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Are start-up business plans a total waste of time?

April 30, 2014 by Mark Williams

Are start-up business plans a total waste of time?/ Business plan over financial charts{{}}A recent survey carried out by business software provider Exact suggests that more than a third of the UK’s 4.9m SMEs don't have a business plan and “they could be missing out on an extra 20% of profit as a result”.

Of the 34% of respondents who didn’t have a business plan, 68% said they didn't see the need for one, while 23% were "too busy" to prepare one, 8% “didn't have anyone to help them” and 5% “weren't comfortable with numbers”. Should we be surprised by these findings and are business plans as key as some start-up experts would have you believe?

Waste of time

In fact, some experts would tell you that start-up business plans aren’t worth the paper they’re written on. Last year, author Paul B Brown wrote a piece for Forbes.com called Why Business Plans Are A Waste Of Time. He’d come up with the idea for a new book that sought to offer insight from the original business plans of highly successful US entrepreneurs.

But there was a problem. As Brown explains: “Most of the business plans had nothing to do with what the businesses eventually became. People who said they were going to specialize in developing new computer hardware ended up in software, for example. In a surprisingly high number of cases, what was in the business plan ended up having very little to do with what the company ultimately became.”   

After writing about entrepreneurs for more than 30 years, Brown believes that creating a “painfully detailed business plan really doesn’t make much sense. The first time you encounter something you didn’t expect, the plan goes out the window. Things never go exactly the way you anticipate.”

Business plan myth

A few years ago, (“former banker, small-business investor and veteran entrepreneur”) Kate Lister wrote a piece for Entrepreneur.com called Myth of the Business Plan. She highlighted research from Babson College (“regarded as having one of the top entrepreneurship programs in the country”), which found “no statistical correlation between a startup's ultimate revenue or net income and the supposedly requisite written business plan”.

The study found that: “"Some of the heroes of today's would-be entrepreneurs, such as Steve Jobs, Bill Gates and Michael Dell, did not have business plans when they embarked on ventures that changed the world”.

Lister said she was “all for having a business plan in the verb sense. I'm just not a big believer in the noun form”. She continued: “Writing a formal business plan invites the paralysis of analysis. It distracts the entrepreneur from slaying dragons and thinking big thoughts. And it's largely a waste of time. The result usually is a long-winded missive that's out of date almost the moment the ink dries. Great business plans may earn you an A in business school, but in real life you only get A’s for achievement. So stop dotting your i’s and crossing your t's and go out there and slay something.”

Success Plan

Andy Fox is the founder of “award-winning independent car service and repair specialist” iAutoUK. Recently, he wrote an article for the Huffington Post called “Why You Don't Need a 40-Page Business Plan to Launch a Successful Company” (sic).

“I've never had a business plan,” he admits. “Despite this, in three years my company has reached a turnover of over £1m, with £100,000 annual profits. For your business to thrive you instead need a 'Success Plan'. This is an evolving strategy consisting of three elements. No 40-page business plan needed. In fact, you can write a Success Plan on one sheet of A4.

“Firstly, you must understand your market place and how your business is distinct from competitors. Secondly, the Success Plan must have 'Leader’s Objectives' and you must communicate them to your staff. The final element is to make sure you make money! You must have a system that provides you with daily earnings information, and which can monitor cash in the bank and in the pipeline.

“Such a Success Plan is a short, relevant, real-world document. I believe a Success Plan is more appropriate than a traditional business plan.” Dryly he adds: “Look at companies such as Comet, Blockbusters and Jessops. I'm sure their business plans didn't include going into administration! Had they had a Success Plan, perhaps their futures may have been different.”

Further reading

How to raise money for your small business in a tough economy

October 05, 2012 by John Davis

How to raise money for your small business in a tough economy/man with empty pockets{{}}Recession continues to provide the backdrop for the UK economy, directly impacting the financial health of small businesses. Research shows that small businesses are more in debt now than at any time since the late 1990s. Those with a turnover of up to £1 million now owe around £1.60 for every £1 of turnover, compared with £1.17 debt per £1 of turnover ten years ago. Furthermore, the most recent figures from the Bank of England show that in the three months to May 2012, the total lending stock shrank by £3bn.

