Up to now, the workbook assignments have focused on gathering data needed to validate a business idea, to confirm the business team’s capability to implement their chosen strategy and to quantify the resources needed in terms of ‘men, machinery, money and management’. Now this information has to be assembled, collated and orchestrated into a coherent and complete written business plan aimed at a specific audience.
In this assignment we shall examine the six activities that can make this happen:
The preceding chapters, as well as having a practical logic to their sequence, will provide you with manageable ‘chunks’ of material to write up either yourself, or better still to delegate to partners and professional advisers. The niceties of grammar and style can be resolved later.
While it is useful to make use of as much help as you can get in preparing the groundwork, you should orchestrate the information and write up the business plan yourself. After all, it is your future that is at stake – and every prospective financier will be backing you and your ability to put this plan into action, not your scriptwriter.
Different people in your team will have been responsible for carrying out the work involved in answering the questions posed in the chapter checklists and in writing up different section(s) of the business plan. This information should be circulated to ensure that:
Using a group writing tool such as the Track Changes facility in Microsoft Word will help to ensure that everyone involved can see who said or changed what and when changes were made.
If any of your team need a tutorial on business writing, Texas A&M University (http://libguides.tamusa.tamus.edu/businesswriting) has a number of valuable teaching notes on the subject covering sentence and paragraph construction, the use of words and on ‘Beginning the Writing Process: Brainstorming, Researching and Outlining’.
Every product is enhanced by appropriate packaging, and a business plan is no exception. The panellists at Cranfield’s enterprise programmes prefer a simple spiral binding with a plastic cover on the front and back. This makes it easy for the reader to move from section to section, and it ensures the plan will survive frequent handling. Stapled copies and leather-bound tomes are viewed as undesirable extremes.
A near-letter-quality (NLQ) printer will produce a satisfactory type finish, which, together with wide margins and double spacing, will result in a pleasing and easy-to-read document.
There is no such thing as a ‘universal’ business plan format. That being said, experience at Cranfield has taught us that certain layouts and contents have gone down better than others. These are our guidelines to producing an attractive business plan, from the investor’s point of view. Not every subheading will be relevant to every type of business, but the general format should be followed, with emphasis laid as appropriate.
First, the cover should show the name of the company, its address and phone number and the date on which this version of the plan was prepared. It should confirm that this is the company’s latest view on its position and financing needs. Remember that your business plan should be targeted at specific sources of finance. It’s highly likely, therefore, that you will need to assemble slightly different business plans, highlighting areas of concern to lenders as opposed to investors, for example.
Second, the title page, immediately behind the front cover, should repeat the above information and also give the founder’s name, address and phone number. He or she is likely to be the first point of contact and anyone reading the business plan may want to talk over some aspects of the proposal before arranging a meeting.
The cover sheet includes your venture’s full legal name, address, phone and fax numbers, web address, and name and title of the person to contact and their e-mail and phone contact information. Also state who the business plan is going to. While you may well be sending your plan out to several organizations and those copies of the plan may be identical, it is always helpful to make readers feel that the plan is addressed personally to them. Ideally, place each piece of information on a separate line and centre it in the middle of your cover page using large font. Include your logo, strap line or an image that you use to convey what you do.
Lower down the page put the date of the business plan and its version number; this is important as people receiving your plan could be working from an earlier version if the approval process is drawn out, as is virtually inevitable if you are raising venture capital. Include some information showing that the information is provided in confidence, whether or not you require a confidentiality agreement. It will at least put people on their guard before passing on or discussing any aspect of your business plan.
Before you show or discuss your business plan with anyone outside your organization you should consider getting them to sign an NDA (non-disclosure agreement). NDAs are confidentiality agreements that bind recipients to maintain your ‘secrets’ and not to take any action that could damage the value of any ‘secret’. This means that they can’t share the information with anyone else or act on the idea themselves, for a period of time at least. NDAs are a helpful way of getting advice and help while protecting you from someone using your information to compete against you. The Intellectual Property Office (www.ipo.gov.uk/types/patent/p-applying/p-apply/p-cda.htm) publishes a booklet, Non-Disclosure Agreements (NDA), which gives information and guidance about what you need to consider when disclosing an invention, including example NDA templates.
