Let’s be honest: nobody starts a business wanting to fail. Most new companies start with a fantastic dream of new opportunities and future successes.
But the depressing truth is that a lot of businesses do fail. In fact, 50% of all UK start-ups go bust within five years.
Why? Because there are so many hurdles new companies have got to overcome – from unforeseen overheads, complicated tax rules, access to funding and everything in between.
The good news? You don’t have to be one of those sad statistics, because it is absolutely possible to overcome these start-up hurdles and get your new company off to a flying start.
All you need is an ironclad business plan – and we’re here to help.
This quick guide will break down what a business plan is, why it’s important and what you’ve got to include in your business plan to help you get your new company on the fast-track for success.
What is a business plan and why is it important?
First thing’s first: what exactly is a business plan? It’s basically just a written document that describes everything you know (and want others to know) about your business.
A business plan covers your business objectives, strategy, product or service line, marketing plan, projected finances and more.
It’s pretty much your company’s blueprint, and it needs to weave together all aspects of starting up a business to provide an outline of where you’re coming from, where you’d like to be and how you plan to get there.
Why are business plans important? According to researchers from the Strategic Entrepreneurship Journal, businesses with a business plan are 16% more likely to succeed than companies without a business plan – and it’s true for a few different reasons.
First and foremost, having a formal business plan is great for your sanity.
It keeps you on-track, helps to manage expectations and offers partners or employees a simple explainer of how you want things to run. The process of sitting down and writing out your plan can also expose any gaps in your strategy or supply chain you hadn’t previously considered.
But more practically, a business plan is also important for gaining access to business funds. If you apply for a small business loan, most government agencies of high street banks will request a copy of your business plan before they’re willing to let you borrow a penny.
By presenting a loan manager or seed investor with a watertight business plan, you’ll be able to show that you’ve covered all your bases and that lending your new business money will generate some degree of return on investment (ROI).
What should you include in a business plan?
Full disclosure: here in the UK, business plans aren’t a legal requirement for limited companies. As a result, there aren’t any set rules on how you write a business plan or what you should include.
But if you want to set yourself up for success and tick all the boxes lenders will expect to be ticked, you absolutely must include these basics:
- Executive summary and elevator pitch
This is a quick summary of what’s in your business plan, along with a short mission statement.
- About you
This section should spell out your background, experience and motivation for setting up a new business.
- Your products or services
This part is for explaining exactly what it is your company will do. Describe your products or services and how much you plan to charge for them.
- Your customers
Include information about the demographics you plan on selling your goods or services to and why you think they’ll give you business.
- Your competition
This section should outline research you’ve conducted on your competitors, your location and unique selling points (USPs). One of the easiest ways to do this is to make a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis.
- Your marketing strategy
Describe how you plan on marketing your products to reach your target market.
- Operations and logistics
You should use this section to spell out how your business is going to run on a day-to-day basis. This includes everything from how you make products or service customers, to fulfilling orders, human resources, company admin, plans for limited company formation and everything in between.
- Your financial forecasts
In this section you’ll need to explain and rationalise your income expectations to demonstrate a positive ROI. The best way to do that is to add in a cash flow forecast.
- Your back-up plan
Things don’t always go the way we want them to. That’s why the best business plans include a disaster recovery plan that outlines how you’ll respond if you experience data problems, get an influx of competitors or something goes wrong with logistics.
It’s important to remember that this list is just your bare bones. No two businesses are alike, and so no two business plans should be identical, either. That’s why you’ve got to sit down, do your research and have a long, hard think about what your business will need to survive and thrive.
How to get limited financial liability
A critical part of the business planning stage is looking at how your new business is going to be structured. No matter how big or how small your dreams may be, you’ve got to make sure your personal finances are protected.
That’s why a lot of business owners decide during the business planning stage to legally incorporate a limited company.
What does that mean? Incorporating (or ‘forming’) a company is the process of registering your business as a limited company with Companies House – the UK Government’s company register.
If you incorporate a company, you’ll officially transform your business into its own legal entity. That means your business will become its own individual person in legal terms, which is really important if bad luck strikes and your company fails.
There are a few different company types to choose from, but the most common is a limited by shares company.
This company type drives a wedge between your personal and company finances, liabilities, contractual agreements, property and assets. You’ll essentially decide what you want the business to own, and then establish ownership over those assets in the form of company shares.
Shareholders are your company owners, and their financial liability in the company is limited to the value of the shares they own (shares are often valued at just £1). Anything above that amount is protected – so if your company runs into bad debts and collectors come knocking, all of your personal cash and belongings will be legally protected.
Ready to learn more?
This is just the tip of the iceberg. So, we’ve covered what a business plan is, why it’s important, what you should include and why it’s critical that you protect your finances by forming a limited company.
But there’s loads of support out there for start-ups and new business owners. To help get you started, there’s loads of great information right here on MoneyMagpie – and they’ve also got plenty of resources available over at the 1st Formations blog.
Just remember: if you want your business to succeed, you’ve got to plan ahead. Drafting an ironclad business plan will put you in the best possible place to hit the ground running and achieve your dreams.