The credit crunch and recession has made securing finance tougher for small businesses, but that doesn’t mean that raising money is impossible. Banks, investors and business angels are always open to the suggestion of backing well-run businesses with a strong sense of direction and good management team.

How to prepare for funding success:

  • Write a well-constructed, comprehensive business plan. Begin by formulating your objectives clearly in your mind, and then translate them into a document that will engage investors.
  • Prepare realistic financial projections. The three most important measures potential lenders will want to discuss are: profit and loss statement, cash flow forecast and balance sheet.
  • Maintain a healthy credit score to achieve low interest rates on any loans that you successfully secure. Be savvy with your budget and do not extend credit terms to customers unless you are confident they can pay your invoices on time.

Funding options to consider:

  • Form strategic partnerships – be creative and look for business partners. Forging mutually beneficial relationships can open lots of doors and requires little or no funding.
  • Join the information superhighway – the internet has become the fastest and most efficient means by which a new business owner can research funding options and eligibility criteria.
  • Investigate equity financing – selling a share of ownership of your business to a venture capitalist or angel investor. A good option if you are seeking a loan that can be re-paid over time as your venture becomes profitable, but not suitable if you aren’t prepared to lose autonomy over your business.
  • Turn to friends and family – one option to raise capital quickly and without lots of red tape, although be prepared for the interested parties to desire input in every company decision!

The overall message to take away is this: whether you’re looking to acquire additional capital or fund the launch of a new company, do not give up! Achieving investment requires a little creativity and a lot of perseverance and determination, so set realistic goals and be prepared to explore several options.  

BCSG creates, distributes and supports value adding products and services to small businesses through financial institutions.

Plan properly to avoid pitfalls and potholes

October 04, 2010 by Emma Wimhurst

Would you ever consider setting off on a long, unfamiliar journey without your SatNav or road map and only a dribble of fuel in your tank? 

You might make good progress for a while, but before too long the roads will narrow, your fuel gauge will hit zero and your mobile will show no signal. HELP! Oh, if only you’d bothered to plan ahead!

Funnily enough, business planning is just like going on a journey. You know your destination, that fine place called Success. But knowing where you want to end up isn’t enough because you need to plan your route, too. And you must be vigilant, watch out for obstacles and steer clear of roadworks – not to mention bad weather and mile-long traffic jams.

If you’re serious about starting a business, you need to be serious about planning. You must focus on your ultimate goal – fabulous success – and determine your route towards it. This ranges from the grand plan right down to what might seem like insignificant details. If you plan for all eventualities – however small – you’ll know exactly how to deal with them when they, inevitably, crop up.

I took this approach in starting and running Diva Cosmetics and it quickly brought me success and wealth. Now, having moved on, I feel that passing on my knowledge called Seven Business Disciplines to budding entrepreneurs like you will bring you success. If strategic planning (my first discipline) is about visualising your destination, then business planning (discipline two) is how to plan your route to get there.

Let’s look at planning basics. What is a business plan? In a printed form, it’s a surprisingly slim document. Only 25 or 30 pages with a front cover carrying the business name and logo. Inside, the business idea is thoroughly investigated and includes supporting facts, figures and research. The writing style is easily readable within bite-sized paragraphs and technical jargon and waffle are banned. Titles and headings are concise with the overall structure being simple, focussed and well-organised and there are, of course, no errors (whether spellings, grammar or figures).

If the thought of sorting out your business planning sounds daunting, long-drawn out and too demanding of your scarce time, you should take comfort in the fact that this initial burst of effort will pay real dividends. This one document – and all the research that you’ll need to carry out for it – will help you decide whether or not the idea will fly. It will signal your chances of success and how to go about achieving it.

What are the key elements you need to include?

  1. The Business Background
  2. The Product/Service
  3. The Market
  4. Marketing/Sales Strategy
  5. Regulatory
  6. Risks
  7. Financials

Once you’ve dealt with these elements you’ll be in a position to write an executive summary, a two-page summing up of your start-up. It should be convincing enough to excite potential investors, as well as boost your own confidence. Although this is written last, your summary should be at the front of the plan, where it needs to pack a powerfully persuasive punch.

