All businesses plan to some extent, but the planning is often informal and ill-defined. You should always set out your business plans in writing, however roughly, because this forces you to define your ideas clearly.
Business planning is:
- Taking prudent, calculated risks rather than blindly reacting to events
- Making the best use of available resources
- Setting a path to achieve the lifestyle you want
Your franchisor will be able to provide you with information and additional help with the marketing and strategy aspects of the business plan.
Planning to plan
Consider:
- The information you need to assemble
- The initial decisions to be made
- The sales and marketing options open to you
Enlisting support
Assess the expertise and assistance you already have, and decide what additional help you need to prepare your business plan and harness your resources effectively. Again, your franchisor will be able to provide much help with the business plan.
Define your business
Examine your business ideas critically and check these against your initial perception of the marketplace. Identify the key features of your business.
- Analyse its strengths and weaknesses
- Consider the opportunities and threats your business faces
Scanning the market
The marketplace is the key to the success of your business. You should review the market for your goods or services and the competition you face.
- Use market segmentation to identify potential customers
- Use market survey methods to characterise your customers and their needs
Identify your niche
Only the largest businesses can afford to provide an overall service to all customers. Most companies have to choose between offering general services to a restricted range of customers and offering a niche or specialist service.
How can you best achieve profits?
You could, for example, restrict customers by geographical area or by some other classification within a wider area.
- Identify the features of your key goods or services
- Identify the advantages you have over competitors
- Identify your ‘USP’ (your unique selling point)
People profile
Now you can review the skills and knowledge needed to run the business. Compare this list with the abilities of the people currently working for you.
If certain skills or knowledge are lacking, consider whether training would be appropriate.
Remember, it is often better to buy in certain skills such as accountancy and marketing as and when they are needed. Other skills, such as selling and production, are needed constantly and should be available in house.
Prices and profits
Identify the relationship between prices and profits. Most businesses set prices low to maintain turnover, but the additional profits from higher margins can often outweigh any loss of turnover.
Decide on the impact of competitors’ pricing policies.
Marketing strategy
Marketing is deciding how to reach customers, maintain marketplace intelligence, secure additional customers and generate further revenue.
Some franchises have a national marketing campaign for which you will pay a monthly marketing fee. This will vary depending on your franchise.
It could include national TV advertising, directory advertising, such as in the Yellow Pages, direct mail and/or internet marketing. This is an area where your franchisor will be able to provide advice.
- Determine how you will attract potential customers
- Design the message and the medium required to evoke a response
- Prepare staff to service customers well, through training if necessary
- Perhaps prepare a separate, more detailed marketing plan
Capital expenditure and liquidity
Having defined the business you’re aiming for you now need to consider the financial resources needed. It’s easier to arrange borrowing in advance rather than approach your bank manager when you’ve exceeded your overdraft limit.
Most major retail banks have large franchise departments and generally speaking banks like ‘franchising’ because the business model has been proven.
Review the capital expenditure needs of the business and alternative ways of meeting this expenditure while retaining adequate liquidity.
Financial forecasting
This will cover:
Revenue
- Taking into account current turnover
- Making full use of marketing survey data
- Converting forecasts into targets
Expenditure
To estimate the expenditure that will be incurred in running the business we, as accountants, will:
- Identify and estimate fixed costs item by item
- Calculate variable costs on the basis of projected revenues
Profits
You can forecast the level of anticipated profits from the assumptions made to date about the business. Because nothing is certain in business, it is vital to apply a sensitivity analysis to the assumptions to identify which ones are critical to success.
Then you can carefully plan your reactions to possible scenarios, such as:
- How will you cope if a new competitor starts a price war?
- Could your production facilities cope with a large order? What would be the effect on your cashflow?
Funding review
This is a review of funding provisions for the business in the light of capital and cashflow requirements. The review will include:
- Identifying assets and liabilities, including money owed to you and stocks held
- Drawing up balance sheets based on the forecasts
- Identifying how much of the cash needed can be financed from profits or trade creditors. The remainder needs to be provided either by the proprietors or through borrowings
Once the plan has been prepared
Management information
To achieve the best results, you’ll need to monitor your performance against the business plan. This will give you early warning of when you need to respond to market developments.
Consider the key information you need to manage the business and the systems that will provide this:
- Plan to monitor revenues and costs
- Plan to manage cashflow
- Plan to manage people
Updating the business plan
You’ll need to decide when the business plan should be updated and how this will be done:
- Short term problems may require immediate revisions
- The year-end review of results will help in amending the plan
- Do not neglect to review the marketplace from time to time
- This is a never ending process. Your business plan should be a constantly evolving document.
