A business plan is an essential item when attempting to obtain a bank loan for a new business idea. It is also a good idea to do a business plan even if a bank loan is not needed as it helps the writer to learn more about the business idea that they have. Below is an outline which can be used to help in the writing of a plan and it is by no means the only layout that can be used. Before much of the business plan can be written, extensive research must be carried out. This includes undertaking market research with prospective customers and analysing potential competitors. Care must also be taken in finding out costs of rent, various utility bills and raw materials. In general it is best to overestimate rather than underestimate these figures as this leads to a more reliable business plan.
This is a very short and concise explanation of what your business idea is and what the business is expecting to do. Its job is to give the reader a very brief but accurate impression of what the plan is about. Items to include are expected sales and profit figures, nature of the business and size of any bank loans required.
In this section, you should describe in more detail the nature of your business opportunity and how you will go about meeting the market need. You should also detail how your business is different to your competitors' and how this difference will benefit the business.
Company Objectives/Mission Statement
A good mission statement can help place your business in the marketplace. Look to devise a statement that differentiates your firm from any of your competitors. Think about what the customer will value in your business and include this in the statement.
Company objectives should be listed in order of importance starting with the most important as illustrated by the following example:
- To break even after month eight
- Take on two extra members of staff when sales rise above £7000
- To open a new shop by the end of year two
They should also be obtainable and where possible quantitative (ie, stating time constraints and numerical expectations) as shown in the above examples.
In this section you explain exactly how the business will operate. Timelines for set-up and expansion, and detailed explanations of the processes involved in the setting up of the business (including premises) and the running of the business should be included.
Explain what your desired market is. What estimates for its size do you have? How did you arrive at these estimates? Also explain what your marketing strategies are to enable you to reach your target market. Explain what market research you have undertaken and what it shows. List possible competitors and show how you will ensure that your product is different from their products.
It is impossible to be able to know exactly what value your sales and costs will be. The trick is to make your estimates educated and as reliable as possible. This is done through extensive market research and investigation. Sales are estimated by talking to potential customers, by undertaking market research, and by studying market trends. Income is based on sales and can be estimated once you know what prices you wish to charge. Costs can be estimated by studying local rent charges and talking to suppliers, utility companies, and anyone else that you will need to pay. These figures have got to be reasonable or else the bank will see right through them and you won't get your loan.
This includes the cash flow forecast and the profit and loss account which figure below. In this section you are essentially specifying what you anticipate the firms financial situation to be in the first year.
Profit and Loss Account
|Description||Costs (£)||Costs (£)|
|Vehicle Running Costs|
Gross Profit Margin
|Gross Profit||x 100||= Gross Profit Margin (%)|
Break Even Turnover
This is exactly what it says. The level of sales at which you predict the business will break even (i.e. cover its costs for the year). Any money made after this point is profit. The figure is calculated using the formula below.
|Fixed Overheads||x 100||= Break Even Turnover|
|Gross Profit Margin|
This table shows what assets you plan to purchase for the firm and exactly where the funding for this will come from. The total from the top half should equal the total from the bottom.
Cash Flow Forecast
The cash flow forecast keeps track of the projected outgoings and incomings of the business. This clearly shows how much money the business will have at the end of each month.
|Loan / H.P. repayments|
|Credit Card commission|
|NET CASH FLOW|
In this section you can detail your plans for growth and development of the business in subsequent years. This can be in terms of market or product diversification or increasing production to a certain level or even taking on a certain number of employees. Your ideas here don't need to be set in concrete but they just need to give an idea of where you plan to take the business in the future.
Once the business plan has been written, it's time to tackle the bank. Banks are there to make money and if they can see that your idea will make money they will be happy to lend you money. A bank will like it if the facts are simply laid out for them to assess the strengths and weaknesses of the idea. Long, dreamy and overcomplicated plans will not hold their attention and you won't get that much needed loan although make sure that the plan isn't too short as that will suggest that you haven't thought about the idea enough.
Related EGE Link
The following article on Double Entry Book Keeping can be useful in understanding how to set out and use debits and credits.