When you’ve finished that first draft, you need to step away from the process. Return to it a couple of weeks later and read it several times. Make notes, gather more data and rework parts that don’t read well. Double check your facts, especially your figures, because they need to stack up and be impressive. Make sure the tone of the document shouts the right message. Does it ignite your passion? If not, revisit the words you’ve used and choose more dynamic, proactive, positive language.

Ask a business colleague, mentor or supporter to review it. This must be someone you trust, who has good judgement, knows you professionally and has an insight into your industry. Ask them to be honest and use their comments to hone what you’ve already done. After all that hard work, don’t allow it to languish on your desk. Instead, actively use your plan for reference, it will help you make good business decisions, take fewer risks and keep customers in the front of your mind.

At Diva Cosmetics, right from start-up, I updated my business plan regularly and used it to keep ahead of the competition. By focussing on the business, I was able to make decisions about staff requirements, how to expand the team and in what areas. I was able to review costs, check suppliers and understand the implications on the business should anything go wrong. I would undertake a full competitive review each year and adapt the marketing strategy on the basis of it.

My advice to you is to make your business plan a “living” document that evolves and adapts as you progress on your journey.  Remember that planning is a necessity and if you want success you can’t afford to ignore it. So, I hope your journey into business is a smooth one – no collapsed drains or muddy old tractors up ahead for you – and do make sure you check your fuel gauge!

Emma Wimhurst is a motivational business speaker, mentor and author

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Five tips on how to make the most of a business break

August 17, 2010 by Emma Jones

When you start and grow a business, you’re involved each day in the detail of running the business; perfecting customer service, ensuring positive cashflow, making new products and so on. This is all good and right but to plan for business growth, it’s important to step away from day-to-day affairs and take a good look at the business from a distance.

Years ago someone told me the story of a successful business owner who, once a year, would pack his bags, leave the family home, and head off to spend a week alone with the business plan. I’ve emulated this ever since and every year I think it’s time well spent. Freshly back from this year’s break, here are my five tips on how you can reap rewards from taking a business break.  

1 Head to a place that stimulates the senses

This place doesn’t have to be far from home but it’s important you travel to it as the journey itself gives a sense of separation. As the car drives away/train pulls out/plane takes off, you positively feel yourself moving farther from the detail of the business and heading towards a space and place that will help you focus on ‘the bigger picture.’ Ideally, choose a place with dramatic scenery; open seas, rolling hills, tall skyscrapers; essentially you’re looking for a landscape that’s different to the one you’re used to as this will stimulate the imagination and create the perfect setting for planning.

2 Get settled

You’re in the setting and a new place, get yourself accustomed to it; take a walk, have a drink, allow your mind to wander and people watch! Feel yourself starting to relax? Good. You’re in the right frame of mind to start planning!  

3 Ask yourself two questions

How has the business performed over the past six months/year and where do you want to take the business in the next six to 12 months. Write down your thoughts... on napkins... in a notebook... on your phone... whatever is closest to hand. Be ambitious in your goals and make the most of being in a place that’s encouraging you to plan for your dream business.

4 Don’t rush it

It’s likely you will come up with a new idea for the business in a ‘eureka’ moment of "Ah! Why didn’t I think of that before!" – allow time for this moment to come. You’ve certainly created the right conditions for innovation as your brain is finely tuned on the business and not distracted by detail.

5 And now for action

Possibly the most important point of all. Take your notes, head home, and get started on turning plans into reality!  

Business breaks don’t have to be a full week or far away. What’s important is to place yourself in conducive surroundings. I do this alone, as did the man I emulate, but you may choose to go with a business partner or friend so you can vocalise your thoughts. Go with what works for you and know that taking time out may seem like an extravagance, but it will pay dividends.

Emma Jones is founder of Enterprise Nation, a business expert, and author of ‘Spare Room Start Up’ and ‘Working 5 to 9’

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What your bank will want to see when you apply for a loan

July 22, 2010 by Rob Warlow

To help banks assess whether you’re a good risk when you apply for a loan, they will give you a shopping list of required information. Failure to oblige with the right information can lead to months of delay in getting an answer. So what will your bank want to see?

