Ideally, every business should have a realistic, working business plan which is amended as the business develops.
In the case of start-ups, a business plan is essential. A business plan is a written document that describes the business, its objectives, its strategies, the market it's in and its financial forecasts. It has many functions, from securing external funding to measuring the success of your business.
With a business plan, you can work out where you'd like to be in five years' time. Although things will undoubtedly change, it allows you to use the evidence of past and present trading patterns to set targets and predict the future of your business. This is vital when you're growing your business - there are always new elements to take into account. It also makes sense to share your business objectives with your employees, and to involve them in the planning process. If they feel that they have some 'ownership' of the development of the business, they'll be more committed to it.
I look after the accounts of a lot of new and young businesses. Many of them start off too optimistic, or ignore obvious danger signs. So here are a few things you would do well to bear in mind:
- BE REALISTIC! If, when you've done your sums, you realise you'll have to earn an unrealistic amount of money to pay for everything, go back to the drawing board and rework your plan. Don't ignore the hard evidence of mathematics.
- Don't forget anything. EVERYTHING in your plan will have to be paid for, right down to the cleaning of your office and the clock on the wall.
- Always try to allow a decent contingency figure: some money you keep back for emergencies. Try not to commit every farthing of your resources.
- Do as much market research as you can before writing your plan, and don't ignore your results if they're not the ones you wanted. It's so easy to fool yourself into thinking it's working because you love the product.
- Once you've got a plan you and your professional advisers think will work, try to stick to it and monitor your progress closely. It will almost certainly change over the years, but be wary if it starts to go way off track at an early stage. It may need rethinking, or things could get out of control.
- If your plan requires investment from a third party, NEVER forget to think of where the money is coming from. A lot of small businesses believe it will just turn up from their bank, then get disappointed or demoralised when it doesn't and they have to look elsewhere. In any event, if the business plan doesn't stack up, there's no point in borrowing money: it has to be repaid one day somehow.
