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Earn Extra Money From Home

Earn Extra Money From Home

So far we have been examining various matters which must be taken into account before starting a business.

These aspects are brought together in an important document called your business plan. This is the document which sets out, in words and figures, all the plans you have made for starting and running your business.

Preparing a business plan is far from being a mere academic exercise. Your business plan will fulfil three important functions:

(1) It will help you clarify and organise your thoughts

(2) It will help you raise finance

(3) It will help you monitor your business once it has started.

Let's look at each of these in a little more detail.

(1) Organising Your Thoughts

When you are planning a business there are so many different things to consider that it is very easy to become confused. Putting the whole thing in writing can help you clarify your thoughts and assess the whole project more objectively. In addition, to complete the plan you will have to answer a lot of questions. This forces you to go out and do the necessary research to find answers, which in itself is an excellent discipline.

(2) Raising Finance

If you need to apply for a loan, your business plan will demonstrate to the bank manager or lender that you have carefully considered every aspect of the proposed business, and that you know exactly how much money you need to borrow and what you will require it for. This will help reassure him that his funds will be wisely used. Even if you do not plan to apply for a loan, a business plan could help save you from losing your own money.

(3) Monitoring Your Progress

The business plan sets down the path along which the business should be moving. When you first start your business there will be a vast number of things to do, and it is easy to delude yourself that you are doing well simply because you are busy Your business plan - in particular the cash flow forecast - will guide you through this period. With the plan at your side, you can take stock at regular intervals (every month perhaps) of how your business is doing. If you are failing to meet your targets, you can then decide on what remedial action to take...and the sooner the better!

Style and Presentation

Business plans can be set out in many different ways, though the information contained is much the same. Some general guidelines are given overleaf.

1. Your plan must be neatly and professionally presented. It should be typed (never handwritten) and enclosed in a cover or binder which includes the name of the business and the name and address of the person (or persons) behind it. If an accountant has been closely involved in preparing the plan, his or her name and address should be given also.
2. The plan should be written in the third person - that is, 'the proprietor' or 'Mr/Ms Rogers'. You should avoid referring to yourself in a business plan as 'I' or 'me'. This is simply about appearing business-like.
3. The plan should be as concise (i.e. brief) as possible, whilst including all the necessary information that a financial backer or other interested party would want to see.
4. The text should avoid too many salesman's phrases such as 'this wonderful product' or 'this incredible opportunity'. The tone needs to be confident but objective. Rather than make wild claims and sweeping generalisations, in a business plan, as far as possible, you should stick to facts you can prove.
5. The plan should clearly demonstrate the viability of the proposed business. Remember that potential backers will be looking for evidence of two things in particular: market research, and financial planning and control.

The Contents

Your business plan will need to include most or all of the following sections.

• Introduction

• Product or service details

• Personnel

• Market research and marketing plan

• Premises, equipment and transport

• Suppliers and sub-contractors

• Legal aspects

• Financial information

• Risk assessment

• Financial requirements

• Appendices.

Let's look at each of these in a little more detail.

(1) Introduction

This is where you explain the nature of the business and its proposed structure (e.g. sole trader, partnership, limited company). It should be no longer than one or two paragraphs. If the plan has been written for a specific purpose - e.g. to support an application for a loan - this should also be mentioned here.

(2) Product or Service Details

In this section you describe in some detail the product or service you will be providing. If it is a product, you should show clearly how it will be made, explaining all the stages involved. If instead you are providing a service, you need to explain precisely what this is and what type of customers you expect to require it.

(3) Personnel

In this section you include information about the person or people who are behind the business and will be managing it. If you intend to be a sole trader, this will of course be yourself. In partnerships and limited companies, it will also include your partners or fellow directors.

You should describe briefly your past work experience, especially where this is obviously relevant to the new business. Include any educational or occupational qualifications, and any previous experience of running a business. You should also mention here any business-related training you are undertaking. If you are receiving active advice and support from a business development agency (for example), state this here also. Your overall aim is to demonstrate to a potential lender or backer that you, as the person behind the business, are well prepared for self-employment, and have the experience and training to make it a success.

Finally, in this section you should mention whether you intend to employ any staff. You should indicate how many you will need, what skills they will require, how much you expect to have to pay them, whether they will be full- or part-time, and what training they will need.

(4) Market Research and Marketing Plan

This is a very important section which will normally take up at least a page of text, and in many cases more. Its purpose is to convince the reader that there will be enough demand for your product or service to make the business viable within the market in which you intend to operate.

This section should therefore summarise your market research, and in particular answer the following questions:

(1) Who will be your customers, and what will be their requirements?

(2) How large will your potential market be?

(3) Who will be your competitors - their names, addresses and details?

(4) What are the main strengths of these competitors?

(5) What will be your advantages over them - or, to put this another way, why will people buy from you rather than them?

All your answers should be backed up with facts and figures from your market research. When you are describing die market size, for instance, you should explain clearly how you have arrived at this figure. Statements such as 'There is considerable demand for...' or 'Many people require...' are worthless without some market research data to back them up.

Also in this section you should describe your marketing plan. This concerns how you will advertise, promote and sell your product or service. It should answer the following questions:

• How and where will you advertise your product or service?
• What other forms of promotion will you use (e.g. direct mail, exhibitions, telephone selling)?
• How will your product or service be sold (e.g. wholesale, retail or through agents)?
• What features and benefits will you emphasise when trying to attract customers?