1 Business plan

In the relatively short space of time you have with the representative of you bank, it’s impossible to effectively convey every aspect and nuance of your business. A business plan can do that. It’s is a ‘convincer’ for the bank and a control and check for you. A plan can highlight flaws in your business idea and potentially save you from making an expensive mistake.

2 Financial statements

Bankers love numbers. Your annual financial statements may not mean much to you, but to the bank they offer a wealth of important information. Don’t apply for finance if your financial statements are out of date. Going to the bank any time greater than three months after your financial year-end without your accounts will simply result in the bank telling you to get them done.

3 Management figures

You may have your financial statements produced within three months of your year-end, but it’s still three months of trading since you closed your books and a lot can happen in that time. The bank will want to see management figures.

The format doesn’t have to be complex; it can be as simple as an Excel spread sheet to accountant-prepared figures. You can also get accounting software that easily prepares monthly figures for you, so there’s no excuse for not having up-to-date figures on business performance.

4 Profit and loss and cashflow projections

Your projections are your view of where you think your business is going to be financially in one, two and three years’ time.

The bank will want to see to prove your business can afford to pay back the loan or overdraft facility. They can also be used as a tool to monitor future performance against your estimates. And by preparing forecasts, you will be forced to think through your numbers first.

Preparing financial forecasts can be daunting, especially if you have never done them before, so seek help, perhaps from an accountant, if necessary.

5 Personal financial statements

Increasingly, banks are taking a greater interest in business owners’ personal financial position. Banks have realised that many business owners have raided savings and ‘maxed out’ on personal overdrafts and credit cards to keep their businesses going.

Banks will ask you to complete a personal monthly income and expenditure report and an assets and liabilities statement, which will give them an immediate overview of your financial position.

6 The list could go on

Each lending request will be treated differently and may lead to your bank requesting more information than I’ve outlined above, but this provides a good introduction.

Rob Warlow helps business owner’s deal with their banks to obtain funding or assist in re-building damaged client-banker relationships. He has written a book called ‘Loan Sharp: Get the Business Finance You Deserve’ which is available via Amazon or on his website.

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Five things start-ups should know

June 10, 2010 by Sally Pritchett

My business, Something Big, works with a large number of start-ups and established businesses. We help them to focus their marketing efforts with the aim of achieving growth. Often, I draw on my own experiences, of course, gained while running our business for ten years. I’m also able to draw upon seeing how other clients get over the hurdles they face. Here are the five key start-up lessons, marketing and otherwise, I’ve learnt.

1 Have a plan

It’s an obvious one and something everyone will advise, however, you’d be surprised at how many businesses have come to me in the past ten years with a list of marketing “ideas” yet no idea of budget or likely return on investment.

Your marketing plan doesn’t need to be ‘War and Peace’, but it should contain: a detailed description of the service/product you’re offering; a profile of your target customers; and a broad set of activities that will enable you to communicate with them.

2 Sweat before you spend

In the early stages it’s easy to get excited and run down to the local agency to brief the designers on your new flashy logo, business cards, website and launch campaign, but before you dash out the door, I urge you to sweat a bit first.

By this I mean make those uncomfortable cold calls; knock on a few doors; trawl the net signing up to every free online directory; make the most of social media and bring in some business before you spend your valuable start-up budget. All of the above will help you decide how to position your business better anyway, as well as pay the designers.

3 Don’t give up your day job too soon

Many people, as I did, leave their jobs in large companies to start new ventures, which is a good plan, but don’t resign too early. In those precious early stages of your business it’s great to know you can still afford to pay the mortgage. You may feel that doing a day job holds you back from getting on with your new business, so make use of your time, whether it’s getting up half an hour earlier to do some online research, making five targeted telephone calls during your lunch hour or banning yourself from TV a few nights a week. If you have the focus and determination, you can do a lot of business planning while holding down your day job.

4 Take good advice and listen to it

This has been one of the keys to unlocking the success of my business. I might be an expert at what I do, but that’s design, marketing and print, not being a financial director, HR manager, landlord, business strategist or any of the other hats I must wear everyday. I take the “ask an expert” option everywhere I can and 99 per cent of the time it gives me an approach I wouldn’t have otherwise taken. Seek advice from people with the necessary knowledge and experience and listen to them carefully.

