Expanding Your Business

Creating a business plan

Section 1 - Who You Are

In this section you need to provide some basic details regarding your business.

If you are starting up you will need to choose which legal format your business will take, for example, sole trader, partnership or limited company.

If you are planning to run your business by yourself, being a sole trader is the most common way of starting. If you intend to work together with someone else who is not an employee, then by law such an arrangement is a partnership. You can also choose to operate as a limited liability company which is a separate legal entity in its own right, quite separate from you, the director. A co-operative can be considered to be a specialised type of limited company.

A sole trader can operate under his/her own name and partners can trade under the name of all the partners. If you wish to use a business name you are legally obliged to meet the requirements of the Business Names Act which has implications for stationery, signs and disclosure. Again, taking professional advice is prudent.

Plan Template - Who you are

• Name of business
• Business address
• Postcode
• Telephone
• Fax
• Home address
• Telephone
• Date business commences
• Legal status
• Principal activities

Section 2 - Business Objectives

You need to consider what you want your business to achieve over the short, medium and long term. For example, your short-term objective could be to trade profitably within the next six months.

Your objectives should be Specific, Measurable, Achievable, Realistic and Timely – SMART!

Consider the impact that your various objectives will have on your business, and how you will monitor performance against the objectives set, for example, by producing regular management information. If you plan to expand rapidly you need to consider whether you can recruit sufficient people and whether you have the time to train them.

Plan Template - Business Objectives

What are your short term objectives?

What are your medium term objectives?

What are your long term objectives?

Section 3 - Key Personnel

In this section you should outline the roles, skills and experience you and your key personnel bring to the business. It is important for your business success to have the appropriate blend of knowledge and experience. If, for example, you plan to operate as a sole trader, do you have the skills to complete the books and to understand the financial implications of your business decisions? If not, consider how this deficiency can be overcome, for example, by employing a part-time book-keeper or by maintaining your accounts on a PC by using an accounting software package.

It is often appropriate to attach your management team’s CVs as an appendix to your plan.

Consider the impact on your business of the inability of key personnel to continue working, either permanently or temporarily, and how you might overcome this risk.

Plan Template - Key Personnel

Details of key personnel in the business

Name (1)
Date of birth
Position
Academic/professional qualifications
Experience and knowledge of your industry

Previous employment
Position held
Dates of employment

Salary/drawings

Business expertise/training undertaken

Information on the background of other key personnel should be given on a separate sheet.

Proposed additions to the present management team
Skills required
Position
Proposed sSalary

What contingency plans do you have if you or your key personnel are unable to work through injury or illness?

Total number of employees

Section 4 - Premises

When choosing premises you need to consider:

• Whether to work from home, a shop, an office, a managed workspace or a factory
• The size of your work place and whether it will be sufficient for future requirements
• Location - particularly if you will be relying on passing trade
• Availability of utilities, such as a suitable electrical supply, waste disposal, etc
• Whether to rent or buy freehold
• Insurance, local crime rates and security requirements
• Car parking facilities
• Maintenance and running costs
• Rent and uniform business rates
• Refurbishment costs including telephone, fax, office equipment and furniture

Consider the availability of grants in the area. Whatever premises you choose consider undertaking a survey before you commit yourself.

There are many advantages to working from home. It is convenient, cuts out commuting and reduces travel costs and business overheads. Certain running costs such as telephones may be tax-deductible. Before you start trading check that the clauses in any tenancy agreement or legal title of the property allow it. If in doubt, seek professional advice.

Make sure your house insurance is adequate - it may need to be extended to cover business activities and equipment. You may find you need to take out a separate business policy. The other thing to bear in mind is that if you come to sell your home in the future the part you have claimed business allowances against could attract capital gains tax.

Plan Template - Premises

Describe your business premises, including size, location and state of repair.

Freehold
Value
Mortgage outstanding
Monthly repayment amount
Name of lender

Uniform business rate
Annual amount
When payable

Insurance
Amount of cover
Annual premium
When payable

Are the premises adequate for your future needs? If not what plans do you have?

Any competitive advantage in relation to the premises, its location and your customer base?

Section 5 - Plant, Machinery and Equipment

The purpose of this section is to ensure you review the capital expenditure needs of your business, and whether any additions or changes will be required.

It is important that such items are properly funded to avoid placing pressure on the cashflow of your business. Funds that are tied up in plant and equipment cannot be turned into cash quickly should the need arise.

Consider:

• Do you have the most appropriate equipment to meet your actual needs?
• How will you deal with the upkeep and maintenance? What would be the effect on your business of a breakdown?
• If you plan to make use of PCs are you and your staff adequately trained?
• Beware of the pace of technological change. How will this impact on your choice of capital goods?

Plan Template - Plant Machinery and Equipment

Detail existing plant machinery and equipment.
Replacement date
Finance outstanding
Value

What capital expenditure do you expect during the next 12 months?
Description
Life expectancy
Cost

Section 6 - Products and Services

Based on your research you should have a thorough knowledge of the market-place you will be competing in. This section gives you the opportunity to describe the goods and services you will provide.