Ideally one but certainly no longer than two pages, this should follow immediately behind the title page. Writing up the executive summary is not easy but it is the most important single part of the business plan; it will probably do more to influence whether or not the plan is reviewed in its entirety than anything else you do. It can also make the reader favourably disposed towards a venture at the outset – which is no bad thing.
These two pages must explain:
Obviously, the executive summary can only be written after the business plan itself has been completed.
After the executive summary follows a table of contents. This is the map that will guide the new reader through your business proposal and on to the ‘inevitable’ conclusion that they should put up the funds. If a map is obscure, muddled or even missing, then the chances are you will end up with lost or irritated readers unable to find their way around your proposal.
Each of the main sections of the business plan should be listed and the pages within that section indicated. There are two valid schools of thought on page numbering. One favours a straightforward sequential numbering of each page, 1, 2, 3. . . 9, 10 for example. This seems to us to be perfectly adequate for short, simple plans, dealing with uncomplicated issues and seeking modest levels of finance.
Most proposals should be numbered by section. In the example that follows, the section headed ‘The Business and Its Management’ is Section 1, and the pages that follow are listed from 1.1 to 1.7 in the table of contents, so identifying each page as belonging within that specific section. This numbering method also allows you to insert new material without upsetting the entire pagination during preparation. Tables and figures should also be similarly numbered.
Individual paragraph numbering, much in favour with government and civil service departments, is considered something of an overkill in a business plan and is to be discouraged, except perhaps if you are looking for a large amount of government grant.
The table of contents in Table 29.1 shows both the layout and the content that in our experience are most in favour with financial institutions. Unsurprisingly, the terminology is similar to that used throughout the workbook. For a comprehensive explanation of what should be included under each heading, look back to the appropriate assignments throughout the book.
Table 29.1 Sample table of contents
|
Section |
Page |
|
|
Executive Summary |
i, ii |
|
|
1 |
The Business and Its Management |
|
|
History and Position to Date |
1.1 |
|
|
Current or New Mission |
1.2 |
|
|
Objectives, Near Term |
1.3 |
|
|
Objectives, Long Term |
1.4 |
|
|
The Management Team |
1.5 |
|
|
Legal Structure |
1.6 |
|
|
Professional Advisers |
1.7 |
|
|
2 |
The Products or Services |
|
|
Descriptions |
2.1 |
|
|
Readiness for Market |
2.2 |
|
|
Applications |
2.3 |
|
|
Proprietary Position |
2.4 |
|
|
Comparison with Competition, Performance and Economics |
2.5 |
|
|
Guarantees and Warranties |
2.6 |
|
|
Future Potential/Product Development |
2.7 |
|
|
Sources of Supply (if not a maufacturing/assembling business) |
2.8 |
|
|
3 |
Market and Competitors |
|
|
Description of Customers |
3.1 |
|
|
Customer Needs and Benefits |
3.2 |
|
|
Market Segments |
3.3 |
|
|
Customer Decision Criteria |
3.4 |
|
|
Market and Segment Size and Growth |
3.5 |
|
|
Market Projections |
3.6 |
|
|
Competition |
3.7 |
|
|
4 |
Competitive Business Strategy |
|
|
Pricing Policy |
4.1 |
|
|
Promotional Plans |
4.2 |
|
|
Choice of Location and Premises |
4.3 |
|
|
Distribution Channels |
4.4 |
|
|
Anticipated Mark-up |
4.5 |
|
|
Competitor Response |
4.6 |
|
|
Market Share Projection |
4.7 |
|
|
Economic, Political, Social, Legal Factors that Affect Strategy |
4.8 |
|
|
5 |
Selling |
|
|
Current Selling Method(s) |
5.1 |
|
|
Proposed Selling Method(s) |
5.2 |
|
|
Sales Team |
5.3 |
|
|
In-house support |
5.4 |
|
|
6 |
Manufacturing |
|
|
Make or Buy Considerations |
6.1 |
|
|
The Manufacturing Process |
6.2 |
|
|
Facilities Needed |
6.3 |
|
|
Equipment and Machinery Needed |
6.4 |
|
|
Output Limitation, if any, and Scale-Up Possibilities |
6.5 |
|
|
Engineering and Design Support |
6.6 |
|
|
Quality Control Plans |
6.7 |
|
|
Staffing Requirements |
6.8 |
|
|
Sources of Supply of Key Materials |
6.9 |
|
|
7 |
Forecasts and Financial Data |
|
|
Summary of Performance Ratios, ROI, etc |
7.1 |
|
|
Sales Forecasts |
7.2 |
|
|
Assumptions Underpinning Financial Forecasts |
7.3 |
|
|
Profit and Loss Accounts |
7.4 |
|
|
Cash-flow Forecasts |
7.5 |
|
|
Balance Sheets |
7.6 |
