How to plan your business
Anyone who has watched Dragon's Den knows how important a company's business plan is to whether people will invest in its future.
Paul Hetherington has been running his own business consultancy for 23 years and has just written a book which talks about the importance of business planning on a continuous basis - not just so that you can get initial funding, but so you can continue to grow and so that you and your staff know where your business is going.
He says “used properly, business planning is one of the best business development tools there is”. Businesses at different stages of development need different approaches to planning. For start-ups, for instance, there is no past performance to base plans on and this can make it harder to produce very accurate forecasts.
Hetherington advises deciding what the business plan is for before setting to work. Is it for external funders and if so, what kind? Bankers prefer to see steady profits and evidence of good management. Grant fundholders need to have the plan angled towards the objective of the grant, for instance, to help the environment. Potential partners might want to see evidence of complementary strengths.
Hetherington says a business plan tells a story - “the story of your business”. It needs to be a well edited story, with no unnecessary padding. Graphs can add a lot to a plan and Hetherington says getting professional-looking graphs is relatively easy.
Good business plans cover everything from an assessment of the competition and the size and nature of the market, weaknesses, risk factors, a marketing plan, financial details and an exit plan.
His book gives advice for businesses at three different levels - start-up, more established businesses and those which have bee up and running for a while and are looking to grow.
“Don't just assume you know what the needs of the various customer groups are – ask them!” he advises people who are just starting up their businesses. For those who are a bit further down the road, he talks about the importance of spending time thinking about different customer groups and weighing up dealing with each different group. Many businesses, he says, find out that the troublesome customers actually cost the company money rather than providing any profit. For the more experienced businesses, he talks about the need to have a much wider understanding of their market and how everything in it operates and to plan for periods of recession and boom.
Hetherington says any assessment of a competitor's strengths and weaknesses need to be based on the company's own performance. “Weakeness are things they do worse than you,” he says. Every business has competitors, he adds, even if they are selling an entirely new product. “If there really is no competition there is probably no market,” he says. Even if the product is new, “you still need to be solving a problem for your customer. How is the customer currently solving that problem? There is your competitor!” While start-ups should have an idea of the competition, more seasoned companies should do deeper research, checking out particular companies' details at Companies House.
Hetherington says all good business people are visionaries, but the vision needs to be refreshed and leaders need to ensure there is staff buy-in. “Without consciously revisiting [your vision], you are likely to reach a point where you don't even know what the vision is any more. Worse still, it may mean different things to different people,” he says. Allied to vision is strategy and a clear idea of objectives. Then don't forget the people who have to meet those objectives. Hetherington says a people plan is probably the most important part of the business plan. That includes understanding the strengths of different employees and knowing where skills gaps might be so they can be plugged by training, consultants, outsourcing or recruiting new employees.
Having a tight financial plan is also vital and it's the thing many Dragon's Den would-be entrepreneurs falls down on. A good accountant - in-house or outsourced - is key.
Hetherington says business plans need regular reviews. “If you don't plan, you put yourself at a massive disadvantage compared with competitors who do,” he says. “Even if they have got their forecasts and assumptions for the future wrong, they will still have considered carefully how to leverage their assets to maximum effect.”
Write your own business plan by Paul Hetherington is published by Howtobooks, price £9.99.