5 Work “on” the business as well as “in” it

This is one of the golden rules that is usually hardest to achieve. It’s easy to get stuck into the day-to-day of running your business, because that’s what your job is, but in a small business, you’re also responsible for keeping an eye on the future and that means knowing what your competitors are doing, knowing what market trend is about to hit you where it hurts and being at the forefront of your sector, so stick your head out now and again. Good luck.

Sally Pritchett of Something Big

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Should you start up as a sole trader or form a limited company?

April 26, 2010 by Raphael Coman

If you’re thinking about starting up, you must carefully consider whether to form a limited company straight away or hold off for a while and become a sole trader. 

You may think forming a limited company will save you tax and must therefore be the best route.  However, many start-ups incur considerable costs in their initial months. And even if you do not have sizeable initial outgoings, you should still factor in a realistic margin for error in your budgeting. 

You will more than likely have a “learning curve cost” if this is your first time in business or if you’re going to be operating within a sector of which you have no prior experience. In either case, you should not expect the same return straight away as your more experienced competitors. 

If you make a loss as a sole trader, it can be set against your employment income for previous years, which in all likelihood will give you a handy refund after the first tax year. If you make a loss as a limited company, it can only be carried forward and set against future the company’s profits.  If the company never makes a profit, it will be wasted.

Even if you’re more confident that your business plan will be a success, you may still profit from waiting until you form a company. As a sole trader, you can build up custom, contacts, brand awareness and reputation in the business. From a tax point of view, this goodwill can be sold to the company. Future drawings from the company can be taken in the form of a director’s loan repayment, which will be especially beneficial if you expect to be paying tax at a higher rate.

You can set up as a sole trader by simply telephoning HMRC or registering online, whereas the route for a company formation is more complex.  Ongoing accountancy costs are bound to be higher and Companies House will publish your company’s financial results for anyone to see – including your competitors, suppliers and potential clients.

Yes, if your salary and dividends are organised properly, a company can save you considerable tax. It can also limit your liability to company debts. But the decision is not so straightforward. If you want to protect your trading name, you can always form the company and leave it dormant at Companies House until you are ready to start trading.

A limited company can save you tax in certain situations, but it is not always the best way to start out. A brief review of the options with your accountant could save you time and money in the long run.

Raphael Coman is the owner-manager of chartered certified accountants Coman & Co

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Money, money, money

March 08, 2010 by Marcela Flores Newburn

I developed a business idea which I know is a strong, feasible proposition but, with only having normal jobs, no mummy or daddy to hand me large amounts of cash and no major savings in the bank, I knew that I would need external funds to realise the plan.

Back in March I decided to learn how to be “investment ready” so that my business could grow with the support of some external investment from a bank, Business Angel, private investor or venture capitalist. I went to some excellent courses run by Connect Midlands to understand the process of writing a good, solid business plan and understand the business from an investor’s perspective.

It took me a good eight months to write that business plan with a convincing proposition and a solid set of numbers to show investors. It seems like a long time, but I needed to:

  • prove my market
  • write realistic figures, but keep them ambitious to make it interesting
  • learn the jargon

I went to the bank. Here are the lessons I learned:

  • raising funds is a tricky business, even with a solid proposition and plenty of passion to make things happen.
  • it’s close to impossible to borrow money from the bank if you are not prepared to secure the investment from assets, such as your own house.

I know everyone is talking about banks not lending but I must admit I was sceptical to believe this, as I fiercely believe that entrepreneurship is vital for the recovery of the economy and it should be supported by the banks.

As a consequence, entrepreneurs have the option of turning to investors/business angels. These investors receive many plans to review. I have now sent my plan to the Growth Investment Network (East Midlands) who have a range of investors in their network. I sent the plan as soon as I felt it was ready and I have to be open to feedback even if it’s hard to take. Fingers crossed.

I have to keep trying, and persevering, believing and visualising that I will be successful in raising the funds I need.

You can find out more about Marcela on the new interactive business website www.inafishbowl.com

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Perfect business plans

November 06, 2009 by Alison Knocker

If you have an idea for a business and want to progress it, you are probably thinking in earnest about your business plan. If you are looking for outside finance, you are no doubt keen that the business plan will be a great marketing tool for your idea to banks or other investors.

