So far in the Business Basics series, we’ve covered a number of insightful topics and received expert input from a range of influential business professionals — helping you get to grips with everything from planning future business growth to improving your presentation and pitching skills. All previous editions of the series can be accessed using the links at the bottom of the page.
In today’s instalment of the Business Basics series, we chat to Johnny Martin (The Numbers Coach) about the different steps small businesses can take to plan, write and implement a successful business plan. Johnny is an experienced finance director and a partner at the British Library Business & IP Centre, where he runs regular workshops for business professionals. He is also the author of the acclaimed book, Understanding Your Business Finances, and has developed the popular e-learning course called Talk Money.
We spoke to Johnny about what essential components he believes a good business plan should contain, and the considerations businesses should take into account to ensure accurate projections.
Read the complete Business Basics interview with Johnny below.
Let’s start with the ‘what’. What exactly is it that a business plan should do, and what essential components should it contain?
The process of preparing a business plan forces you to think about your business model – by which I mean your commercial model. In basic terms, it means identifying how you’re going to make money, who you’re going to make it from (your customers) – and how you’re going to do it before someone else does.
The business plan should contain enough information to explain the business model: what you will do, how you’ll do it, and when you’ll do it by (milestones). It should also detail any key assumptions that underpin your plan, the resources that will be required, and how the money will be made.
All business plans should comprise a mixture of textual and numerical information, but this information can be presented in a number of ways depending on purpose and requirements – from a concise PowerPoint ‘pitch deck’, through to a full-on business plan.
What kind of company needs a business plan – is it something strictly for startups and entrepreneurs, or can established businesses benefit too?
Every organisation should have a plan – from the startup fashion accessory brand, to the local village shop, to the more established bigger business. The only difference will be in the format and length.
Business owners sometimes struggle with the concept of planning because of the uncertainty that comes with forecasting the future – they feel they’re unable to predict all the market changes, so why bother?
But it is the process of planning which is so important and valuable. It helps set targets and objectives, allocates and identifies shortages in resources, and for the bigger business it can be an incredibly useful team exercise.
How important are forecasts to a successful business plan? And which financial inputs should be considered to make realistic and accurate projections?
As is the case with life, business is all about stories. And business stories are told with words and numbers – so yes, forecasts are absolutely necessary!
With regard to financial inputs, the structure I like is from the business book Getting to Plan B by John Mullins. According to that, you need to cover the following:
Markets and company priorities can change quickly. Should businesses be updating their plans – and if so, how regularly?
Before the Internet, planning and budgeting typically was an annual exercise. Nowadays, however, things change so fast and business models go out of date even faster – so business plans now require quarterly review at the very least.
Business plans are often associated with the role they play in fundraising. What tips do you have for getting a business plan ‘investor-ready’?
This is a tough question to answer in only a couple of paragraphs! What I do know is that the biggest complaint investors have is that plans often fail to clearly explain what you do. It's crucial to get the first paragraph of the executive summary really clear – this is your elevator pitch, so make sure it’s a concise overview of what you’re in business to achieve.
Then make sure there are no typos and that all the schedules match up. If an investor spots any kind of discrepancy or inconsistency in these, your plan will surely be consigned to the bin.
Finally, it’s essential that you get the basics right. Investors might not be familiar with your particular business, industry or market, however, they will know the cost of accounting or legal fees, or the number of people needed to run a business. If you don’t set these items out accurately in your plan, you risk putting a giant question mark against the other assumptions you’ve set out, which could undermine an investor’s confidence in your project.
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Finally, business owners will be well-placed to make estimations about the near future, but may be less certain of how their business will look longer term. How should such uncertainties be handled in the plan?
Here are two ways you can tackle uncertainty. Firstly, establish a ‘what if’ margin for certain sensitivities: what if sales were up or down 10% on the forecast – what effect would these scenarios have on your business? Other sensitivities might include changes to foreign currency rates or raw materials costs.
Secondly, try and get as many benchmarks as you can of companies operating in your sector or related sectors. Use Google Alerts to find articles and use the information to help you plan. For example, if you were in fashion, these alerts would help you pick up articles with sales information on related businesses.
Alternatively, you can visit business libraries such as those in the British Library network of Business & IP Centres to undertake research on trends using their databases.
If you’ve enjoyed reading this article and are keen to discover more business tips and advice, don’t forget to check out the rest of the Business Basics series. You can do so using the links below:
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