Why you need a business plan
A business plan will provide you with a clear outline of all the actions that need to be taken to achieve steady growth and success. It will help you manage business critical factors, hiring, budget and revenue potential, all important factors for you as the business owner as well as potential future investors.
A business plan will also provide you with essential insights, establish timelines, and prevent potential risks. It is the foundation that will help your business grow, evolve, increase market share and respond to increased demand.
Yet when working with small business owners, we often hear them say, “I’ll be happy if we do the same as last year.” But that isn’t a plan as such; it’s more an acceptance that there’s nothing they can do to change their business performance and that their business growth is out of their hands.
VistaPrint survey results
Four in five (83%) UK SMEs are struggling to plan for 2024, according to data released by VistaPrint (VistaPrint and Enterprise Nation help UK SMEs plan for growth with £150,000 grant programme).
Despite 58% of UK small business owners anticipating growth in the year ahead – many are unclear on where this will come from. Over half (55%) have a “rough” business plan but nothing detailed, while 13% do not have a plan at all. Among the small business owners who stated they had a plan, almost half (45%) were unable to plan beyond the first half of the year.
And there is a similar picture when it comes to achieving financial targets. While just over a third (34%) are confident that they’ll hit targets, a more significant proportion (40%) are unsure and 11% suspect they will not. This uncertainty continues when it comes to their long-term business prospects. Almost two-thirds (59%) believe there is a risk they will have to close their business as a result of the cost-of-living crisis. One in five (20%) are already redirecting marketing budgets towards survival – with 57% among these, using it to pay the energy bills.
The current uncertainty results from recent economic challenges for UK SMEs, where four in five (79%) have had to change their business plan. Two in five (41%) small business owners have increased their hours over the past few months, at an average of 7 hours per week. Stress has also increased amongst small business owners, with 60% stating their stress levels have increased in recent months due to the economic landscape.
How to develop a business plan
If you are serious about growing your business to the next level, it’s clear that you will have a much better chance of success when you have a plan, one that is meaningful and achievable.
Strategic planning requires you to step back from your day-to-day operations, articulate where your business is heading and set long-term goals, objectives and priorities for the future.
Your business plan should cover a three-to-five-year period and set out the tasks, milestones and steps needed to drive your business forward. It will help you focus your efforts on the right thing and will ensure everyone in your business is working towards a common goal.
Business planning will help you agree on actions that will contribute to your business growth, align resources for optimal results, prioritise financial needs, build competitive advantage, engage with your staff, and communicate what needs to be done.
Another significant purpose of business planning is to help you manage and reduce business risks. Growing a business is inherently risky. Detailed planning may help you remove uncertainty, analyse potential risks, implement risk control measures, and consider how to minimise the impact of risks should they occur.
For the best results, set aside some time (at least half a day initially), preferably off-site, where you, your management and sales teams can run through some exercises to better understand the marketplace, opportunities, and potential challenges over the next 12 to 18 months and agree on actions.
Four key questions to ask
As a starting point, consider the following four questions – the answers will be key in forming the basis for your Plan.
- What are your key drivers? In other words, why did you start the business in the first place
- Where do you want your company to be in 5 years
- Do you understand your market?
- How big is the opportunity, and what products or services will you promote?
- Who are your most valuable customers?
- Who are your competitors for those high-value prospects and customers?
Essential components of a business plan
1.Executive Summary
Summarise all the sections in your business plan, including your business vision and goals.
2.Purpose, Goals and Vision
Share your core values as a business owner, collaborate with your people, and work out what means most to you collectively and carve out a meaningful set of values.
Think about what you want and expect from your team and what they want and expect from you.
This process will unite you and your people in ways you couldn’t imagine. We have seen companies who have tried to do this in isolation from their employees – it never works. It must be done together. Once you have done this, the values must pervade all.
Your values are the standard against which your company can measure everything and everyone. Describe your company goals, target audience and products or services. Think about what problem you want to solve for your customers. Read more on purpose.
3.Sales and Marketing
Develop a SWOT analysis to help assess your strengths, weaknesses, opportunities, and threats.
Describe how you will take advantage of your strengths and eliminate your weaknesses.
It’s important to know who your competitors are, document their strengths and weaknesses and consider if their weaknesses could benefit you.
Determine which market forces (drivers) are affecting your customers and, possibly, their customers. Are the social demographics within their area of influence changing? Are they growing or shrinking? Are the age profiles of their customers/end users changing?