|
|
Break-even Analysis |
7.7 |
|
|
Sensitivity Analysis |
7.8 |
|
|
8 |
Financing Requirements |
|
|
Summary of Operations Prior to Financing |
8.1 |
|
|
Current Shareholders, Loans Outstanding, etc |
8.2 |
|
|
Funds Required and Timing |
8.3 |
|
|
Use of Proceeds |
8.4 |
|
|
The Deal on Offer |
8.5 |
|
|
Anticipated Gearing and Interest Cover |
8.6 |
|
|
Exit Routes for Investor |
8.7 |
|
|
9 |
Business Controls |
|
|
Financial |
9.1 |
|
|
Sales and Marketing |
9.2 |
|
|
Manufacturing |
9.3 |
|
|
Other Controls |
9.4 |
|
While a business plan is not a work of literature it should read well. Anything essential that could impede a smooth flow should be consigned to an appendix and either summarized or referenced in the main body of the business plan.
Items best included in an appendix include:
A ‘prospectus’, such as a business plan seeking finance from investors, can have a legal status, turning any claims you may make for sales and profits (for example) into a ‘contract’. Your accountant and legal adviser will be able to help you with the appropriate language that can convey your projections without giving them contractual status.
This would also be a good time to talk over the proposal with a ‘friendly’ banker or venture capital provider. They can give an insider’s view as to the strengths and weaknesses of your proposal.
When your first draft has been revised, then comes the task of editing. Here the grammar, spelling and language must be carefully checked to ensure that your business plan is crisp, correct, clear and complete – and not too long. If writing is not your trade, once again this is an area in which to seek help. Your local college or librarian will know of someone who can produce ‘attention-capturing’ prose, if you yourself don’t.
However much help you get with writing up your business plan, it is still just that – your plan. So, the responsibility for the final proof-reading before it goes out must rest with you. Spelling mistakes and typing errors can have a disproportionate influence on the way your business plan is received.
The other purpose of editing is to reduce the business plan to between 20 and 40 pages. However complex or sizeable the venture, outsiders won’t have time to read it if it is longer – and insiders will only succeed in displaying their muddled thinking to full effect. If your plan includes volumes of data, tables, graphs, etc, refer to them in the text, but confine them to an appendix.
Your business plan should be visually appealing. Dense text, poor layout and clutter all serve to put your reader off. Create a favourable impression from the outset and you will have them on side. These are the most important guidelines to make your written business plan stand out from the crowd.
Now you are ready to send out your business plan to a few carefully selected financial institutions that you know are interested in proposals such as yours.
This will involve some research into the particular interests, foibles and idiosyncrasies of the institutions themselves. If you are only interested in raising debt capital, the field is narrowed to the clearing banks for the main part. If you are looking for someone to share the risk with you, then you must review the much wider field of venture capital. Here, some institutions will only look at proposals over a certain capital sum, such as £250,000, or will only invest in certain technologies.
It is a good idea to carry out this research before the final editing of your business plan, as you should incorporate something of this knowledge into the way your business plan is presented. You may find that slightly different versions of Section 8.5, ‘The deal on offer’, have to be made for each different source of finance to which you send your business plan.
Do not be disheartened if the first batch of financiers you contact don’t sign you up. One Cranfield enterprise programme participant had to approach 26 lending institutions, 10 of them different branches of the same organization, before getting the funds she wanted. One important piece of information she brought back from every interview was the reason for the refusal. This eventually led to a refined proposal that won through.
It is as well to remember that financial institutions are far from infallible, so you may have to widen your audience to other contacts.
Finally, how long will it all take? This also depends on whether you are raising debt or equity, the institution you approach and the complexity of the deal on offer. A secured bank loan, for example, can take from a few days to a few weeks to arrange.