Years ago, when private equity was still called venture capital, I was involved in funding start-ups. I would look through countless business plans, trying to sort the ‘possible’ from the ‘dream-on’ varieties, with a view to investing in the best. Some plans were back-of-the-envelope affairs, with enthusiasm but no financial viability analysis; some described in depth inventive products, but showed no realism with regard to cost of production; others assumed world domination in a few months.

But what really put me off was the business plan that plainly had been written by someone other than the people who were going to make the idea happen. However slick the document, with every possible detail carefully analysed in beautiful spreadsheets, if the words do not reflect the essence of the entrepreneur – his enthusiasm, her conviction the idea will succeed, their commitment to the project – then the proposal will lack that essential ingredient that is the reason for making an investment. The basis of our decisions was mimicry of estate agents’ ‘location, location, location’ replacing the key word with ‘management’. Yes, of course we wanted to see that the projections made sense, and that the amount of investment required was adequate and would be wisely spent; that there was indeed a market for the product or service, and that it would be sold appropriately. But the key was always: is this the right person to make the proposed business succeed?

So if you do use professionals to help compile your business plan, make sure that the final result is imbued with your DNA, and that it convinces the reader why you are the one to turn the plan into the success you describe.

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5 powerful questions to help you describe what you do

October 21, 2009 by Sonja Jefferson

"So, what do you do then?"

If someone asks you to describe what your new business does, what do you say?

For many, this is not as easy as it sounds. Whether it's for your business plan, on your website or in person, you need a clear, compelling description. You need to get your idea across in a way that will really get the attention of potential clients.

Here are 5 crucial questions to help you communicate what you do in a way that people understand, and act on:

  1. Talk about your CUSTOMERS: who do you work for? What kind of people benefit from your services? Where are they based?
  2. Talk about the PROBLEMS YOU SOLVE: what kind of issues, opportunities or challenges do you help with? Why are these so important to your target customers? When should a potential client pick up the phone to your company?
  3. Briefly describe your SERVICES: how do you help? What kind of services or products do you offer? What's your process?
  4. BENEFITS: what kind of results or outcome can they expect from working with you? Prove this with case studies and testimonials.
  5. Explain your MISSION: What's the story? Why are you in business? What difference have you set out to make to your customers?

Whether you’re writing your business plan, web content or describing what you do in person, remember to answer these five questions. Don’t just talk about your products and services. Tell your customers how you solve problems for people just like them

When they ask you what you do, this is what they really want to hear.

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The Franchise Business Plan

October 05, 2009 by Alan Gleeson

Business planning is very important for all businesses, and franchise businesses are no different. The business planning process helps ensure that sufficient thought is put into all aspects of the franchise. While it is tempting to assume that because a franchise is based on a successful, proven business model, it is guaranteed to deliver results once you are up and running, the reality is very different. All businesses need a business plan, developed to reflect their unique circumstances and to help them succeed, regardless of whether they are a franchise business or not. A business needs to have a plan with specific objectives, milestones, responsibilities and the like.

All business plans are different

The content of a business plan is shaped by its purpose. So if the intention is to use a business plan to raise finance, then the plan’s composition will vary from one being used predominantly to decide internal priorities, to allocate resources effectively, or to manage cash flow. Typical uses of business plans in the franchise context include:

  • Prospective franchisees looking for investment.
  • Franchisors looking for a business plan as part of the franchise sign up process.
  • Franchisees using a business plan to manage their business.

So depending on which of the above three business planning events is of most relevance, the content will vary slightly.

What are the key elements of a franchise business plan?

One of the benefits of franchising is that some of the challenges associated with a conventional new business are removed such as decisions regarding product, pricing, branding, marketing collateral, signage, etc. In essence you are acquiring a number of intangible elements which, in theory, should serve to help you reduce your business risk.

However, having these several elements optimised in advance in no way guarantees success. While these elements will help you in terms of brand awareness and will help ensure you have a compelling marketing mix, they still only represent a part of the overall picture.

