How to do a business plan

If you are new to preparing a business plan, here are some hints and tips. A good plan does not have to be lengthy or elaborate to do the job. What it needs to show above all is clear thinking about your business, and a realistic plan for making money.

This latter point is especially important if you are applying for a loan or some other external finance. In this case you need the plan to work to help convince someone to back you. But even if you don’t have an external audience and the plan is just for you, it can still help you spot mistakes before you make them.

Ten good headings for a business plan

1. Your core activities – what you will actually do.

2 . The particular products or services you are offering.

3. Your target customers.

4. What’s happening in the market, and why you think there’s a gap.

5. How you are going to make a profit (the business model).

6. You current financial position, and how you are going to fund the business.

7. Where you plan to be in the future – say over the next three years.

8. Briefly explain how the practical side of the operation will work.

9. The people involved – yourself and any help you can draw on, their backgrounds and what they will be responsible for.

10. Finally include a SWOT analysis – a brief list of the strengths and weaknesses of your new venture, and the most important opportunities and threats it will face in the outside world.

These suggestions come from Working for Yourself, a free PRIME guide you can download complete from this web site. We adapt the most relevant section below.
 

Chapter 5 Business model and business plan

These two things should not be confused. Your business model is your cunning plan to make money out of your business. It’s the core idea. “Ha, I’ll sell them the razors cheap then make money on the blades”–which is essentially the same business model adopted by ink-jet printer manufacturers.

Your business plan on the other hand is a document describing every important aspect of your business. Long or short, it’s for communicating with other people or working out your ideas.

If you produce an inadequate business plan it just means the reader won’t be impressed. So in the worst case the bank won’t give you a loan or the investor invest. If you have an inadequate business model your firm will fail if you don’t correct it.

Selecting your business model

Finding the right business model therefore comes way out in front in order of importance. The business model is what your business is essentially about and how it makes a profit doing it.

On the plus side, your business model does not have to be unique. There are only a limited number of viable business models out there. If you can come up with a brand new one – or even a new wrinkle on an old one that works well, you deserve to join the hallowed ranks of business pioneers.

Counting the number of different business models in the favoured area of business you intend to go into is a very useful way to start, but it’s not always easy. There may be some crucial variations going on behind the scenes that at first you might not spot.

Hairdressers seem fairly simple. There are shop-based ones and visiting ones – two clearly distinct business models. But some of the shop-based ones – Toni & Guy and Supercuts for instance, are franchise units. This is a different business model because the reputation of the brand is developed collectively by all the linked businesses, and all the franchisees follow the same operating procedures laid down for them by the franchisor. So there are at least three business models in this sector.

At first sight all restaurants have the same business model – prepare food and sell it to people. But there are big differences on the supply side – limited menus cooked by cheap staff or elaborate menus that require the involvement of virtuoso chefs, for example.

And there are huge differences in marketing, with some restaurants dependent on word-of-mouth and the recommendation of food writers, while others rely on their location, tie-ups with hotels, celebrity ownership or a franchised brand to bring in the punters. There are probably at least a dozen different models of how to make a profit in this sector, which is highly competitive and notorious for its high failure rate.

Olderpreneurs invent a new business model
Mike Crisp and partner Sharon Hocking run House Hubbies, a home maintenance business. They fix things for people who in return give them money. Their new wrinkle to this venerable business model is that customers calling House Hubbies can find out what it’s going to cost them in advance. The firm’s well-thought-out pricing structure charges a fixed price for time and is completely transparent about component costs. For customers this is a big step forward over normal industry practice.

Switching business model

Sometimes what appear to be marketing or funding problems are instead indications that you have adopted the wrong business model. If you find yourself unable to attract enough customers or to fund something essential to your business, before pouring more resources into marketing or seeking a way of raising more money you should re-examine your business model.

Maybe you need a different relationship with a key supplier. For example, if you can’t afford the advertising necessary for your venture to succeed and you can’t promote effectively some cheaper way, perhaps you could go in with someone who owns an advertising channel you could then use for free in return for a share of the revenue. This is a change in the business model, not just the marketing.

Maybe the problem is premises costs. Rather than own the nightclub perhaps you should just lease a venue, run your own operation every Thursday or Friday night and put your resources into developing (and protecting) your own nightclub brand.

Note that this change is business model is identical to that made by an aroma therapist switching from operating out of their own premises to hiring a room at a health centre. In both cases they probably reduce cost on premises and acquire new opportunities to promote to their target customers. But their brand may weaken unless they take steps to promote their separate identity in a location now shared with other businesses.

Business model innovation
Barking Mad is a dog kennels – but a dog kennels with a difference. Instead of residing with lots of other dogs in a central facility, the pooches are parked individually in the homes of volunteers. Volunteers get expenses but not a salary – most are older former dog owners who don’t want to commit to a permanent pet. This model has proved franchisable and there are now 56 branches. The USP for customers is “home from home pet holidays”.

Writing a business plan
There is no set way of doing a business plan. What you put in depends on your target readership. It can just be a statement of what your business is about and how you intend to achieve your goals – not much more than a description of your business model in other words. Or it can be pages of detail complete with financial projections and lots of supporting evidence to convince an external audience.

A plan just for yourself is still worth doing but can be much simpler than one for banks or potential investors. Beer mats and envelope backs are likely to be too small to cover all the key issues, but any plan is better than nothing because it will make you think about the future.

But get the balance right between planning and getting on with contacting customers and starting to trade. There is such a thing as planning paralysis, where you endlessly plan and never actually do anything.

Fit you plan to its audience

If your objective is raising money then you will need to provide more detail, particularly on points 5, 6 and 7. Financial institutions basically want to know how you are going to pay the money back, what assets you have got that they could seize if you don’t, and they may also want an analysis of the risk involved.

With equity finance (where investors take a stake in the business) the investors may want to know how and when they can take their money out and cash in their profits.

Banks, loan funds and big investors may well have their own forms, but this checklist will get you thinking along the right lines.

Revising you plan

Planning is really only on a secure footing once you have got some customers. These are the people who can correct your most serious misapprehensions. Don’t rely on banks, investors or experts to do it for you – remember the global finacial meltdown! It’s version two of your plan – made with some customer experience behind you, that’s the real deal.