Consider:

• What different types or ranges of products or services do you intend to sell?
• What market needs that you have identified will your product or service meet?
• Think about why a customer should buy from you rather than anyone else.
• How will your product or service be positioned in terms of price and quality?
• Who will you buy raw materials, goods or services from and why?
• Remember that the terms of trade you are able to negotiate will affect your cashflow.
• What is your supplier’s reputation for reliability?

Be wary of carrying too much stock in the business as this has a negative impact on your cashflow. Also, unsold stock may perish or simply go out of date.

Plan Template - Products and Services

What are the main products and services offered by your business and what proportion of turnover does each contribute?
Product/service contribution

What markets do they serve?

What is unique about the products and services?

Include any catalogues or promotional brochures within the business plan

What further products or services are being developed?

Who are you key suppliers and what credit terms will they offer you?
Supplier
Days' credit

What are you buying from the suppliers shown above?

Who are the alternatives?

What stock levels are required within your business?
Raw materials
Finished goods at cost

Section 7 - Pricing

Pricing is a key component of your marketing mix.

Do not assume that people will automatically buy from you because you are cheaper. If you chose to price below a competitor you will have to work harder to make the same profit.

When setting your price consider:

• Costs
• Production capacity
• Competitor pricing
• Quality
• What the market is prepared to pay
• If you will offer discounts for cash or prompt payment

Consider what terms of trade or credit terms you intend to offer remembering the impact your decision will have on your cashflow.

Do NOT assume that by offering credit terms of 30 days you will necessarily be paid within this timescale. Find out what is typical in your particular business area, or the time your customers typically take to pay.

If you are offering credit terms ensure you check on the credit worthiness of your customer. You will also need good credit control procedures to ensure you are paid on time. An accounting software package can help in this area.

Plan Template - Pricing

What is the basis for calculating your prices?

How do your prices compare with the competition?
Product/Service
Your price
Competitor price

If you allow credit terms, state the number of days based on the above list of products and services
Product/Service
Days of credit
Credit reference taken

Section 8 - Customers

You will need to undertake market research to help you identify and anticipate the demand for your product or service. It will tell you who your potential customers are, what they want, how much they are prepared to pay and what the competition is charging.

Consider whether the decision-makers are the purchasers, and whether the purchasers are actually the users. Consider why customers would wish to buy from you.

Plan Template - Customers

Who, where and how many potential customers do you have?

What are the strengths of your business that will influence customer decisions to purchase your products and services?

Outline the market research you have undertaken to demonstrate a demand for your product and service

Section 9 - Competition

You will need to fully assess the strengths and weaknesses of your competitors, and consider how you will counteract the former and exploit the latter. Remember to consider competitors in the widest sense, those that are actively competing for the spending power of your customers.

Consider who and where they are and what products and services they offer and the comparative prices. If there is no competition, ask yourself why not?

Plan Template - Competition

Who are your major competitors and where are they based?

What are the strengths and weaknesses of your competitors?

Is the market static, declining, growing, seasonal and why?

Section 10 - Promotion

You will not sell anything to anyone if they do not know about your product or service. To generate sales go out and tell your market about your business. How to do it depends on the size and location of your potential market, your message and the image you want to project.

Remember that first impressions count. Your premises, vehicles and uniform all say something about you. So does your business stationery.

When looking at ways of promoting your business consider:

• Direct mail and leaflet drops
• Advertising
• Exhibitions
• Public relations
• Telesales
• Sales promotion
• Trade shows

Achievement of your forecast sales target will be one of the most critical factors for the success of your business. The most important rule is to be realistic, and err on the side of caution. In many cases you will be offering a product or service that is not totally new or unique, and consumers are notoriously hard to win over.

The better your market research the more accurate your forecast is likely to be.

Plan Template - Promotion

What level of sales do you anticipate?

• In the next six months
• In the following six months
• Details of firm orders current in hand
• Customer amount

How do you intend to promote and sell your products and services?

• Method
• Cost
• Why do you believe that your sales forecasts are realistic?

Section 11 - Financial Information, Existing Business

If you approach a bank or lending institution for finance they will want to gather up-to-date information about you and your business to enable them to make an informed lending decision.

When assessing lending propositions, they will generally wish to satisfy themselves on the following matters.

Personal integrity:

• Your background and reliability
• Training, qualifications and track record
• Your financial resources

Justification for funding - this means:

• How the money will benefit your business
• Whether the demand for your product or service justifies the investment
• The type of finance asked for
• How you have arrived at the amount requested
• How much you have invested in the business

Your ability to repay - it is not in their interest or yours to lend unless they think that you can repay the amount borrowed. They will want to know:

• Where repayment is coming from, for example, from future trading profits or sale of an asset
• Whether the cashflow forecast shows you can make the repayments
• The assumptions in your cashflow forecast
• The level of sales needed to break even and if it is achievable
• How you plan to cope with any setbacks

Security - they will assess the risk of lending to you and decide whether security is required. If it is, it will be as a secondary source of repayment to be called on only in the event that agreed repayments are not made and other alternatives acceptable to you and the lender are not available.