If you are looking to raise finance, prospective investors will be keen to understand more about the management team, their investment, and also the cash generation prospects. Those franchisees using a business plan to manage their business will be more interested in the creation of a strong marketing plan as well as sales forecasts.

Ultimately it’s about an ability to generate cash

A business relies on its ability to generate cash flow at a satisfactory level so as to prosper. Hence the emphasis many franchise owners place on cash flow generation, sales forecasting, and marketing plans when writing a business plan. The bottom line is that you will need to run a successful business, and this means attracting paying customers in sufficient numbers to generate a return on your investment. Naturally you will be able to receive some support from the franchisor as part of the franchise package. They should also be able to provide access to demographic information to help you with your analysis.

Many franchises are allocated on a territorial basis so you’ll need to have a clear feel for some of the following:

  • Demographic profile of the market (or neighbourhood) you will be serving.
  • Existing competition in the area.
  • Traffic/ footfall in the vicinity of the proposed store (if a retail premise).

It will be important to set financial goals and forecast the sales levels necessary to successfully manage your franchise. Franchising has become very popular in recent years, and many franchisors will have access to data which can help determine if there is a profitable market within a proposed territory. It will then be up to you to capitalise on this market opportunity by successfully targeting customers.

You will also need to be aware of local nuances as these can play a role in the success or failure of the operation. For example, when Starbucks® initially launched in Japan it was very keen to cater to local tastes and sensitivities. Recognition of these local factors such as menu make up, local branding, consumer tastes and cup sizes helped shape a unique Starbucks® proposition in Japan. Japan, along with the UK, are now key countries in the Starbucks® worldwide operation.

In summary, business planning is good business practise regardless of whether or not the business is a franchise. Even if the franchisor does not insist on a business plan it is recommended that you apply the key elements of business planning to your franchise to help you ensure its success.

This article was originally published on BPlans.co.uk

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How do I plan effectively in times of change?

June 24, 2009 by Alan Gleeson

In the past few months we have witnessed a period of unprecedented economic turbulence and instability. In this blog I will describe some courses of action that may help to reduce the sense of helplessness businesses are currently experiencing.

1. Stay abreast of economic indicators

The global credit crunch and the increased uncertainty affect almost everyone. These are clearly very difficult times and potential solutions are occupying the minds of economists, bankers and ministers alike. Hence it is important to stay abreast of developments to ensure that management decisions are made in the context of the most up-to-date economic indicators and forecasts.

2. Revisit your business plan

It is perfectly acceptable to revise your business plan more frequently than once a year. If you have not done so for some time, it is worth revisiting it now. Business plans are written with certain assumptions built-in and these assumptions are context sensitive. If your business plan is over 6 months old, then it is likely that you will need to revise revenue figures downwards and costs upwards.  Do this as soon as you can, and revisit key indicators such as current cash burn rates, debtor days etc.  An up-to-date business plan can help ensure everyone is aligned towards the strategic goal of the company; ensure the cash flow is monitored and that the impact of changing assumptions is reflected in the numbers.

3. Review current projects and plans

Most businesses have a number of projects and initiatives on the go at any one time. These projects will consume resources over a number of months and years, and will typically involvement investment of time, people and money. The end goal of the completed project will often be designed to help your company generate additional revenue streams or to protect current streams. Again projects that have been planned over 6 months ago, and that take a number of months to complete should be reappraised. It may be more appropriate to defer projects or put them on hold until the economic conditions are more favourable or until the level of perceived risk and uncertainty declines. Any new contracts with third parties need to have additional safe guards built-in. For example, if exchange rates move outside certain agreed bands, it would trigger a renegotiation of the terms or an option to break the agreement etc

4. Communicate Effectively

It is not just management that feel the pinch when economic conditions deteriorate. It is likely some employees may be saddled with credit card debt, or may be sitting on properties with negative equity and may be worried about their futures. Management need to ensure their employees are aware of issues with implications for them. It is also important that employees are fully aware of the wider context so that any legitimate change initiatives designed to reduce costs are accepted rather than resisted.

5. Consider outsourcing some activities

In most industries it is possible to outsource non-core activities. There are many pro’s and con’s for outsourcing, however, if cash flows are under pressure, the inherent flexibility of outsourcing may be more appropriate until economic conditions improve.

