“Remember, remember, the fifth of…” So April doesn’t have the same ring as November, but to anyone running an SME, the end of the tax year can be as full as fireworks (and danger). Chasing invoices, paying invoices, logging expenses, finalising the profit and loss line or calculating your ebitda… if your accounting basis matches HMRC’s tax year, odds are that February and March are somewhat frantic.
Finalising the year’s accounts can be arduous and painful, but the good news is that, once completed, they provide the basis of a good business plan, allowing you to attract investors, partners and funders with greater ease. What should be in your business plan and what else do you need to know?
Nailing the basics
A business plan enables you to sell a picture of your business as well as providing you and your employees with a strategy to follow – what markets it serves, its customers, and also the key people that run it. There are many free templates available on line, but most of them will recommend you cover:
– The business-owner’s background
– Your market and the products or services you sell
– How you plan to market yourself and what market research you will do
– Who your competitors are
– What costs you face and the pricing strategy
– Operations and logistics
– Financial forecasts
– The long and short-term plan for the business
The level of detail you choose to go into will, of course, depend on the nature of your business and the time and resources you have, but there are some areas that are worth paying particular attention to.
Cashflow is king
Investors and lenders will want to know how much sales you predict to make in the year, as this will help determine how risky they see your business – affecting the size of an investment and the conditions attached to it, such as interest rates and repayment terms. While it might be tempting to swell this figure with optimism, investors will scrutinise your books to see whether the figures you project are reliable. If your projection is dramatically different from the sales or profit and loss figures they find in your accounts, a reader might need to be reassured as to why… perhaps you are launching a new product or service, for instance? Credibility is key.
Know your operating capital
How much money you need to carry out your day-to-day operations is a crucial part of business planning, as ensuring you have enough means you won’t need to seek emergency overdrafts. But calculating and presenting operating cost also shows readers of your business plan that you have time to spend on running your business well and that you understand its basic needs. Including a trustworthy figure means that you will be able to work out what size loan your business can afford to take as well.
Estimate the size of your market
Having the best product at a great price is still risky if you have no good idea of demand. While estimating the size of the market for your product isn’t the same as forecasting sales, it will help inform your business plan about the likely direction of your business and its growth potential. For instance, a maker of garden equipment might calculate the size of their market from the proportion of people who have gardens, those who have disposable income above certain level and those who own their own homes (which they work from). With the baby boomer generation becoming physically active retirees, too, the garden equipment maker might want to take into account this segment of the market, and even consider creating a few lines that are easier on the knees or the lower back. You can also buy market intelligence reports with this information.
Keep reviewing your plan
We started this piece by saying that the tax year is a good time to make a business plan. But it’s not the only time to work on one, and reviewing your figures, estimates and the way you talk about your business throughout the rest of the year is also important. There are also some points in the calendar that mean you need to go back and have a refresh – announcements made by trade bodies, legislators and the results of trade talks are just some things to look out for.
Good luck with those accounts. You’ll need them in the year ahead.