A well-drafted business plan isn’t just something banks want to see before they give you a loan – it’s a valuable tool, which, if carefully put together, can form the heart of your strategy.

The Trigger for preparing a firm’s first business plan is often the need to present a business proposal to a bank or potential investor. Although a well-drafted plan is crucial when raising finance or trying to attract investment, it is also an essential tool for the successful management of a business.

Business plans should aim to give more than a snapshot of the future. Because circumstances, people and opportunities change, a good business plan should try to portray the moving picture and ever-evolving situation. Business plans therefore need to be regularly reviewed and updated, thereby becoming a valuable aid to good management.

The benefits are clear. By planning ahead, advantages to the business become apparent. It allows proprietors and directors to step back from day-to-day work and consider the overall direction of the business, facilitating decisions regarding strategic goals and the route to success. They can also make better-informed judgements, having previously considered the impact of some action on profitability rather than part way through a project. It ensures that business decisions drive the company in the right direction and that there are adequate resources and working capital to achieve business goals.

Additionally, a properly documented business plan should provide the necessary vision and direction to focus the business and inspire confidence and belief in the firm’s potential. The document itself will be recognised by lenders as a basis for lending decisions. On top of this, it will enable key staff to participate in the long-term future of the organisation by setting out clear business objectives, which will help to define career paths.

There is no definitive guide as to the precise form and content of a successful business plan, as its structure is largely determined by its particular purpose. However, there are five golden rules that are valuable before starting on the plan. You must make plans that are: simple for the reader to understand; focused on your firm’s needs; relevant to the reader’s interests; accurate, so the conclusions can be backed up; and realistic. Remember, the information must be credible.

You also need to explain the importance of the product/service and its market potential, avoiding technical language and detailed specifications. Bear in mind that the reader may not have specialist knowledge of your profession and that your proposal may be one of many that they read. So, focus on the real issues, giving projections for sales, costs and cash flow, for example, but reserving financial detail for the appendix. Remember to explain assumptions.

If you’re aiming to raise finance, state clearly the level of funding needed and why it is required. In terms of how the plan should be organised, it should include:

  • An executive summary. This overview should encapsulate the whole business plan and ideally fit on one page. It is normally written after the main sections are finished and should focus the reader’s attention on the important elements of the business plan.

  • The business and key people. Describe the legal status of the business, its history, facilities and organisational structure, while also stating its strategy, vision and mission statement. It is particularly important for professional firms such as surveyors, architects and designers to outline the skills of partners, directors, managers and key staff since the reputation and experience of those involved heavily influence the success of the business. Include brief CVs.

  • The product/service. Clarify the range of products/services and state what is special about those offered and any under development. It is similarly important to note any niche markets. If the firm is responsible for any innovations and achievements or has won competitions, these should be mentioned.

  • Business market. Analyse turnover by market segment, indicating the profitability of each area. Note whether each segment is declining/static/ growing and why, as well as giving the organisation’s current and projected market share. An overview of economic conditions or legislation relevant to the business is also useful.

  • Clients. Briefly describe the organisation’s major clients, and analyse turnover by client, where appropriate. This section will highlight any dependency on a small number of customers and highlight the risks. It may be good to elaborate on the individual customers and the business relationship with the organisation in order to deal with any concerns over business concentration.

  • Marketing and advertising. Outline your marketing activities to demonstrate how you identify and develop new business.

  • Competitors. Note your major competitors, their strengths, weaknesses and market share. Consider how vulnerable the organisation may be to any particular competitor.

  • SWOT analysis. The organisation’s major strengths, weaknesses opportunities and threats should be analysed. Don’t avoid weaknesses and threats as these can only be dealt with once they have been identified.

  • Premises and facilities. Report whether the premises and plant are owned or leased, whether they fulfil existing and future needs, and summarise any major commitments. Outline future capital expenditure and indicate the current state of facilities, including obsolescence and the impact of technological advancements, such as CAD.

  • Personnel requirements. Include the number of employees in your firm, any anticipated employment needs and note the skills that are generally available. Give an indication of the firm’s training policy, recruitment and promotion policies.

  • Financial information. This is normally provided as an appendix and may include some summary narrative, together with a clear indication of funding requirements.

Look at producing a chart, which will summarise the continuous nature of business planning and suggest how a firm can develop in a positive spiral. Include your current position, planning and implementation and feedback. Because of the breadth of detailed information required, your accountant or other adviser may assist with the preparation of this.

Financial information

  • Five-year summary of the profit and loss account
  • Key ratios to demonstrate the firm’s strength (for example, gross profit, return on capital employed)
  • Profit and loss projections
  • Cash flow projections
  • Forecast balance sheet
  • Detailed explanation of any assumptions
  • Sensitivity analyses (“what if” scenarios), such as the impact of changes in interest rates and break even analyses