How To Plan Your New Business

The best business idea will, without a solid business plan that helps to secure finance, remain just that – an idea.

So, if you want to get that idea off the ground and start a new business or to grow your existing business further, what do you need to consider?

The first step is to qualify your idea, consider whether it will appeal to consumers and if it is a viable commercial proposition. This should include researching your potential market to analyse the demand for the service/product, the overall size of the market and your competitors.

Third-party advice will help you to evaluate your business idea – friends, family or professional advisers should be sought to provide you with a sounding board.

Once you've determined that your idea is commercially viable, you'll need to work out the vision for your business. Do you know what you want your business to achieve?

You need to be clear on where you want to go and how you are going to get there. Set yourself definable objectives in accordance with this and have your assumptions challenged to get an alternative perspective.

It is only once you've qualified your idea and considered what you want your business to achieve that you are in a position to write a business plan that will outline how you’re going to get there.

A business plan is the key to obtaining the much-needed cash to finance your business idea. Whilst a business plan must be written and owned by you, advice at this stage is crucial.

A huge percentage of enterprises fail to obtain financing because they write a poor business plan or approach the wrong people.

When drafting your business plan, it is important to remember that it should be written and owned by you reflecting your character because it will be you that will be answering the questions from the finance providers.

You must be clear about how much and what type of finance you need and who you should approach. Make sure you give them what they want to see, not what you want to write.

For example, whilst lenders want to see immediate success in order to meet quarterly interest payments, they generally seek a return on their investment over a long period of time.

When considering providing finance to a business, both lenders and investors will primarily look at three aspects: its management, its management and its management. A business stands or falls by the strength of its management and they will be looking for this to be communicated in the business plan.

Alongside demonstration of management strength, lenders and investors require a business plan that provides a detailed description of what the business does, what competitors in the market are doing and what makes this business better than its competitors. Investors and lenders both want to understand how and why it will succeed.

The key to any investor or lender's decision will be the financial projections for the business, both in terms of borrowings and in terms of earnings for the business.

Whilst a lender will also want to understand the projected cash flow and estimated sales and profits over the next three years, the investor will be looking more closely at the prospects for growth for the business.

Lenders and investors have to take a calculated risk when providing finance to a business, so it is only natural that they will want to consider the downside. When drafting your business plan aid this process by providing financial assumptions.

Draft two projections, including a worst-case scenario that at least shows the business being able to service the required funding. If you need maximum sales from day one, with money being paid exactly in line with your terms of trade to succeed – ie: no latitude for error – getting the money may prove very difficult. Halving the income and doubling the costs in the early days of a new business venture is a very useful piece of advice.

Never include complicated spreadsheets in the body of the plan and rely on the reader to make sense of them. Include a simple matrix of key information and set out in the text your key assumptions on which these figures are based. If necessary, include them in the appendices and invite the reader to refer to them if they so choose.

By raising as much money as you can from your own resources, friends and family you demonstrate to any investor or lender that you are "putting your money where your mouth is" and sharing the financial risk. There is no better way to demonstrate you truly believe that this enterprise will succeed.

It is also worth remembering that lenders will want to see that the predicted borrowings will be amply protected by security should the business not be the success everyone, including the lender, hopes it will be.

Consider the types of questions you might be asked about your plan and prepare responses to them. Finally, prepare and practice your presentation prior to the event.

The general rule of thumb is that you should spend three times as long practicing your presentation as it will take to actually present it. That should ensure your presentation is as polished as the plan itself.

Last, but not least, good luck! But don't forget that luck is when good preparation meets opportunity...