Business Planning

[Digger]

OK, a simple enough question - but I do not seem to be able to find the answer anywhere!
How can you possibly write a Business Plan if you do not have the actual figures?

For example if planning to buy and run an existing business - you know the type of business - but as yet have not yet got as far as knowing how much you will need to borrow and therefore no idea what financial arrangements will be impacting on any turnover/profit figures that are attached to any business you are thinking of buying into.
This in turn obviously makes it difficult to give any realistic assumptions on future growth.

I've gone round in circles on this one as all Business Plans I have seen thus far quite rightly give this a high priority.

I'm in agreement that the "plan" should be more than just a financial document, but I certainly don't want to leave this area blank.
Does anyone have a clue as to how to tackle this?

 

[Gillie]

Yes its difficult when you first start out trying to think what it a realistic figure and what is not!

For example in your cashflow, you will show costs ie what you will spend on utilities, insurances, phones etc etc and this is quite easy as you basically know these. But sales that is a difficult one. You have done your research into the market and have set yourself certain targets, you then put in those figures and work it back .... does your costs still outweigh your sales or is the amount left over enough to finance you? If not you look again at your targets, and decide if they are attainable. All assumptions should be backed with evidence if at all possible ie insurance costs could be shown with a quote, etc.

Dealing with business plans and cashflows everyday from companies who wish to borrow, I get to see some really strange ones. Can I just point out that doing your cashflow should be net of VAT, as some dont and then put in various repayments from the vatman that they are claiming back, when they dont actually fully understand what is vat reclaimable ie insurance is not!

 

[Alpha]

You seem to be starting off at the wrong place!!

The business plan should describe exactly what your business needs to achieve and how it will do it.

If you look at the main components of a business, Products and services, marketing and sales, people, assets, and systems and processes, thinik how each of these will fit into your business and write it down on paper.

This will then give you the basis of your business and from this you will be able to derive the financials.

A number of assumptions will need to be made and challenged but when you have put the financials together this will provide the 'acid test' as to whether your business will have potential or will be a non starter.

Even then a number of scenario's should be built on a 'what-if' basis so that you can try to cover every eventuality e.g. what factors may cause sales to be less/more than the plan, what is the financial impact and what can I do to reduce/increase the impact.

(It is amazing how many people when producing a business plan for a bank will come out with something like "we must increase the sales figure" or "We must reduce x costs" otherwise they will not give us the money.........unfortunately the answer is usually that the business should not go ahead in the first place!!!)

The figures that go in your financials must come from educated guesswork based upon thorough research of the market you intend to go into.

 

[Mike by the Sea]

Hi Digger

I agree with the responses from Gill and Alpha.

At the end of the day a business plan is an educated estimate of the business.

If you take on a business, you would start with some key assumptions that you want to achieve and then how you would go about achieving them.

What are the risks? How would you go about mitigating them?

The essence of a good business plan, in my opinion, is one that is realistic and has reviewed the known risks and opportunities. Also, key milestones that can measure the performance of the business at that point and how things are going against the plan.

Of course we don't know everything, so always make sure that you have a contingency plan and allow for the unexpected, because it always happens.

From your list of key assumptions etc. will come the financials that are associated with them. Then stand back and look at them and see if they stack up. It will take a few goes round the buoy to get there, but I am sure that you will end up with a plan that you believe in and can make happen.

 

[Digger]

Thank you for taking the time and for your input.
Like many people starting - I am only now getting into areas that previously had little to do with. I understand them to a point , but I am not an expert in these areas, and would prefer to use professionals.
However I need to get to grips with this myself,as it is fundamental not only to obtaining the extra finance - but also to the ongoing health of the business.
I'm fairly cautious by nature - Therefore I would try to build in contingencies to cover for unseen mishaps where I can - as even I know Sods Law.
What I don't want is my natural caution to prevent me getting out of the starting gate