If you’re a small business owner wanting to raise finance to support your future development you will need a business plan. It’s a requirement of any commercial lender, but even if you’re looking to raise money from family or friends, the process of preparation and reading of the plan will reduce the possibility of the financial arrangement subsequently damaging the relationship between the parties.
So how do you go about it? Here’s some expert advice from David Brassington of CMC Partners.
Preparing a business plan will take time – there are no easy shortcuts – but ensuring the appropriate effort and consideration goes into it will be a worthwhile effort. A robust, coherent plan is more likely to achieve the desired outcome and is a useful tool for improving the future performance of the business. However, the guiding principle should be “quality not quantity”: a concise, practical document that is used as a reference and can be regularly updated in the light of experience is far more useful than a weighty tome which has a primary contribution as a doorstop! So, before leaping in to the preparation of the plan it is important to spend some time thinking about the plan itself: Here are a few tips to get you started:
1) What is the purpose of the plan? While raising finance is a frequent driver of the preparation of a business plan, there can be other reasons: e.g. for the owner to have a process of managing business performance; to be able to attract a key new team member to the business, or a commercial partner; to support the establishment of a new business venture. The precise objective of the plan will determine the content and form.
2) What are the expectations of the organisation or individuals who will be reading the plan? If you can “put yourself into the shoes” of the reader, you are more likely to produce a document that will meet their requirements. There are two aspects to this particular factor:
- The content and structure of the plan. Ensure you check any guidance that the reader of the plan provides: e.g. commercial lenders will usually have guidance and information on their website – it is reckless to ignore any help that is offered!
- The business performance demonstrated by the plan. Again, different readers will have different expectations. If approaching a bank for an overdraft or commercial loan, their primary concern will be that the business can generate adequate cash flow to fund the repayments throughout the business cycle. If approaching an equity investor they will be looking for evidence that the value of their investment can be increased significantly and there is a viable exit route. If your plan cannot realistically meet their requirements, you are wasting time approaching them!
3) What are my alternatives? A valuable part of the planning process is to try to take a fresh look at the business and its strategy. As you work through the planning process you may identify more effective options than the initial idea or previous way of doing things.
4) How can I support and validate my plan? Any forward looking process has to accommodate uncertainty. However, any relevant facts e.g. previous similar experience or market research data, can help to build the confidence of both the writer and reader of the plan.
5) Am I being realistic? The business plan often forms the foundation of the business relationship between two parties. A professional, coherent plan will encourage a positive response; realistic projections that are subsequently delivered will build confidence, and encourage future support.
Having to prepare a business plan can be an intimidating task: it is one of the processes that many people do not have to do very often. While the business owner must “own” the plan, bringing in outside help can make the process less onerous. Someone with prior experience of preparing plans, a more objective view of the business and the ability to act as “sounding board” or constructive critic can help ensure that the plan gets completed and that it achieves the desired objectives.
David Brassington is an experienced Managing Director and senior manager who works as an adviser or non-executive director with owner-managed businesses throughout Cambridgeshire. He has a practical approach to helping owners enhance and, if appropriate, realise the value in their company. He assists owners to improve business performance or develop succession and exit plans. He also has experience of raising finance, company sales and has led a successful Management Buy-Out.
CMC Partners are experienced business advisers, helping small business owner-managers throughout their business journey, with a personal touch. Established in 1989, we work in partnership with owners to grow and increase their business value, in preparation for their eventual exit. We care about the owner and their business. Your Success is everything!
____________________________________