Starting Out – Why you need a Business Plan

Business Planning Part One

This article is the first of a series by Mark Roderick on Start-up Business Planning. Securing a second income stream is a key pointer to self-employment, so independent contractors are looking beyond their main contracts, many for the first time. Tackling the commercial as well as the technical issues is key in making any new venture a success. Forthcoming UKTECH articles will look at:

What should you include in the Business Plan and why?

How do you find funding and What are Venture Capitalists looking for?

Common criticisms of start-up business plans.

According to a much-quoted statistic, only one in ten new businesses survive the first two years of trading. Of course this statistic does not stop people from trying:

OVER 3pc of Britons are trying to set up their own business, compared with 2.2pc last year, according to a survey by Barclays Bank. The typical entrepreneur is a man aged between 25 and 44 and almost a quarter of them are in the London area. The level, though growing, is still well short of the 6pc of Americans planning to set up a business.

Yet many of the 70,000 budding entrepreneurs who sent business plans to just one Venture Capital firm in London during the last 12 months, will be blissfully ignorant of their chances of long-term survival. The man in the street is (still) suffering from dot com fever and is prescribed one pub start-up discussion a day to ease the symptoms. Independent contractors are afflicted by IR35 in addition, but as our recent poll showed, many (20%) are actually developing or already generating second income streams as an antidote.

So how can independent contractors who are branching out ensure that they maximise their chances of survival? Many of you will already be running successful Limited Co businesses with excellent track records that have survived much longer than 2 years. But branching out may mean growing from nothing to potentially (hopefully!) a large turnover, as opposed to maintaining a steady contracting income. However, expansion brings both opportunity and risk. It is essential to try and maximise the first and reduce the second. The tried and tested way of running a business is as valid today as it has always been – the key is the 6 Ps:

Prior Preparation and Planning Prevents Poor Performance

Time spent planning a business start-up will be worth every penny, despite the obvious fact that it inhibits you getting involved in any revenue generating activities immediately. But if you have a great idea, or better still a customer ready to pay, why do you need a business plan? Viewers of the 'dot com' Panorama documentary will have been left with the distinct impression that the sole purpose of a business plan, consisting of fictitious numbers and jazzy charts, is to schmooze a multi-million pound investment from a Venture Capital (VC) fund. Due to incompetents in the City, this may have happened, but is not likely to happen to you or I.

There are several reasons to write a proper business plan. Planning will focus your ideas and will test your commitment to the cause. More importantly, it gives you an opportunity to question your idea / commitment / assumptions / knowledge on paper, before you invest heavily in terms of time and money 'for real'. I heard of an entrepreneur who was persuaded to plan some five months into a project in which he was starting to invest quite heavily. When the plan revealed he would never break even, he went straight back to the drawing board and subsequently saved himself a lot of money. The message is clear, even if you have started out already, it is never too late to plan.

Secondly the plan will guide you once the business is up and running, acting as a route-map with check points as you consolidate and grow. If you are stepping into the unknown it is hard to keep going (especially if you are working evenings and weekends) if you do not really know where you are going. A planned route to check your implementation will provide necessary support when the going gets tough – assuming that you have been realistic. Planning now will help you plan in the long term as well, in the event that the business really takes off.

Thirdly, a plan will help you understand what resources are required to achieve the goals of the business. You might not need a factory or a production line, but you will need some funding and of course, knowledge. Chances are you will be supplying the technical expertise but you need to think about financial and marketing resources if you do not have the time or the skills to take these on as well. Planning your use of resources should help you use them most effectively.

Also, with a plan you can run some 'what if' scenarios, particularly as far as the sales forecast and financial implications are concerned. Remember:

Turnover is vanity,

Profit is sanity,

But Cash is King.

This is your chance to 'get real'. Clients may not be biting your hand off and customers do not always pay on time. How will you pay for your marketing and will you be able to cope if sales really take off? Making sure you have enough cash to survive is an absolute must have from your plan.

Lastly, your completed plan should give you confidence. It will show that your idea does indeed stand up to scrutiny, that there is a market for your product/service and that you know how to make a profit. Knowing all this will be a huge motivator for you as you can work in the knowledge that the rewards will make it worthwhile, assuming you implement a realistic plan properly.

About the Author:

Mark Roderick worked as a research-based marketing consultant, a business-to-business marketer and as a sales manager – a background that puts the emphasis on understanding customer needs before trying to sell to them. In 1999 he completed an MBA at Cranfield Business School. He has worked with a number of start-up ventures and written business plans for a range of companies.