Seven steps to creating your business plan
Start with the end in mind
When it comes to planning, there’s so much information available to help you write and it can become overwhelming on how to start — so we’ve listed the key areas your plan should include to help you begin. Essentially, the only real difference in creating a business plan for your start-up and that of an established business is how well the market will respond to your proposition as your level of uncertainty is greater, but the structure of the plan is the same.
Funders, management and shareholders
Before you begin — think about how and who will you use the plan. Each stakeholder may be using the plan for different purposes, so ensure your plan addresses each one. This is often overlooked, but saves you having to re-invent the wheel every time you have a meeting where your business plan is required.
Funders / potential backers — this could be equity finance/venture capital or business angel in the case of a start-up. Your plan must address their concerns such as acquisition opportunities and making the business ‘saleable’.
Management — addressing the goals and the running of the business, setting out how your business will operate and what return your investors should expect to see over the term of your plan.
Shareholders — it is also common for a business plan to be attached and referred to in a shareholders’ agreement, so keep the plan as short as possible.
A shareholders’ agreement sets out the respective rights and obligations of the shareholders and how they have agreed that the company will operate. Typically, a business plan would be appended to the shareholders’ agreement and the shareholders’ agreement will include restrictions on amending that business plan. For example, a private equity investor will want to ensure that it has input and control over any changes to the business plan.
The plan can also be referred to in other ways. A shareholder may be happy to allow the other shareholders to control the Board but may want step-in rights if any milestones in the business plan are not reached. A business plan can also therefore be used to provide protection to the shareholders.
Follow our simple guide below to help you start.
1.Executive summary — this is often easier to write at the end. It provides an overall summary of what the plan contains, with key highlights and can address key questions that a decision is required on.
This part can also be tailored according to your purpose of use. For example, if you are attaching your business plan to a shareholders’ agreement, you might look at adapting this to address what’s required, and also identifying and highlighting any key next steps or actions for the Board. For shareholders’ agreements, this will allow you to reach agreement with your investors and your shareholders on these decisions now, rather than putting off the discussion until a later date.
2. Your business — do not assume that anyone reading your plan has background knowledge of your business. Identify your business strengths and weaknesses — whilst it may appear negative to identify weaknesses, by doing so you can also set out the steps that you are taking or intending to take in order to address those issues or potential issues. Similarly, by identifying your strengths you can identify how to build your business.
3. Your market — include an analysis of your market and your competitors. This will also help identify any new opportunities.
4. Mission and objectives — this is why you exist, the purpose of your business and what you want to achieve, so clearly state your mission and objectives (financial and non-financial) over a given timescale.
5. Your first 100 days — milestones & KPI’s — summarise your planned key steps, for example, do you need to protect the intellectual property in your business — such as any trademarks, designs, patents or other intellectual property?
Ensure your planned steps include activities that will be used to measure progress, particularly in the first 100 days and throughout the term of the business plan, for example, introducing a particular product or expanding your customer base to a given level.
6. Financial plan — this sets out the projected income and expenditure of your business.
— Back up any figures you use in your plan by including links to your source data or attaching the relevant information in an Appendix.
— Provide an explanation of how any estimates in your plan have been calculated. You should include historical financial information if possible. This will allow you to compare your existing business history with your projected income and expenditure and explain any differences between the two.
7. Resources: manpower and money, and all things ‘operational’
Who are the key staff involved in operating the business — and any plans for expanding your key management team, for example, do you propose to attract key management by introducing any long term incentive plans (share options)?
People and management — very important for start-ups, VCs often look for vision, passion and enthusiasm in the business proposition so don’t underestimate having the right team in place!
Marketing: the lifeblood of a start-up — know your potential customer base and have the right people in place to sell to them.
Operations — identify capital expenditure items; supply chain / distribution / logistics; quality control and IT.
Regulation and compliance — what sector you operate in and what’s needed?
Risk — consider any potential risks that may affect your business in the future and how you intend to protect your business if those risks arise.
For all of the above it is crucial to get right contracts in place, and the right terms negotiated that are favourable for your start-up.
Finally, don’t forget to measure and report on a regular basis to keep on track!!! and consider adding documents as an appendix in order to keep your business plan succinct and to the point.
If you want to know more about how you decide what’s best for you or talk through your plans, please get in touch with us — Trowers’ start-up team. We have produced a series of fact sheets to help start-ups, click here to access our online resources.
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Trowers & Hamlins LLP has taken all reasonable precautions to ensure that information contained in this document is accurate, but stresses that the content is not intended to be legally comprehensive. Trowers & Hamlins LLP recommends that no action be taken on matters covered in this document without taking full legal advice.