by Terry Cartwright
http://www.diyaccounting.co.uk/
©
2008
Finance companies and banks demand a written business
plan before putting up financial support to a new business. All medium and large
companies inevitably prepare a financial budget for the coming year. That should
tell everyone that not producing a written business plan is the first mistake
everyone starting a new business might make.
Starting a
new business without a proper business plan is akin to taking a blind walk in
the dark without no road or map to follow. It should not come as a surprise to
learn that the majority of new start ups consequently fail within the first two
years dashing the hopes and dreams of many budding entrepreneurs.
The
benefits to an entrepreneur in producing a detailed comprehensive business plan
when some-one is considering starting a new business lie strongly in the thought
process that goes into producing that plan rather than the ultimate plan itself.
New start ups should regard a business plan as a road map to get the show on the
road.
A properly thought out and written business plan for
a small business should contain the details of how the small business is going
to get started. A typical plan might include a short synopsis of the new business
with sections on sales and marketing, operations or production, purchasing, personnel
plus a financial section evaluating those plans and putting real numbers on the
written text.
The short synopsis should briefly describe
the main business and mention each of the main ingredients contained within the
plan to attain the objectives. The rest of the business plan should support that
synopsis and should be factual rather than a sales document.
Sales
and marketing should include an analysis of the potential and forecast sales,
competition and how the sales will be achieved. Identify the sales channels that
will produce the sales and why they will produce the sales. The sales section
should specifically state the volume of sales of each product over at least the
first year and the price at which each of those products will be sold and note
the sensitivity of all items to unexpected events.
The operations
and production section is dependent upon the type of business and will be variable
depending on whether the new start up business was providing services, retailing
or manufacturing. The production section is basically a detailed picture of the
vehicle that will be used to generate the products to be sold.
Purchasing
would include an analysis of how the products to be sold would be sourced. Volumes
should be stated and sources of supply specifically identified with a real purchase
cost of all major items specified not guessed.
Personnel
would include the names of the people involved with brief details of their knowledge,
qualifications and previous experience. The personnel section would also include
details of people yet to be recruited if the work to be performed is going to
be critical to the new business.
The financial section of
a business plan should contained a forecast profit and loss account preferably
each month for the first year at least with perhaps a summary of the second year.
In addition to the profit and loss account a cash flow statement taking into account
capital introduced and stock levels should also be produced.
The
sales and production or purchasing numbers including volume and prices contained
within the report should be reflected in the financial report. Each major critical
assumption within the plan should be subjected to a financial sensitivity analysis
that takes into account all potential risks to volume and price levels.
The
process of preparing a detailed comprehensive business plan that has been properly
researched has significant benefits in itself. If the business has been researched
and thought through before the new business starts there is a much higher can
it will succeed and suffer fewer negative surprises once the real work of generating
sales and profit begins.
