You might have found a great store and be determined to work hard to help the business realise its potential, but unless you can persuade a bank or other investor to take you seriously, there’s no chance of seeing your name above the door.
That’s where a business plan comes in – it’s a tool to help you get funding by describing the business, its objectives, strategies, market and financial forecasts. You’ll need to take an honest look at the store in order to write the plan, by providing details of how you are going to develop it, who’s going to play a part and how you will manage the money.
It’s important to do things properly, so if it all seems a bit daunting, the major banks have business plan templates you can use and adapt, plus it’s a good idea to speak to your accountant, or an advisor at your local Business Link (www.businesslink.gov.uk) or Enterprise Agency (www.nfea.com) to get advice.
The Federation of Small Businesses (FSB) reckons that the more research and preparation you do, the more likely you are to keep your bank manager on board. “You can write the business’s mission statement but with things such as cash flow, yield and year-on-year growth, you need an accountant to get involved,” advises FSB chief spokesman Stephen Alambritis. “Bank managers don’t want to take a bigger risk than they have to.”
David Patient runs Nearbuys in Canvey Island, Essex, and got an accountant to help him put together his business plan, as well as present it to the bank. “It was a substantial amount of work,” says David. “The more risk there is in something, the more important it is to do your homework – it’s better to spend a few hundred pounds on some advice, than risk losing thousands of pounds later on if there’s something wrong.”
When you’re putting the plan together, start by including a short description of the business opportunity: who you are, what you plan to sell, why and to whom. Put together an overview of your business, which means when you started or intend to start trading and the progress you have made to date, what you do, the history of the business, the legal structure and your vision for the future.
“Then describe your products or services as simply as possible, defining what makes you different, who will benefit, who your customers will be, how you plan to develop your products or services, along with the key features of the sector. And remember, not every investor is familiar with the retail industry, so don’t forget to spell out terms such as epos and fmcg.
The business plan will have to include a section on your markets and competitors, referring to any market research you’ve done, including the market’s size, your target customer base, competitors and possible future changes in the market, to show how you’ll continue to be able to attract shoppers.
Denis Lawrence in Rhayader, Powys, buys up derelict retail premises to create businesses and has even received grants from government bodies to do so, such as money from the Recovery Fund for a store in an area affected by foot and mouth disease. He agrees that it’s best to put in the legwork to get results. He says: “You need to do a lot of research and it might be worth getting together socio-economic information in a geographical information survey,” says Denis. “Put in as much relevant information as possible to back up your figures.”
You’ll also need to include a section on your marketing and sales strategy, such as why you think people will buy what you want to sell and how you plan to sell to them. Investors report that this is often the weak link in a business plan so it’s worth spending the time making sure your strategy is both realistic and achievable.
Talk about your potential customers and how you plan to set about getting new ones, as well as your pricing strategy and how you’ll position yourself in the market.
You’ll also have to explain the ways in which you intend to promote the store, such as using advertising or leaflets.
If your store is bigger than a one-man band, include details about your partners, management team and staff, listing all their credentials as well as your own, plus strengths and how you plan to deal with any obvious weaknesses.
You’ll need to demonstrate that your management team has the right balance of skills, drive and experience to enable your business to succeed. Key skills include sales, marketing and financial management as well as production, operational and market experience.
Your investors will also want to be convinced that you and your team are fully committed to the business, so it’s a good idea to set out how much time and money each person will contribute to the business and the salaries and benefits you plan to draw.
Other useful figures might be sales or profit per employee, average salaries, employee retention rates and productivity. Your plan should also outline any recruitment or training plans, including timescales and costs, and any planned improvements.
Finally, as part of any business plan you will need to provide a set of financial projections which translate what you’ve said about your business into numbers. This means you’ll have to look carefully at how much capital you need, the security you can offer lenders, how you plan to repay any borrowings and sources of revenue and income.
And when it comes to financial planning, your forecasts should run for the next three (or even five) years, with the first 12 months’ forecasts having the most detail. Forecasts should include cash flow statements to show that your business will have enough working capital to survive, profit and loss forecast, and a sales forecast.
While not every investor will check all the finer points, most will spot hype immediately, according to the FSB. They could be put off if you ‘talk up’ your store too much – this is particularly important when it comes to putting together an executive summary to give an overview of the business. This is easiest to do once you’ve written everything else in the plan.
The executive summary needs to include highlights from each section of the rest of the document, explaining the basics of your business. Don’t just repeat the details, show the highlights in no more than two pages, and take your time on this as many lenders and investors make judgments about your business based on the summary alone.
And finally, don’t forget that you can’t just write a business plan and sit back thinking it’s a job well done – it’ll need updating and changing as your store grows to help you keep track of its development. Plans are a useful way of keeping tabs on the business and spotting potential pitfalls before they happen.
Nearbuys’ David Patient agrees: “It’s worth doing a plan even if you’re successfully trading, to keep track of things. And it’s important to get all the figures right to maintain your credibility. I’m just about to do a new plan and our bankers will almost take it as read because of our track record.”
Tips for preparing a business plan
* Keep it short and easy to read.
* Include a cover or binding and a contents page with page and section numbering.
* Start with the executive summary.
* Use 10-point type or above.
* If you email it, make sure you use email-friendly formatting.
* Edit it carefully – get at least two people to check it makes sense.
* Show the plan to experts such as your accountant for feedback.
* Avoid jargon and put detailed information such as balance sheets in an appendix.
“A business plan has to look good if you want to get taken seriously,” reckons Mike Howe, who owns a store in Clyst St Mary, Exeter. He’s in the process of buying another 1,000sq ft store in the town and put his business plan together with the help of his accountant. It contains forecasts for the next 12 months, along with information on how he plans to run the business and staffing costs. The process took a couple of weeks but wasn’t all plain sailing as Mike has changed banks mid-process. “It’s important that you know beforehand what a reasonable interest rate is,” he says. “The previous bank said 2% above the base rate so I told them to get knotted!”
Approaching another bank proved the right move as Mike now has the funding he needs. “At the new bank the manager was more familiar with my business, which made life a lot easier. I also involved my solicitor and accountant in the process which meant everyone was introduced to each other – I could chat through some of the issues with them and didn’t have to put absolutely everything down in writing.”