6. Assess exposure to known risks and dependencies

In times of uncertainty it is important to step back and identify risks and to appraise key relationships. Is the company over-reliant on one particular company or industry? While this reliance may have been fine in periods of economic growth, it is important to recognise that a dependency on one supplier or customer dramatically increases the risk. Any vulnerability in one particular industry sector can lead to knock-on effects in the most unexpected of places (as well as in the more obvious areas). A diversification strategy can help to mitigate against an over-reliance on one supplier or customer.

7. Consider Scenarios

The importance of scenario planning grows when uncertainty increases. Scenario planning consists of management considering a range of plausible future outcomes ranging from a ‘small stretch of the imagination’ to the ‘outlandish’. The aim is to think through the implications for the company if certain scenarios came into effect. So for example what would happen if sales decline by 20% or if oil doubled in price in 2009? By thinking through a number of plausible scenarios, and designing strategies to deal with such eventualities, companies will be better prepared if indeed one of the scenarios does in fact occur.

8. Continue to Innovate

While it may be tempting to ‘tighten up’ it is important to recognise that increased uncertainty also brings opportunity. If competitive brands reduce marketing spend, it may be an opportunity for you to grow brand awareness. Similarly as companies advertise less, rate cards typically drop so it becomes cheaper to communicate with potential customers. Tougher conditions may force you to assess ways to reduce costs across your value chain or to innovate so as to reduce the cost of your product or services.

9. Don’t assume cost cutting is a panacea

Another common reaction to a downturn is to reduce costs through trimming wage bills by making employees redundant and cutting back on marketing activities. While reducing these costs may have a short-term effect on the P&L, they are not without their risks. Redundancies typically have a negative effect on the remaining employees that now feel less secure about their jobs, and are not happy with the extra burden placed on them with a reduced headcount performing the same activities. That said, downturns can legitimately be used to exit serial underperformers.

10. Keep an eye on the cash.

Given the ubiquitous impact of the credit crunch, it is likely that the cash positions of some customers will have deteriorated. If a majority of sales are on credit, it will be necessary to manage Invoices, and accounts receivables (debtors) to ensure that your cash position does not suffer also.  Keep an eye to ensure your ‘debtor’s days’ figure does not creep up i.e. the amount of days on average it takes to get paid for a credit sale. A strong cash position is what you need to aim for.

The increased uncertainty in our environment means that planning for the future has become more difficult. However, it is how we deal with this extra risk will determine how our businesses fare over the coming months and years.

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How can I create a simple business plan

June 18, 2009 by Alan Gleeson

In a world of increasing complexity and one with growing demands on our time, it can be challenging to create a business plan. In recent years, however, there has been a growing trend  in the production of 'simple business plans'.

What is a simple business plan?

A simple business plan is a business plan typically produced by start-ups. You write your business plan as normal but you reduce the breadth of content in certain sections of your business plan.

Why would I write a simple business plan?

Simple business plans are appropriate when there are a lot of unknowns or when you are simply at the idea creation stage. At this point you do not want to invest significant time and resources in a full blown business plan, but are looking to produce a business plan that will enable you to forward it to interested parties for further consideration. Once you have received feedback you can then proceed with a full blown business plan.

What does a simple business plan contain?

The simple business plan contains much of the same content of a standard business plan but certain sections can be put on hold at this point e.g. cash flow statement, balance sheet etc. Sections can be skipped and a greater emphasis can be placed on the idea, the market opportunity, the likely demand, the routes to market etc

What is the point of a simple business plan?

One frequent problem entrepreneurs have is that they can keep ideas ‘in their head‘ rather than commit them to paper (or to a PC). However, ideas are practically worthless when they relate to a product or service in isolation (or without providing a market and commercial context). By producing a simple business plan, the entrepreneur is taking the next step towards their idea reaching fruition.  A simple business plan will ensure that there is a holistic view of the business opportunity and an assessment of whether it is commercially viable or not.

How do I create a simple business plan?

Business Plan Pro has the option of a simple business plan built -in. By selecting the option within Business Plan Pro, the number of tasks you need to undertake is reduced from the number needed to produce a standard business plan.

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