If you are looking to grow your business, there are three key tools you should have in your arsenal: a comprehensive business plan that provides a clear roadmap for your company’s future; an understanding of how budgets can be used to streamline your business and identify unnecessary costs; and cashflow forecasts to see how and where money and funding will be spent in the future.
It’s vital to have a thorough understanding of what should be included in a business plan, particularly if you are seeking additional funding. This, together with a solid understanding of how cashflows and budgets are produced, will set you in good stead for moving your business forward.
Understanding business plans
A business plan is a document describing a company’s core business activities, and how it plans to achieve its goals. Put simply, it is a statement of how you plan to turn your dreams into a reality.
Basic elements include an executive summary of the business and detailed descriptions of its products, operations and services. A good business plan should also outline all the projected costs and possible pitfalls of each decision a company makes, together with realistic financial projections. Depending on what stage of development your business is at, you may opt for a lengthier, traditional plan or a shorter, pared-down start-up plan which highlights the key elements.
No business plan should be a static document; rather, it should be a ‘living document’ that evolves as your business grows, acting as an internal guide for the executive team to remain focused on working towards short- and long-term objectives.
How to write a business plan
Writing a business plan is one of the most integral steps in running a successful business, whether you’re a sole trader, partnership, or limited company.
According to the Federation of Small Businesses (FSB), a business plan should include seven key sections:
- An executive summary – a brief overview of the key points of your plan.
- A business description – this goes into more detail about what your company does, its history, the products or services it sells, and your customer base.
- Details of market strategies – this is where you talk about the strategies you are currently using to bring your products and services to market.
- Competitor analysis – here, you will identify your main competitors, their strengths and weaknesses, and the differentiators and unique selling points (USPs) that will help your business stand out from the crowd.
- A design and development plan of your products and services – this is where you detail your plans for expanding and developing the products and services you sell, and how you will market these to customers.
- Information about your operations and management plan – here, you will outline your company’s legal and organisational structure, including the roles and responsibilities of management and staff.
- Financial information, planning and factors
Section seven should contain important financial factors including an income statement, cashflow forecast and balance sheet. When a company is seeking funding, banks, lenders and investors will want to see an accurate business valuation, as well as evidence of their ability to pay bills and – most importantly – earn a profit.
Try above all to make your plan unique – although templates such as this one provided on the government website can be used as a starting point, try to avoid producing something too generic. After all, the whole point of writing a business plan is to distinguish yourself from your competitors!
The importance of cashflows
An important part of your business plan is being able to forecast your cashflows in (i.e., through earnings/sales) and cashflows out (i.e., spending) and to keep track of these flows each month so that you can manage your working capital effectively.
Understanding cashflows means you can:
- Better understand your financial position.
- Easily identify any cashflow shortfalls.
- Ensure you can make payments to suppliers or employees.
- Demonstrate financial strength when applying for funding.
- Clearly demonstrate to lenders and investors how funding will be spent in the future.
- Get a clearer understanding of the financial health of your business.
A detailed cashflow forecast will need to be shown whenever you apply for additional funding, as this will help lenders and investors to understand whether the exchange will be mutually beneficial. If a business’s cashflow forecast shows negative cashflow for an extended period of time, for example, then a lender may have concerns that they may struggle to satisfy loan repayments when they become due.
Planning and organisation are hugely important; a business that has a clear understanding of when cash is due in and going out the door will be able to better maintain a positive cash flow and present itself in a better light.
Budgeting is all about planning your income and expenditure, to make sure that you’ve got enough money to invest in equipment, staff and other essentials that you and your business need; that your money is spent on the right things at the right time; and, ultimately, that your business won’t run out of money.
To get you started with your first budget, the FSB recommends downloading a template like this one from the Association of Accounting Technicians (AAT). It can help you record your income from expected sales, as well as your fixed and variable outgoings. Fixed outgoings include costs that don’t change, such as wages and rent, whereas variable outgoings include expenditure that is subject to change, such as the purchase of new equipment and stock, or payments to suppliers.
If your budget shows that your business is in in a decent financial position, it’s definitely a good idea to put aside some of your income towards a contingency fund – for example, a set percentage of 1% of all sales income. Not only can this money be used in case of an emergency, but it can also be utilised for taking advantage of any business opportunities that may arise.
No matter how well you may have planned ahead, you may not have factored in the current cost-of-living crisis, which is likely presenting additional financial challenges for your business. Rising inflation has seen supply chain costs soar for many businesses in recent months. At times like this it’s important to monitor your business’ ongoing costs, and to take steps to identify unnecessary and over-inflated expenditure wherever possible.
Talk to us
We hope that this brief overview has given you a better understanding of the importance of business plans, cashflows and budgets within your business. Look out for our next monthly article, which will talk about the role of research and development (R&D) in your business.
For further information or to discuss the contents of this article, please contact Jon Westley on 01392 258553 or email him at [email protected].