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28 June 2016 | Commercial Finance

What makes a good business plan?

The definition of good as an adjective is that of "something to be desired or approved of" or "having the qualities required for a particular role". As a noun it means "that which is morally right" or as "having a benefit or advantage to someone or something".

I think when you come to the point of sitting down and writing a business plan, regardless of the need that put you there, it would be reasonable to assume you want it to fall within the majority, if not all, of the above definitions. Certainly, when writing a business plan with a view to raising finance, it is advantageous to tick as many of those boxes as possible.

Any successful business has been made up of a number of different facets; effective marketing, strong financial performance, robust operations along with any number of other things, and an effective business plan should touch on all that are relevant to your business. If you consider the adage 'beauty is in the eye of the beholder', it is natural that a business plan with an emphasis on an area that you enjoy, or specialise in, will make a lot more sense and be a lot more appealing than one that doesn't, so it's worth being aware of the information throughout the business plan being balanced. An extensive and detailed section on the competition nearby and what you can do better than them looks much more impressive when it is supported by considered and feasible financial forecasts. 

A thoughtful and well-presented business plan can be a real asset when applying for finance. Despite the obvious emphasis to be on the financials, credit underwriters will also look closely at a number of other areas so it's worth covering off your other plans too. The list below is by no means definitive but the below should be a good start to creating an effective business plan.

Executive Summary
The executive summary is like the blurb on a book, without the cliff hanger. It should be a concise rundown of the key points from each area of your business plan. The key thing to remember is the clue in the name- summary. You want to keep it detailed enough that someone can remind themselves of the important details in hurry, but concise enough that it's not going to take up too much time for them to do so.

Market Opportunity/Analysis
This is your opportunity to show off your understanding of the sector. Being able to rationally outline the current trends for the sector you are in, any issues it is facing and the demand for the type of business in the area you are looking. This is a fantastic chance for a discerning business buyer to demonstrate their knowledge and understanding of both the industry and the market to support their application and for a first time-buyer the chance to show their credibility as a future business owner.

Competition
Think market research. If you are purchasing a business in an area that you know, chances are you are well acquainted with what is already available nearby. However, it's worth taking some time to look at the competition, appreciate what they are doing well at and observe areas where you think you can offer something different. In a number of our specialist sectors this is definitely more difficult than others, but in this digital age you can take advantage of online review sites such as trip advisor, or social media sites to see what your competitors customers are saying. Having the ability to grasp what it is your competitors are doing well at and areas where they may be ahead of you will help you build a business that can adapt with changing markets.
 
Team/Staff
It's often quoted in various ways that the people within a business are its most important asset. From senior management to the trainees on the frontline – everyone has something different to contribute. From a finance raising perspective, the background of the individuals buying the business is one of the most important aspects. For a first-time buyer, who may not have direct experience in the sector they want to go into, having an experienced manager on board is essential. Staff costs usually take up the highest percentage of total turnover and in industries where staff ratios are a regulatory requirement it is important to plan for the number of staff you need. 

Business Model
"All it really meant was how you planned to make money." -  Michael Lewis, The New, New Thing.

You can break a business model in to two parts – what it is you are going to sell and who you are going to sell it to. It is here you can go into detail about what your business will do, what your unique selling points are and your target customers. The finer details of what should be included here are obviously very different dependent on your plan, the business and the sector. It is worth remembering here to keep a structure to what you are putting down and not creating a jumble of ideas that follows no logical order.

Finance 
When applying for finance, it would make sense that the finance section of the business plan carries a lot of weight. For a trading business, this should include an analysis of the previous accounts and projections for the future of the business based on any changes you want to make. For a newer venture the financial forecasts are essential. It is just as important they are put together appropriately and in line with industry norms. A good accountant would be able to help you with this. Adding assumptions to cash flow and profit and loss projections justify how you plan to increase turnover and/or reduce costs is hugely beneficial.