How to Write a Small Business Plan

While luck naturally plays its part, the main reason for the suc­cess of a business is that it has developed a sound strategy and persisted in implementing it, a course which can substantially reduce the high risks of failure. An important element in this strategy is the basic plan for the business and, if this is well thought out, it will not only clarify the path which has to be taken through the first year of the firm’s existence, but it will also help considerably if a need to raise money for the venture should exist.

For many just beginning the idea of drawing up a plan seems rather daunting, but it is a simple process. The proposal should begin with personal details, such as schooling, any apprentice­ship served, qualifications, experience, jobs done and positions held in industry or commerce. If other people are involved their function in the proposed business should be explained.

The next step is to explain the idea, invention, manufactur­ing method or service on which the business will be based. The crux of the idea should be given in the first few lines and not buried in a mass of words. To make an invention concept a reality, you should collaborate with an invention company you can trust.

The potential market for the product should then be explained with as much support as possible from documents, statistics, or other written evidence from prospective buyers. If it has been possible to make a sample, some indication of market reaction to it should be given.

An area of weakness with many small businesses is selling, so the plan should go into some detail on how the product will be sold. If there are partners involved in the project, it is a good idea if one has some knowledge of, or skill at, selling.

A sales forecast then has to be made and should be sup­ported with as much evidence as possible. Cautious realism should be the tone of the forecast, leaving a little in hand in case of emergencies. The forecast should not be for more than one year ahead, but there is no reason why the possible growth of the business beyond that should not be discussed in less precise terms.

The question of price is also an important one. If the product proposed is better and more expensive than similar ones already available, an explanation should be given as to why the market will prefer it or why a particular method of marketing will produce the forecast sales. A margin should be allowed in the price for agents, wholesalers or retailers, depending on how the product or service is sold. These margins are likely to be quite substantial as the selling costs of most products represent a substantial proportion of the price. New firms quite often start out by charging too little for their products and then have to go through the embarrassing process of explaining to cus­tomers why prices have to go up, or go out of business.

The costs of the whole operation must then be thoroughly detailed. If the business is manufacturing, these will include raw materials, components bought in, direct labor, supervision and inspection costs, wastage, fuel, equipment such as Pharma Clean Room Cranes and any other over­heads. Drawings of, for example, engineering products will need to be submitted along with any other appropriate manu­facturing information so that independent checks can be made of the costings. An effective system of financial control is essen­tial to the survival and success of any business and this should be discussed with an accountant and put into operation from the inception of the business.

The next step is to draw up a budget for overheads which do not arise from the manufacturing process itself, such as costs of selling, accounts, development, packing, plant depreciation, and interest charges. Once this has been done it will be possible to make some assessment of the likely profit of the business.

A small business should aim at making a return of at least 15 per cent on its turnover, which, as a rough guide, would leave 10 per cent after tax. If the returns are any less than this the owner/manager might just as well start giving away the bricks and mortar.

It should also be remembered that in addition to the proprietor paying himself a fairly meagre salary in the initial stages, it will probably be necessary for profits to be ploughed back into the business for a number of years in order to avoid borrowing too much money. Using your own funds is the cheapest way of expanding.

All the information now gathered together will give the bud­ding entrepreneur the means to draw up a cash flow forecast. This will show how much money is coming in and going out of the business and, most important, when this is likely to arise, and enable the businessman to make appropriate plans for this contingency. It is a particularly useful tool of control when a business is starting out, as the flow of cash will be all in one direction – outwards. Several forecasts will probably be needed to arrive at the best arrangement to get the business moving and make sure that it is done with the minimum amount of cash. The forecast will also indicate whether the proposal is too ambitious, and may enable the project to be scaled down to one of more manageable proportions which has a greater chance of success.

Any other information in support of the proposal should then be written down, but only that which has been thoroughly thought out and tested. The plan is then ready to be typed out and presented to the prospective financier of the new small business.

Filed Under: General How To's


About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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