Preparing for business with ICAEW and X-Forces: Part 2
Part 2: Why do a business plan?
By Clive Lewis, ICAEW, in conjunction with X-Forces
Our new series of articles – courtesy of X-Forces, in conjunction with theInstitute of Chartered Accountants in England and Wales(ICAEW) – aims to support potential entrepreneurs by answering some of the FAQs received from those either thinking of embarking on self-employment or scaling up and employing staff. If you’re a potential small business owner yourself, we hope you will find these short and to-the-point features a valuable addition to your own preparation. This second instalment explains why astart-up business should prepare a business plan to map its progress to profitability.
For start-ups, sales forecasts are critical – particularly how the new business will attract customers. Next, the plan will specify the resources (people, equipment, money) required to achieve the forecast sales, including realistic timescales to achieve significant milestones such as when the business will start trading. This information will be the basis on which the financial forecasts (profit and loss account, balance sheet and cash flow forecast) are prepared. Once completed, the plan can be used to monitor the performance of the business.
As a business grows, the first business plan can be used to prepare annual budgets and updated financial forecasts for the year ahead. A business plan is next required when considering raising finance. Finance providers require considerable information in support of loan applications, such as financial forecasts, historic annual accounts and management accounts. A business plan should provide a vision of the business’s future, how it will grow, why the finance is required and how it will be paid back.
But it’s when a business wants to sell shares in the business that a full business plan will be most required. The business plan must be exciting but credible, and offer evidence of growth and future prospects. The Executive Summary must have a wow factor. It should clearly describe the business proposition and contain a summary of the financial figures, up to five years ahead, including the amount of capital sought. Potential investors will want to examine the details supporting the business plan. So be prepared to back up key assumptions.
The skills learned and the perspectives gained while preparing the first plan will help with growing the business, raising finance and – who knows? – one day potentially the sale of a successful business.
Ready to go?
Register for X-Forces’ start-up and business planning support today at www.x-forces.com Help for businesses can be obtained from ICAEW’s Business Advice Service, in the form of a free, straightforward discussion with an ICAEW Chartered Accountant. Find out more at www.businessadviceservice.com