If no business or personal assets are available to take as security and as long as your business is eligible, you may be able to consider finance under the government’s Small Firms Loan Guarantee Scheme.

Plan Template - Financial Information, Existing Businesses

How long have you been trading?

What changes to the business are planned?

What do you hope to achieve as a result of these changes?

Financial information for the last three years
Year Sales Gross profit Margin Net profit Margin%

Attach trading, profit and loss and balance sheets to the business plan where available.

Existing Financial commitments
Overdraft
Loan
Hire purchase
Leases
Other financial commitments
Total financial commitments

Give details of any borrowed monies repaid during the last 3 years

Section 12 - Financial Information, Start-up

In most cases, the business owner will have a stake in the business at least the equivalent of any lenders' investment.

This could be in the form of cash, property, equipment or goods for sale.

If you have no funds of your own to invest, consider exploring what government grants or other assistance is available. Your local enterprise agency or business link can provide guidance.

If you are aged between 18 and 29 you may be eligible for assistance from the Princes Youth Business Trust.

Plan Template - Financial Information, Start-up

What are your total start-up costs?

What is your contribution?

Section 13 - Financial Projections

Your projected sales figure is critical, and it is essential for your business to produce realistic figures. The better your market research, the more accurate your forecasts are likely to be. Remember that potential customers tend to be polite when asked if they like or would buy your particular product or service, and showing an interest is no guarantee of a sale.

Direct costs are the cost of goods sold and include costs to purchase raw materials and work carried out by sub-contractors. Wages and salaries of employees should be included as overheads because they are indirect costs incurred irrespective of whether the goods are sold.

Your gross profit is calculated by taking the amount you have made, or estimate will be making, from sales and deducting the direct costs.

Your gross profit margin (GPM) is the gross profit figure divided by your sales figure expressed as a percentage.

Overheads represent the fixed costs of your business, that is those costs that remain virtually unaltered whatever the volume of sales you make.

Your business will break even when your gross profit is equal to the fixed costs of the business. If your sales fall below this figure you are making a loss. Above the figure you are making a profit.

It is worthwhile calculating your break even sales on a monthly basis as this is a simple way of monitoring how your business is performing.

Plan Template - Financial Projections

Calculate your annual gross profit
Projected sales
Less direct costs
Purchases
Labour costs
Total direct costs
Gross profit

Calculate your gross profit margin
(Gross profit £0/sales £0) x 100 = %

Calculate your annual projected overheads
Indirect costs
Business salaries
Drawings
Rent
Light/heat
Power
Telephone
Insurance
Maintenance
Advertising
Other expenses
Bank interest/HP leases
Total overheads

Calculate the annual turnover required to break even
(Overheads £0/Gross profit margin 0%) x 100 = £0

Calculate the monthly turnover to break even
Break even sales £0/12 months = £0

Calculate your estimated profit
Projected annual sales
Less break even sales
Profit

Section 14 - Financial Requirements

The purpose of this section is to assess your borrowing needs taking into consideration the requirements indicated in the cashflow forecast.

For some risks such as fire, you can take out suitable insurance policies. Risks associated with late payments can be reduced by adopting good credit control practices.

The impact of rises in interest rates, loss of key personnel and failure to meet projected sales targets are some examples of risks you could consider.

The borrowing requirement should take into account any grants and cash injected into the business by you or your business partners and be based on the maximum borrowing figure on the cashflow forecast.

Plan Template - Financial Requirements

Total borrowing requirement

Amount relating to capital expenditure
(e.g. premises, machinery and equipment)

What assets are available as security?
Value of business assets
Value of personal assets

Total value of assets

Sources of repayment
Net profit generated by the business
Other sources
(sales of assets, cash injections)

Key risk areas

Contingency for key risk areas

Section 15 - Personal Asset Statement

This section is designed to help your lender assess your net worth.

Plan Template - Personal Asset Statement

ASSETS

Property
Value of home
Value of other property

Savings/Insurance
Surrender value of insurance policies
Cash deposits in banks or building soceities
Stocks and shares

Other Assets
Value of car(s)
Other reliable assets

LIABILITIES

Outstanding mortgage
Regular payments
Other outstanding loans

ESTIMATED NET ASSETS

Section 16 - Personal Survival Budget

If you are new to business and coming from full time employment you may need to adjust your life-style and commitments until the business is established and generating sufficient profit. However, there will be various items of expenditure that are unavoidable and this schedule is designed to help you establish the minimum amount of drawings you need to make from the business in order to meet your outgoings.

Plan Template - Personal Survival Budget

ESTIMATED EXPENDITURE
Mortgage/rent
Council tax
Water rates
Utilities
Personal and property insurance
General housekeeping
Telephone
Car tax and insurance
Car running expenses
HP repayments
Hire charges
Subscriptions
Savings plan
Contingencies
Other

ESTIMATED INCOME
Income from family/partner
Other income

TOTAL SURVIVAL INCOME

CURRENT INCOME

Section 17 - Cashflow / notes

Within this section you should comment on:

• Details of capital expenditure and asset disposals shown on the cashflow
• Comments on significant fluctuations between periods

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