Investment from a venture capital house will rarely take less than three months to arrange, and will more usually take six or even up to nine months. Although the deal itself may be struck early on, the lawyers will pore over the detail for weeks. Every exchange of letters can add a fortnight to the wait. The ‘due diligence’ process in which every detail of your business plan is checked out will also take time – so this will have to be allowed for in your projections.
If getting someone interested in your business plan is half the battle in raising funds, the other half is the oral presentation. Any organization financing a venture will insist on seeing the team involved presenting and defending their plans – in person. They know that they are backing people every bit as much as the idea. You can be sure that any financiers you are presenting to will be well prepared. Remember that they see hundreds of proposals every year, and either have or know of investments in many different sectors of the economy. If this is not your first business venture, they may even have taken the trouble to find out something of your past financial history.
Keep these points in mind when preparing for the presentation of your business plan:
Other topics to consider are:
Often the person you are pitching your proposal to is short of time. As a rough rule of thumb, the closer you get to an individual with the power to make decisions, the less time you will get to make your pitch. So you need to have a short presentation to hand that can be made in any circumstance – in a plane, at an airport or between floors in a lift, hence the name ‘elevator pitch’.
CASE STUDY Lara Morgan
Lara Morgan, founder of Pacific Direct, the hotel toiletries supplier, had come a long way from the garage in Bedford, England, where she started up her business, when she had the opportunity to pitch for a strategic alliance with one of the most influential players in her market. The scene was set for her to make a relaxed pitch over coffee at the Dorchester Hotel in Park Lane, when at a moment’s notice the situation changed dramatically. Lara was told that due to a diary change she had 15 minutes in a chauffeur-driven limousine en route to Harrods to make her proposition.
She was prepared, made her presentation and secured a deal that was instrumental in creating Pacific’s unique 5* hotel strategy. Pacific now has Penhaligons, Elemis, Ermenegildo Zegna, Nina Campbell, Floris, The White Company and Natural Products in its world-class product portfolio.
There is a tendency towards secrecy amongst innovators, and those starting new ventures are no exception to this rule. However with an NDA in place there is no reason not to take outside advice, and indeed every reason to do so. Anyone reading your business plan will draw comfort from the fact that they are not the first, and that your ideas have been honed on the wisdom and experience of others.
In fact the more qualified, experienced and prestigious your advisers, the more their input will enhance your business plan, in the eyes of the reader. After all, rather than being the untested ideas of one or two people, they have been validated by professionals. If an accountant has looked over the figures, a lawyer the intellectual property rights, an engineer your prototype design and a software consultant your website plans, then real value will have been added to your proposition.
If you know or have access to people with a successful track record in your area of business who have time on their hands, you can invite them to help. The Index of online business planning resources lists organizations that may have people able and willing to help. If you plan to trade as a limited company (see Assignment 3) you can ask them to be a director, without specific executive responsibilities beyond being on hand to offer advice. Check out organizations such as Venture Investment Partners (www.ventureip.co.uk) and First Flight (www.nonexecutivedirector.co.uk/contact-us-employers.asp), who claim to have successfully completed over 170 Chair and Non-Executive Director assignments to date. Their non-exec database in the UK has over 7,000 candidates.
There are a number of software packages, some free, that will help you through the process of writing your business plan. The ones listed below include some useful resources, spreadsheets and tips that may speed up the process, but are not substitutes for finding out the basic facts about your market, customers and competitors.
Don’t be either surprised or disheartened if your business plan doesn’t get the reception you hope for. Anita Roddick’s Body Shop proposition was turned down flat. It was only when a local garage owner, Ian McGlinn, advanced her £4,000 in return for 25 per cent of her company that she got the money to open a second shop; a deal that netted him a couple of hundred million and her considerably more. Tim Waterstone’s business plan was turned down by bank after bank, for being too ambitious. They wanted him to open a bookshop, while he had set his sights on a chain. Eventually he got backing and went on to build his chain, change the shape of book retailing in the UK and sell his business to his former employers, WH Smith, for £47 million.
There are hundreds of reasons why business plans are turned down. According to venture capitalists, who turn down 95 propositions for every 100 they receive, they are just not convinced by the proposition. That is, convinced that the plan has been well thought through, properly researched and that the person or team are up to the task.
These measures will help you to refine your business plan and minimize the chances of ultimate rejection.