Business Planning

“It is important to plan for your future because that is where you will spend most of your time.”
Mark Twain, novelist.

A well-designed business plan will help your clients reach the goal of becoming self-employed people with successful, sustainable and rewarding businesses. The business plan is primarily for your clients, but it is going to be of great importance to potential backers of their businesses. Your role will be to help clients realise the importance of a good business plan and to help them produce it.

The client and the business plan
The business plan is an essential tool, not an obstacle to be conquered. When they are drafting a business plan, clients may have the opportunity for the first time to really think through their ideas, their assumptions and all the implications. It is important that they appreciate the business plan’s role in this process. After all, they are the people who will be running the business, taking the risks and selling the product.

A business plan is a living thing, and needs to be updated as a client’s business evolves. For instance, there will be changes in customers and the markets for products, and inevitable changes in the price of raw materials. One great advantage of working through a personal business plan with your clients is that they will become more confident and skilled in completing the business plan templates that are usually required by potential funders. The process should also sharpen their thinking and their approach to the development of their business.

The contents of the business plan
Clients should explain what makes them the right people to be in their business of choice by outlining their relevant experience. This will include:

Any previous and current experience of the industry or business;
Examples of previous businesses they have set up and run. This is particularly important for clients who have run businesses in other countries. It shows initiative, resourcefulness and a track record in business development;
An indication of their strengths and weaknesses and what they will do to address the weaknesses to make the business a success. The strengths will include skills, knowledge and personal qualities. The analysis of weaknesses will show where they will need to draw on the resources and expertise of others. Thinking this through will bring home to your clients that they are good at some things but that they usually cannot be expected to do everything themselves;
Examples of their ability to get through the tough times. This will show where clients have shown determination, and the qualities and skills they used to get through those times. This in turn will show they have the strength to get through the challenges they will encounter in their businesses.

Selling the idea of the business to the potential funder
The business plan should be well-drafted, so as to excite the interest of potential funders. They will have to be convinced, or at least very sure, that if they put money into your client’s business they will be making a good investment and not throwing their money away. The Unique Selling Point (USP), where the client explains what is so different about her or his business, is vital to excite this interest. The business plan will go on to explain the business ideas and include a brief section on your client’s competitors.

Money – what the business will make and what will it cost
The business plan will contain financial information, explaining the income that the business is likely to make, the price of the goods, the quantity of products and the likely cost of running the business.

The price will be set by what customers will be prepared to pay, not by how much it will cost clients to make a product. There is, however, a break-even price, which is the minimum product price to cover the costs of production.
In terms of quantity of products, clients will need to know their market. They need to have a good idea of the number of customers who will be interested in, and pay for, their product.

This knowledge can be based on what clients have sold, or tried to sell, before they came to you to further develop their business. The questions you need to ask your client about this previous experience are:

Who are/were your customers, and will they keep on buying? Were they friends, family members or neighbours?
How long did it take to attract your first customers? This will give them some idea of the time it will take to set up the business and attract new customers. It will also indicate how long it will take to establish the business to a point that will make it profitable.

Ask your clients about their previous experience of the industry in which they want to set up their business. This will give a good indication of who and where customers are and the nature of their business opportunities.

Talking to similar businesses is an important way of finding out about the market for your clients’ goods. Although it is understandable that these competitors may not be entirely open about their businesses, it is always worth asking the question in case some are willing to share experiences.

Your client needs to be aware of the direct and overhead costs of making the product.

Direct costs are the resources it takes to make the product, including your client’s time. Clients frequently forget to factor in their time when working out costs. Time includes the purchase of raw materials and production and delivery times. Time spent invoicing and chasing payment from customers should also be considered.
Overhead costs are costs that will be fixed regardless of the product, and include heat, light, water, telephone, travel, rent and accountants’ and solicitors’ fees. Your clients will also need to pay themselves a wage from the business. Some Business Advisers call this “personal survival income” – what clients need to live and support their families. One way for clients to determine this cost is to look back over the last three months and work out their living costs for that period. This will give a good indication of actual living costs to include in the calculations.
The break-even point is the point at which the income from sales will match your client’s overhead costs.

Testing your client’s business plan
Your clients will need to show their plans to potential funders when making the case for funding. To ensure that the plan is as good as possible, it may be helpful to go through it with the client and ask some hypothetical questions about possible events. That way, you can both identify where the plan needs to be strengthened or where a client’s assumptions are incorrect. Potential funders will often ask “What If…” questions, to make sure that your clients know what they are doing and can make a success of their businesses.

Related Downloads:

Business Plan Checklist