In the first of our Golden Rules of Entrepreneurship series we explore the key things SMEs need to do to build a successful business plan that’ll help them get ahead.
The way we do business now has changed dramatically from older, pre-digital days. Now, when you can dream up a business idea, set up a website and start offering products or services within the space of an afternoon, it’s no wonder that many entrepreneurs make the most of instant connectivity and rush into the world of business.
Unfortunately, this can have a knock-on effect, with a UK SME survival rate of just 91% for the first year of trading, and a rapid drop to just 40% after five years of trading.
These unfortunate endings for new companies can be attributed to an understandable lack of experience around the management of key areas, such as business planning, management of cash flow, alignment of customers and product offering. Even the most experienced can find these tricky.
So, we’ve gone ahead and decided to help make planning easier, so entrepreneurs and start-ups can be ready for anything, regardless of their type of business. Check out the essential business plan sections and a rundown of how to fill them out below.
1. Mission statement
Your mission statement is what defines your business purpose and what you stand for as a company. It will tell your staff what they’re working towards wherever they are in the world and tell your customers why they would want to buy from you. Importantly it’ll also tell your potential investors whether you have a strong belief and direction – which could impact your ability to raise finance. Here’s IKEA’s mission statement, which is instantly recognisable to anyone who has experienced their brand:
“At IKEA our vision is to create a better everyday life for the many people. Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”
2. Your Brand
Your brand is what makes you stand out from other businesses. It dictates how people see and interact with your business. Knowing how you want to be viewed will help you to define how you grow and connect to customers.
For example, are you aiming for a young demographic who engage with exciting and inspirational words and visuals through their smartphones and laptops? Or maybe you’re selling financial products and need to be a confident and trusted partner? Knowing the identity of your business will shape your communications more efficiently and how you present yourself to the world.
3. Your Product
Why does your business exist? Why should people believe in your product? What’s unique about what you’re offering? These questions should be answered by your Unique Selling Proposition (USP) If you haven’t got a USP, can you find an Emotional Selling Proposition (ESP)? This is an emotional reason your business stands out and will attract customers.
These are all essential questions that will help shape your drive and determination, as well as giving a strong message that your product deserves consideration.
Not only this, you need to put some thought into how you fit in relation to competitors – your “positioning”. It’s unlikely that what you’re offering is 100% unique, but there will be something that sets you apart. In the same way that there’s space in the market for multiple retailers offering the same or similar products – like Pepsi and Coke or Prezzo and Zizzi – you can find something to set yourself apart, something that resonates with customers, even in a crowded market.
4. Your market
Having a great product and good intentions isn’t enough. Every business is subject to things which are out of their control, so make sure you perform detailed research on your:
It’s likely your competitors are going to be established in the market. They may provide products and services similar to yours, so it’s time to analyse what’s effective and what isn’t. They’ve already done the groundwork, so see what you can learn from them and discover how much of a threat you can be to them and their established business.
This could be as simple as pulling out your smartphone and doing a quick Google search on people who offer the same service as you do in the local area. If there are three other landscape gardeners nearby then learn everything you can and how you can show potential customers that you can do it better.
Market share, trends and ambitions
A market share is how much of the market/customers a company controls. For example, when you move into a new marketplace you’re going to be challenging the existing brands to take some of their existing share. The higher your share the more sales and the better it will be.
Investors look at fluctuations of market share as a sign of the competitiveness of your products. If your share grows then it’s a sign you’re more successful than your competitors and are a better investment prospect.
Your business plan needs to have a market analysis and an estimate of what you think your market share will be. Not only that, your plans for growth and expansion should include estimates on how big you plan to get and how you’re going to achieve those goals.
Showing an awareness of market trends, whether they’re environmental or political, will not only prepare you for taking advantage of them but go the extra mile in convincing investors that you’re fully aware of the challenges you’ll inevitably come up against.
5. SWOT Analysis
A SWOT analysis is what businesses do to identify their own strengths and weaknesses as well as the external opportunities and threats. Use these questions as a starting off point:
• What do you do better than anyone else?
• What is your USP?
• What unique resources can you draw upon that your competitors can’t?
• What could you improve? What areas could you look to invest in more?
• What are your weaknesses?
• Why have you lost sales in the past? For example, has a slow internet connection stopped you from reacting to customers quickly enough?
• What are the biggest trends you’re aware of right now? For example, how could technology make your business more streamlined and efficient?
• What opportunities are available to you?
• How can you make the most of them?
• Who are your biggest competitors?
• What are your biggest competitors doing in the market? i.e. slick social media presence, great website.
• What is the biggest threat to your business right now? i.e. new government regulations, new technology, high staff turnover.
6. Business Cash Flow
Business Cash Flow differs from gross sales revenue (the amount of money coming into your business from sales), because it shows the total amount of money going out of a company as well as coming into it.
Knowing the ebb and flow of the cash coming in and your overheads and expenses is essential. You need to be able to understand what needs to be paid, and when, and that you have the resources to cover everything without being caught short. The timing of invoices, payments to suppliers and staff and even paying your phone bill need to be perfectly timed.
7. Revenue Projections
Revenue is established from the income your business has earned. This could be from any service or source, like fees for late charges or interest payments. Generally, these are measured in specific periods, like quarters or years. Revenue can also include invoices which have been sent out but not yet been paid.
Revenue projections are estimates of how much money your business will generate during a specific period. You will form these by looking at sales trends, independent market research and analysis of your growth. For example, if your profits have increased 10% per month for the last nine months then it’s safe to project that the following month will do the same.
Factoring in significant growth such as new regular clients, getting your product stocked in new locations or expanding your sales team could all impact growth and should be factored into your projections. Sometimes upgrading your internet connection or your smartphones can have a huge impact on your productivity and efficiency, particularly if you’ve grown your team and have been making do with outdated devices.
By going through these seven stages you’ll have put your business through its paces and got to grips with the ins and outs of it. Your business plan should help you generate trust from external parties and guide you no matter what stage you’re at – from start-up to established.
When you’re prepared, your business can be ready for anything.
To see how your business compares in terms of digital readiness to 5,000 other UK businesses, visit our Ready Business Indicator here.