What effect does developing technology have on your customers and their customers? Do you face stiffer competition due to cheaper manufacturing and automated delivery processes, or are traditional buying habits changing through utilisation and access to online information and social media?
Consider trends caused by economic fluctuations and the effect of currency exchange rates. Ensure you consider any political factors and their potential impact on the marketplace.
Review your current product/service sales split against total sales revenue. Then, determine which revenue stream delivers the highest gross margins and which covers costs.
Focus on the areas in which to increase sales over the short term. For each existing customer, highlight what products or services they buy from you and, importantly, what they don’t buy. Ask yourself if you’re getting your ‘share of their wallet’ or if there are further products you could sell to them.
4.Management Team and Structure
Your business is a system, and every part has an impact on all of the other parts. To change one thing means to change everything. Change-related problems often occur because the business has changed one or two things but attempted to keep everything else the same. Leaders and part owners must be crystal clear on the business vision. They must share the business values and understand the need or purpose in the market that their part of the business fulfils as well as the business as a whole.
Plot your current management and organisation structure. Consider whether you have the talent to achieve your business plan and if you have the right people in the right roles.
5.Operating Plan
An operational plan can ensure that a business stays on track, whether for a single project or a set amount of time.
It should include:
Who should be working on what?
How can we mitigate those risks?
How will resources be assigned for different tasks?
Are there any internal and external risks facing the business?
Who currently does what and when, and how will this need to change to accommodate your new plans?
An operational plan may also highlight any business areas that need improving. For example, if you wish to achieve a 25% increase in production over the next year, you may notice that you need the mechanical capacity to hit this target. Once you realise this, you can put another plan in place to increase your revenue streams to afford new machinery to increase production.
6.Financial Projections
Not only does a financial forecast sense check your Plan, but the process also gives you a benchmark and something to review against with the added value of the opportunity to adjust your business activities as it develops.
Eight financial questions to ask yourself
- What will your next quarter’s turnover and net profit figures look like? The next year? The next five years?
- What will the sales split look like across your product lines?
- How much will your cost of sales (i.e. purchase cost, material cost and delivery) be?
- What is your Gross Profit Margin (GPM) per product/service?
- What are your fixed costs for each month (rent, rates, utilities, insurance, wages, etc.) and your break-even point?
- Are there any exceptional items or purchases to be made in the next 12 months, and how will these be financed?
- How do your cash flow and working capital requirements roll forward from month to month?
- Looking forward, are there any sticking points you may need to cover with a loan or an overdraft facility from your bank?
Setting your cash flow forecast
Obtain up-to-date financials for the previous full year, as well as management account P&Ls sorted by month-to-date. Before you look forward, you need to assess what current trading looks like and if there are any trends. Does seasonality swing sales revenue? Do your costs of sale increase dramatically during busy periods as you hire sub-contracted labour?
If you are using sub-contracted labour continuously, consider recruiting your own employees. Having your own staff will be more cost-effective in the long term, give you more control and secure future capacity for growth. If material purchases are high, could you reduce costs by negotiating better terms or going to a different supplier? Ensure there isn’t a lot of wastage/surplus or write-off of materials in the delivery process too. If there is, where and how could this be improved?
Review your fixed costs, wages/rent/rates/energy, motor expenses, print and stationery, bank and interest charges, and general expenses and think about how you can do something different to reduce your expenses. Write down a list of actions and, before you plot the next few year’s growth plans, adapt what you can immediately, turning these items into quick wins.
Start plotting numbers and setting targets for each trading month ahead. Start with a blank sheet of paper and set a realistic but stretched sales target for each month based on each product or service offered, and create separate invoice codes so you can measure and track.
Consider how an increase in sales will affect fixed costs and the capacity to deal with more significant volumes. Do you need to spend more on marketing, staff and wages, warehousing, equipment, machinery or plant? If so, allow for these in your forecast.
Visit our article ‘12 tips for managing your cashflow‘ for tips on managing your cashflow.
Failing to plan is planning to fail
If you understand the importance of a business plan but cannot find the time to develop one, it could be a sign that you are spending too much time working in your business and not working on it.
In this case, it can be beneficial to engage with a professional to help facilitate your planning; they will have gone through the process many times and will be able to challenge you to think about your business differently.
Once you have a plan in place, make the time to sit down regularly with key shareholders and review where your business is going and how you plan to get there.
And remember to communicate your plans with your staff so they understand their part and what you expect from them.
If you would like us to help facilitate your business planning workshop, please get in touch.
This article is part of our Ultimate Guide to Business Growth.
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