision is intuitive and right brained. Vision keeps moving out, growing, adding to itself as time goes by and the clearer a Vision becomes, so it approaches an Objective. By the time it has become an Objective, it has expanded further and surpassed the Vision.
In a larger business, the Vision could become clearer following a discussion with the top executives or management team or even staff as no Vision or plan will come to fruition, unless understood and actually implemented. Sharing the Vision and creating a culture and organisation whereby feed-back of creativity and visionary thoughts is encouraged from the people within the organisation could be a useful start.
Mission (the Purpose of the business)
The Mission is best described as the “purpose of the business” and should certainly be included within the business plan if available. Mission Statements used to be quite fashionable in the past with the belief that the Mission of the business can help to reassure outside stakeholders that the Company operates and behaves according to acceptable standards or better. They can of course, still be used and from a marketing point of view, may provide a useful understanding to a potential buyer on what the business is all about. Depending on the situation of the Company, the types of questions to ask are:
- What is the purpose of the business and value to your customers?
- What is it famous for?
- Why is the business here?
- What is the business like?
- Where is the business going?
There is a thought that unless your business is solving peoples’ problems or adding massive value to your customers’ lives, then it may not be going very far! Once the Mission has been determined, the key questions to ask are:
- Does it define the Company’s business?
- Does it define the particular part of the industry that the Company will focus on?
- Does it define the type of customer?
- Does it define the type of product, system or service?
- Does it differentiate from the competition?
- Is its uniqueness likely to be copied by the competition?
- Would staff be motivated by it?
- If the name was removed could you identify it?
The Mission should not be developed in isolation, as ideally, the statement needs to be owned by Chief Executive, Management Team and individuals throughout the Company. Those who helped to prepare it, will own it most! The Mission should be kept as short as possible, preferably just one or two sentences and should be reviewed every 12 months.
Critical Success Factors
Critical Success Factors are quite simply what they are i.e. what needs to be done in order for the business to be successful? Typically, they will be 3 to 5 short statements and may cover critical issues facing the business for the next 3 years. If for instance, you wish to sell the business but you have clients responsible for 20% or so of your turnover, you may wish to try avoiding the perception of too much risk for a potential buyer and aim to increase your customer base. Likewise, if the business is totally reliant on you as the business owner, you may wish to start finding ways of strengthening the management team and start delegating responsibilities.
Key questions to ask are:
- What are 3 to 5 issues that must be covered over the next 3 years?
- What are your biggest concerns or fears for this year?
- What should you be doing about them now?
- Are they covered by Objectives, Strategies & Action Plans?
Objectives, Strategies & Action Plans (What & How by Whom & When)
Objectives are the same as Goals and represent a more precise statement of where you want the Company to be in say three years’ time or sooner. In a way, these Objectives are a key part of the Business Plan as without setting Objectives, you cannot implement a Strategy to achieve them. Each Objective needs to be stated Precisely and Completely.
It is best to keep the number of Objectives or Goals to 3 or 4 which should be kept rock steady unless severe circumstances cause their review. Other Objectives may follow on from the main goals.
Each Objective should be relatively easy to define in the area of intentions and should be “SMART”. i.e. Specific, Measurable, Achievable, Realistic and Time-measured. A key question to ask is simply:
- Are they practical?
If the Objectives are not affordable or there’s nothing in place to determine how they’re going to be achieved, then they are unrealistic and without commitment, they will become useless statements. And so this leads us on to the important bit:-
Each Objective should have a Strategy – How are you going to achieve the Objective? In short, Strategies are the methods used to achieve the Objectives. Many Strategies could be used for achieving each Objective so it’s important to choose the right ones, which ideally, should be discussed and agreed with the top team.
Once the chosen Strategies have been agreed, it then becomes necessary to clarify what specific tasks have to be performed by when and by whom? Nothing happens unless actions are taken. Agree what Action is to be taken, by whom, by when & budgeted cost, if appropriate. The key question to answer is:
- What are the action plans needed to be put in place in order to follow through the Strategy to meet the Objectives?
Business Plans need Objectives (WHAT needs to be achieved), Strategies (HOW they are going to be achieved) and Action Plans (by WHOM to achieve and by WHEN).
The business owner or CEO should have an action plan for each of the 3 or 4 major Objectives and should institute a monitoring method for ensuring that they are constantly on track.
Major Issues and SWOT Analysis
Major issues for the Company need to be identified and listed out within the business plan – maybe half a dozen or so key points of what needs to be resolved. Ideally, this section needs to include a SWOT Analysis and I am quite surprised at the number of business owners who aren’t aware of this simple but effective tool.
In my opinion, the SWOT Analysis is the starting point for producing the business plan, and if you have Objectives, Strategies and Action Plans that don’t address at least the most important issues facing the Company, then the Business Plan is likely to be flawed.
Basically, the SWOT Analysis needs to be four main squares, as follows:
| STRENGTHS | WEAKNESSES | |
| (Internal Influences) | ||
| OPPORTUNITIES | THREATS | – – – – – – – – – – – – – – |
| (External Influences) |
Within the boxes, all the appropriate issues need to be identified. Typical subject matter might include Strategy, Structure, Culture, Control Systems, Markets & Competition, People, IT, HR, Finance, Cash, etc. It is worthwhile noting that the two top boxes can be influenced internally within the business e.g. products, services and people, whilst the bottom two boxes are usually influenced externally e.g. by markets, economy and competition. Ideally, any Weaknesses should be addressed by the Strategies, Objectives and Action Plans to try and resolve.
When selling a business, it is important to ensure that as many weaknesses are addressed as possible, well in advance, as it will affect perceived value and saleability.
In addition to the SWOT Analysis, you may wish to consider a PEST Analysis which helps you to understand the macroeconomic environment by looking at Political, Economic, Social & Technological issues facing the business. A PESTLE Analysis is an extension of PEST by including Environmental & Legal issues.
A more recent subject to adopt within a Business Plan is an Environmental, Social & Governance (ESG) policy, which draws all the requirements of running a sustainable and ethical business together.
Major Competitors
The Business Plan should include a section on competitors if possible, outlining who they are and why they are classed as such. Plans can include bench-marking comparisons and a Competitor Analysis could be used.
Marketing
Hopefully, your business will have a Marketing Plan and therefore this section will be a summary of the marketing plan itself, but it must be aligned to the Business Plan and Company Objectives.
For the purpose of the Business Plan, key questions to be covered are:
- What are target markets?
- What are their size?
- Are they growing or shrinking?
- Are you introducing new products/services for existing markets?
- Are you introducing existing products/services for new markets?
- Any new products for new markets? (highest risk)
- A summary of the proposed Marketing investments
- A summary of the Advertising Campaign
N.B. Any marketing opportunities identified in the SWOT analysis may need to be dealt with in detail, within the Marketing Plan.
Financial Projections
This section will be a summary of the financial attachments, which should cover the following:
- Cash flow
- Profit & loss
- Balance sheet
- Key financial ratios
Once the Business Plan has been prepared, it’s important to realise that it might well be the best plan in the world, but nothing will happen unless action is taken. So, following PLANNING, you need to do the DOING! Which is why your Plan needs to be referred to on a week by week basis, updated each year and not just shoved away in a drawer!
Summary
- Make sure the business plan (or at least the key action points) are in writing.
- Be wary about providing any parts of the Business Plan or divulging sensitive information that might be of benefit to competitors.
- After preparing the Business Plan, make sure that Action is taken. “Planning leads to Doing!”
- Refer to the Business Plan on a week by week basis and update each year to make sure you stay on-track.
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