Why building a business plan is so important and how to create your own

Alastair Thomson is a Portfolio Financial Director and the author of How To Build A Better Business Plan. He has over 25 years experience as a CFO, CEO, Chairman, and Independent Non-Executive Director, giving him a rare perspective on building compelling business plans that get results.

Here we’ve picked his brains about why a business plan is so important and what makes a great one.

Is it vital to write a business plan?

It is a good discipline for everyone to do one, but many businesses don’t write them and are still here. They aren’t 100% essential, but they do become necessary if you want to grow dramatically, secure external finance, if you’re thinking of selling or doing something different to what you’ve always done before. If you’re ticking along, looking to grow a couple of per cent a year, then you can probably wing that. If you want investment or to buy a new bit of machinery, then you need to know what your future looks like.

They are a great sense check for what you’re planning to do and will help ensure that you aren’t committing to something unlikely ever to work. They will force you to carry your thinking through further, put a rationale behind it and benefit from other perspectives. The more you can consider in advance, the better; it’s the bits you haven’t thought about that will trip you up.

When you’re busy running the business, you don’t have time to think. A business plan should leave you no place to hide; it will make you articulate how you will achieve your goals, do the analysis, and show your workings. Ultimately they will provide more clarity.

What are the main sections of a good business plan? 

The main sections can be split into two parts – the parts that do the heavy lifting and the details that provide the collateral. The executive summary does the heaviest lifting in a business plan. You have one or two pages to tell a compelling story and convince the reader to continue. The financial section is the other part that does the heavy lifting. Most professionals will look at the executive summary and ask themselves if they believe the dream and then look at the financial section to see if they can spot any obvious holes.

The rest of the plan will provide collateral backup. Are you employing the right people? Have you done competitor analysis? What capital investment are you making?

How do I set the right tone at the start?

Your business plan needs to be a cross between a marketing campaign and something you might need to rely on in court. That’s where the creative tension should lie.

It’s got to be grounded in reality. If external investors are looking at it, they will do due diligence and the more things they find that aren’t accurate, the more likely they are to reduce the price or not do the deal. This could make a difference of millions of pounds. They need to have a high level of confidence that the plan is going to work, and a low level of anxiety that it might not.

Also, bear in mind that the people reading it might have zero experience in your industry and may have never used your business. Investors could be looking at lots of business plans in a day across multiple sectors, and you need to grab their attention. Put yourself in the position of someone who knows nothing about your business.

What should I consider when talking about my products/services?

The assumption nowadays is that everyone is in a reasonably competitive market – hundreds of people can do what you do, so what makes this special? It’s also imperative to be able to demonstrate a robust approach to delivering your sales revenue. What’s your edge, your USP and your unique route to market?

What are the must-haves for the sales and marketing section?

How will you de-risk the deliveries of your sales revenues and ensure steady cash flow? Prove you have a system for this. Costs are much easier to identify than revenue, so your focus needs to be on your sales and marketing processes and how you can scale them.

What are the numbers that matter most for the financial projections?

This will depend a bit on the type of business you’re in. If you’re a startup and don’t have a track record, it’s about cash burn. For example, how long is a £100k investment going to get you? Will it get you to the point where you are generating day-to-day cash flow? Cash is always the critical part early on. When you’re more established, the essential financials will be sales and gross margin.

What should I consider when presenting to investors and lenders?

The biggest thing is how you give those people confidence in this plan. First, you’ve got to get them going, ‘Wow, this seems like a great opportunity here and then be able to back it up when they dig into the details.

Final advice

My advice is always to write the words first and then the numbers. First, articulate it, then use the numbers to prove you can do it. The words do the convincing, and the financials are the evidence. Get people in with the emotion first, then justify with logic.

Buy Alastair Thomson’s book How To Build A Better Business Plan, which comes with a free downloadable ‘fill in the blanks business plan template at his website, The Better Business Company.

Further reading:

Sophie Cross is the Editor of Freelancer Magazine and a freelance writer and marketer at Thoughtfully.

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