A top-notch business plan is the key to success when setting up a company. It’s the best way to impress investors and get your own thoughts in order
When Grant Watts decided to launch his own brokerage firm, Premium Wise, he needed a strong business plan. “The banks, the insurance agencies and insurers all wanted to know exactly what my plans were for the business, and how our income would be generated,” says Watts, whose firm started trading 12 months ago in Burgess Hill, West Sussex. “With all these parties checking through my figures so thoroughly, my business plan played an important role in creating my company.”
But he adds: “It was not something to which I’d given much thought when I started the process of setting up.”
A realistic, working plan is an essential part of development whether you are starting a business, looking to raise funds to expand an existing company or want to measure success within your business.
It explains your company, its objectives, its strategies, the market it is in and its financial forecasts. In short, it is a mini-guide for both you and your investors, saying how your business will be run and how it will succeed. And with bank lending to small businesses in decline, the need to make a good impression is greater than ever.
According to the British Bankers’ Association (BBA), average monthly loans to small and medium enterprises (SMEs) have declined by almost half since 2008. Even if you only use the plan internally, it can focus your efforts, help you spot pitfalls and give structure to the financial side of your business.
If the main aim of the plan is to secure investment, then the need to write a succinct, informative document is crucial: investors base their decision on the strength of the business plan.
“Even if the potential investor knows you well, they need to see that your business can work,” says Brian Finch, an independent management consultant and author of How to Write a Business Plan. “Bank managers see dozens of business plans every week; they are not going to wade through 30 or 60 pages of dull, irrelevant information. You’ve got to get their attention in the first few paragraphs.”
How to write a business plan that will give your company the best chance of success
Start with the highlights
A well-crafted executive summary that is relevant to its audience is vital, says Ashridge Business School tutor Paul Griffith. “You need to think about who it is you are addressing, be they a bank manager, private investor or other members of staff,” he says. “You need to write a compelling overview of your business.” The executive summary should include highlights from the rest of the document, so leave it till last to write. Be concise: two pages at most.
The nitty-gritty detail
Describe in detail your business, its products and services. Set out your vision and explain who you are, what you do, what you are offering, the market you want to address and why. “Investors will be looking for gaps in your thinking,” Griffith says. “But writing down the details should help you to clarify your goals and how to achieve them.” Elaborate on what makes your brokerage different, why customers would buy from you and how you will develop your products. Give an outline of the broking industry; don’t assume your reader will be familiar with insurance broking.
Sales and marketing
Define your market, your position in it and identify your competitors. Refer to market research to support your claims. Griffith says: “You need to show you are fully aware of the marketplace and that you understand the needs of your customers.” Outline your pricing strategy, the premiums you will offer and how you will reach your customers, whether through networking, advertising, PR or direct marketing.
Describe the key people in your team, explaining their experience, capabilities and contacts. Detail your own experience: investors and many insurers will want to know if you have run a business before. For some, experience is all-important. Premium Wise’s Paul Watts says: “Some insurers told me to come back in two years. They want to see a track record. In the end I secured work with around half of the agencies I approached.” Many of the larger agencies and investors see start-ups as a risk.
Outline how you would run your business. You need to say where you will be based and give details about the property, your suppliers, and the IT systems you will use. State if any investment is needed in your IT set-up. Outline how you will tackle administration. Quadris Insurance Brokers’ founder Ben Hook says: “You’ll be surprised how much of your day can be taken up by paperwork. Likewise, if you are using unfamiliar software, it will take time to get up to speed.”
Projecting your income, outgoings and profit is not an exact science, and some entrepreneurs admit to using estimates. BPP Business School’s actuarial tutor Ian Senator says your figures must be credible: “Use figures from past projects as a base. The more reasons you give to explain your figures, the better.” Go into detail for your first year about projected revenue, income and profit, and give figures for years three and five; these will demonstrate your longer-term goals. Outline how much capital you need and the security you can offer lenders, including any personal collateral. Investors like to see that you are willing to shoulder some of the risk. Detail how you plan to repay borrowing.
Tackle the issue of your company’s endgame, or exit strategy. Do you want to build the business quickly and sell it on? If so, is there anyone who would be interested in buying? Or do you want to pass it on to your children? Your ultimate plans for the business will have a bearing on how you develop the company.
Invest time in the presentation of your plan. Make sure that it makes sense and does not assume that the reader has knowledge of insurance broking. Give the plan to someone from outside the sector to read. Provide a contents list and number each section. If you need to include data, such as market research or balance sheets, put them in an appendix.
Once you have prepared your plan, use it. If you update it regularly, it will help you keep track of your business's development and keep your original vision in mind. As author Brian Finch says: “Your plan is a story with a beginning, middle and end. The beginning is the background to the market and who you are. The middle is the nuts and bolts of precisely what you will do and the outcome. The end is the pay-off and asking for what you need.” IT