(5) Premises, Equipment and Transport

This section will state the premises to be used. If you will be working from an office in your home, or perhaps a converted garage or shed, this should be mentioned as well. Remember, the aim is to convince backers that working from home is a sensible option for your business and you have all the facilities and space required.

Similarly with equipment and transport, you should explain what you need, how it will be obtained - e.g. by leasing, hire purchase or outright payment - and whether it will be new or second-hand.

(6) Suppliers and Sub-contractors

Many businesses rely on other businesses to supply them with raw materials, components or services. Any problems in obtaining these can result in disaster for the business, especially if it is a new one. In this section you should therefore explain who your main suppliers and subcontractors will be and why you have chosen them, stating alternatives where possible. You should also comment on any discussions you have already had with suppliers, agreements reached, credit facilities negotiated, and so on.

(7) Legal Aspects

In this section you should include details of any legal matters or requirements which may impinge on your business. For example, if your particular business requires a permit or a licence, you should state here how this will be obtained, what it will cost, what delays are likely between applying and receiving it, and what are the criteria you and the business will have to meet to qualify.

Also in this section you might mention patents (where you are making an original product and wish to prevent others copying it), planning permission (where such permission is required to operate your proposed business) and so on. It is most important that your business fulfils all the legal requirements before you start trading, and backers will want to see that you have taken this into account.

(8) Financial Information

This is probably the most important part of the whole business plan, because it must demonstrate to potential lenders that you have a clear plan and targets for your business's finances, both now and over the coming months. Specifically, it will show that you know how much money you need, what you need it for, how much you expect to receive and to pay out during the business's first twelve months, and how much margin for error you have given yourself.

This section should also explain your policy on pricing. With products you should state the mark-up you intend to use, while for service businesses you should state your hourly rate. It is customary to mention the normal mark-ups or hourly rates of your particular industry, and give the reasons if yours differ from this. This is very important, as new businesses often under-price, often with dire results.

The section should also include a forecast profit and loss account and a cash flow forecast. The former shows the profits you expect to make, while the latter shows the predicted flow of cash into and out of your business (especially crucial in the first few months). With all financial projections you should avoid being over-optimistic and allow reasonable amounts for contingencies (especially overheads, which always seem to be larger than anticipated). You should also state any assumptions you are making, e.g. concerning credit you are given by suppliers and have to extend to customers.

(9) Risk Assessment

In this section you will discuss the risks which are attached to your project, and how you propose to control them. Every business carries some element of risk, and any potential backer will want to see evidence that you have taken this into consideration. Potential risk could come from a number of sources:

• A competitor setting up near you;
• A major customer going into liquidation or taking his business elsewhere;
• Your main supplier or sub-contractor ceasing to trade;
• Customers taking longer than anticipated to pay their bills;
• A long-term decline in demand for your product or service;
• Lower than expected levels of sales;
• Changes in the law making your product/service harder to sell;
• Increases in taxation;
• Variations in interest rates;
• Variations in foreign exchange rates (where the business is involved in trading with other countries);
• Accident or illness;
• Flood or fire.

In this section you should explain the main risks your business is likely to face, and how you intend to monitor and control them. You should also comment on any contingency plans you have to meet setbacks, such as who will take over if you are ill.

(10) Financial Requirements

This is a crucial section, especially when the plan is being used as part of a funding application. Here you state clearly the total capital the business requires, how much you (and your partners/fellow directors) are putting in, what loan will be required, how much share capital (where the business will be a limited company), and what overdraft facilities, if any, you may need. Where you are applying for a loan, you should also state here what security you can offer (e.g. your house, or a friend/relative who will act as guarantor).

(11) Appendix

A variety of things may be enclosed in the Appendix at the back of the plan. They may include:

• CVs (Curriculum Vitae) of the people behind the business.
• Alternative cashflow forecast showing the effect of reduced sales.
• Other financial information, e.g. break-even analysis, operating budget, projected profit and loss account and projected balance sheet.
• Detailed product information and technical data (where appropriate).
• Detailed information about equipment and machinery
• Detailed market research information.
• Correspondence or agreements with potential suppliers and customers.
• Sales literature, leaflets, photos and so on.

Financial Forecasts

The two main financial requirements for any business are to make a profit and to generate sufficient cash to make payments to suppliers, employees and others as they become due. The objective of the financial forecasts section of your business plan is to show that your business will achieve both of these requirements. Your forecasts should cover at least a twelve-month period, perhaps more if a substantial investment is required.

Forecast Profit and Loss Account

Your forecast profit and loss account attempts to predict how much profit your business will make during its first twelve months (usually) of trading. It shows the anticipated income from sales, the direct costs and overheads which must be met out of this, and the business's anticipated net (taxable) profit.

Cash Flow Forecast

The cash flow forecast is an essential component of any business plan. It is concerned with predicting the flow of cash in and out of the business. Cash is the life-blood of any business, and failing to pay attention to this essential element is one of the commonest reasons for business failures. By assessing the predicted flow of cash into and out of the business, you can:

• Identify possible cash shortages before they occur and take action to avoid them;
• Identify times when you may have surplus cash, and ensure it is used efficiently;
• Ensure that cash is always available when required, e.g. for paying staff wages;
• Encourage more efficient methods of using resources and saving costs;
• Make soundly-based decisions about your business.

A cash flow forecast lists month by month your business's predicted income and expenditure, and shows your net financial position (i.e. how much you will have in the bank) at any time. The cash flow forecast is especially important in the early days of your business, as it will enable you to see how much money you are likely to need in the early months before you start to receive a steady flow of income from your clients.