James Mason from accountants Fifth Element talks straight about business

Planning for Business
It’s been a year since we started this column; what’s new?

The short answer is not a lot. business plans are still at the forefront of our thinking and still the single best thing you can do to increase the chance of success or to improve a business already trading. A year ago I asked the question whether business plans were really necessary. Back then
I said the answer was yes. A year later and this still holds true. In this, our last column for Latest Homes, we come full circle.

Write one
There is no set formula for writing a business plan but you will need some words (executive summary) to explain how the business will operate and some numbers (cash flow and profit & loss) to show how the money side of things will work. Be honest at all times, don’t talk it up and never ‘flex’ just to get money from a bank or investor. Talk to successful business people you know, read every good business book you can, use a template to get started. Use a professional, continually question the feasibility, keep it short and simple.

Which one
National statistics say that 80% of business start-ups fail within the first year but 80% of businesses that plan effectively are still trading and doing well after five. Decide what type of business plan you need; these aren’t the only three types but they will help get you started.

Prospectus
The Prospectus plan is used when approaching an investor. Focus on the investment, the return on investment, the number of years it will take to repay. Where appropriate, include options to convert equity to lending. Detail any tax benefits and define terms.

Operational
The Operational plan focuses more on how the service or product will get to market, the sales channels, the advertising needed, the type of customer base, administration issues, required resources and the likely profits or losses that will be generated.

Cash Flow
The Cash Flow plan leans towards a lender and shows when the business will have money and how it intends to repay its borrowing. Lenders are not investors and are less concerned with how the business will operate, more concerned to see that the business can repay debt.
In practice, most business plans will include elements from all of the above. Balance the plan to meet the needs of the audience. A combination of the Operational and Cash Flow business plan is a very useful day-to-day guiding document for the business to follow.

Wrong one
The wrong type of business plan doesn’t show the business clearly, or test whether the business can work as well as improve, and doesn’t meet the needs of its audience. Avoid these at all costs.

And finally
Business plans aren’t only for start-ups. An established business will also benefit from a good business plan. Create ‘break-out’ plans for marketing purposes or for cost cutting exercises. You don’t have to write much. A few sides of A4 will usually be enough; then pin it up on the fridge and make it happen