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Business planning for success (Guest Blog)

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Clive Lewis, FCA, Head Of Enterprise, ICAEW https://www.icaew.com, explains while starting a business can be life changing, good planning and accessing the right advice is critical for success.

Running your own business can be an immensely rewarding experience. Approximately 500,000 new businesses start up in the UK every year. Decisions taken in the early years can be the most difficult as well as the most important, particularly for first-time entrepreneurs and those with no previous business knowledge or experience.

When you have an idea for a new product or service, the impulse is to start sharing it with the world as soon as possible. However, the fact is that, in the UK, one in three new businesses ceases to trade within three years and, after ten years, only one in five is still in business.

 

Preparation is key

This particularly applies to researching the market and testing your product or service. As a minimum, you should be aware of your local competition, what they are doing differently to you and who their customers are. Ensure you get as much feedback on your business idea (try a pop up shop/demonstrating your service on a small scale level) and if you are in retail, make sure you carefully consider where you set up premises if at all e.g. can you operate online without a physical store presence? This research should enable you to clearly identify your USP.

Getting the pricing right is a significant factor and deciding how much finance will be required can be critical. Research shows that being under-capitalised is the most common cause of business failure. So it pays to get a business plan together with robust cash flow and profit forecasts.

Whether you need to prepare a formal business plan as part of raising finance from a bank or private sources or not, it’s advisable to put together forecasts of trading for the first two years. It is surprising how many entrepreneurs underestimate the amount of time, money and effort involved in getting a business up and running. This usually means they start on a shoestring and struggle to get finance to expand.

A profit and cash flow forecast can be ‘flexed’ to show how much scope there is for slippage and whether having some finance in reserve is necessary. And once the forecasts are in place they can be essential tools for keeping track of the new business’ progress. Achieving targets is the best indicator of good management – and can be used to demonstrate to customers and suppliers you can be trusted with orders and credit.

Profit and cash flow forecasts can be created using spreadsheets or specific software. For those not comfortable with creating financial information your chartered accountant can help.

 

Business plans must be exciting but credible

In addition to being exciting and credible, business plans must have clearly identified customer benefits and evidence of growth and future prospects. An executive summary is vital, clearly stating your financial objectives, the business idea and profit forecasts.

For a bank this may be all that is required. But if you are seeking outside investment, in addition to the executive summary, you will need to take into account the following:

  • A history of the company
  • Current and future products and/or services (including patents)
  • Sales channels and delivery
  • How products will be produced
  • How the business is operated and why it will be successful
  • A description of the market and sector and details of the marketing strategy and sales and distribution process
  • Full details of the management team
  • Financial information (including debt finance already in place)
  • A risk analysis.

Your business plan is a crucial pillar of future success and at times like this the professional advice of a chartered accountant, who is equipped to question, analyse and offer insight, can prove invaluable.

This will help you to set realistic financial targets, establish budgets, plan ahead and compare forecast figures with actual results. Whether you are planning to secure bank finance, raise equity finance or monitoring performance against your own benchmarks, a business plan is a valuable tool.

 

If you need help with your business plan, or simply want to talk over the financial information and forecasts, a free initial discussion with the ICAEW Business Advice Service (BAS) is a good place to start. Click here for more information.

For more information on Technology & business productivity tools to grow your business, visit the Microsoft Small Business hub for hints & tips!

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