Business Planning

Welcome to this fifth module, focused on identifying the purpose and value of having an effective business plan, identifying the key business plan elements to include, starting to research and populate some of the key elements

Tackle the module in bite size chunks, don’t feel the need to do everything in one go and allow plenty of time to digest and apply the information covered

The module includes helpful ‘Activities’ for you to complete, it is strongly recommended that you undertake them to get the most out of the content and the key learning points

Allow yourself time to reflect and take on board the advice, key messages and suggested tasks in the programme to enable you to move forward with your self employed campaign

This module will enable you to

Appreciate the importance and benefits of having a business plan

Understand what the key components of a business plan are

Begin populating the first three sections, namely

The 'Executive Summary', including key content and messages

The 'Business 'Rationale', including your values, vision and goals

The 'Offering', including proposition, pricing, differentiators, elevator pitch and branding

The key benefits and purposes of creating a business plan include

Clarifying your ideas – getting them down on paper and honing them into a coherent proposition will enable you to be clear in your own mind about what your business ideas are and what you need to do, after all, if you are not clear about them, why should anybody else be?

Testing your ideas – identifying what won’t work or ways of doing things better before you’ve even started, is the lowest cost way of identifying potential mistakes and problems and solving them, plus also enabling you to minimise errors once you are up and running

Identifying your market – great ideas will only convert into a successful business if there are people out there who will ‘buy it’, so you need to investigate and satisfactorily answer the who, what, where, when, why and how questions about your future clients and customers

Evaluate financial robustness – whether you are solely self funding your business or seeking funding from others, you need to be sure how the business’s cashflow is going to start and remain positive as the business establishes itself and grows

Feasibility testing – having a business plan, no matter how short and simple it is, will ultimately save you time, money and energy either because it will lay bare the reasons why your business idea won’t work and should be aborted, or reveal the areas of significant weakness that need to be fixed to make it work

Communicating your vision – a well written business plan will be an excellent tool for overtly expressing your goals and milestones and how you are going to make a success of the business to other potential key stakeholders including for example: investors; partners; lenders; suppliers; key employees; and possibly even some of your key customers or clients

Learning and making changes – for as long as you are in business, there will always be new things to learn and to adjust and change in what you offer, how you offer it and how you develop the business, your business plan is the perfect vehicle to manage this process of evolving and iterative personal and business growth and discovery

Developing your expertise – the process of preparing your new business plan will provide an excellent vehicle to identify the skills you will need to build and develop e.g. financial, accounting, HR, IT and other key skills

Building confidence – clarifying, testing and developing your ideas, proposition and expertise pre-launch will dramatically increase your confidence that you can convert your business ideas successfully into reality

In summary – to achieve all of these important outcomes, your business plan does not have to be a long or highly detailed document, it just needs to have enough structure, information, evidence and action planning to enable you to be clear in your own mind (and other peoples’ minds if you share it) about what it is that you want to do and how you are going to make it happen

Before we start delving more deeply into business planning, there are some common fallacies that need dispelling about reasons for not producing a business plan, namely the belief that a business plan isn’t needed because

‘Things will keep changing so it’s pointless’ – your business plan is a living document that is never ‘finished’, it’s you working out in a planful way what your future can look like and how you will be able to achieve it stage by stage and as it changes over time

‘I don’t need funding so I don’t need one’ – to obtain funding you will definitely need a business plan to share with potential lenders or investors, however, as we have already seen, the main benefits of a business plan are about your personal clarity, focus and confidence

‘Others have been successful without one and I can too’ – 50% of new business start-ups fail in the first year, an effective business plan doesn’t guarantee success, but it will dramatically increase your chance of being a success, feeling in control and reducing stress levels

‘It must be spot on and perfect to be useful’ – don’t procrastinate or allow yourself to feel overwhelmed, as long as your business plan is good enough to get you to where you want to be, then it is doing it’s job successfully

In the remainder of this module we will

Analyse what the business plan key elements are and the level of info to include

Delve into the ‘Introduction’, ‘Rationale’ and ‘Offering’ areas shown in green below

In module 6 we will explore in detail the ‘Marketing’ aspects highlighted below in yellow

In module 7 we will examine the ‘Mechanics’ in more depth as shown in blue below

The ‘Executive Summary’ or ‘Introduction’ is, in many ways, probably the most important part of your business plan in the sense that it is the

Essence of what you are trying to achieve you will have right at the front of your mind

Core of what you are trying to do that you will regularly review to keep yourself on track

First impression of your business to readers and you only get one chance to make it

Only part of the plan that some readers will read before coming to their conclusions

Hook to get your readers engaged and ‘on board’ with your ideas, actions and goals

The ‘Executive Summary’ should

Be written after you have completed the rest of the business plan

Be capable of being understood in isolation to the rest of the plan

Ideally be one or two sides of A4 paper and no more than three sides

Consist of short punchy sentences, each a maximum of two or three lines

Sell the ‘sizzle not the sausage’ i.e. convey the flavour of your ideas, not the detail

Leave the reader wanting to know more about your business and the opportunities

Be something that you regularly refer back to and refresh as the business matures

Be geared towards your target readers, like all other sections of your business plan

Provide an easy to understand summary of your

Products and/or services plus their features and benefits

Value proposition, elevator pitch, USPs and differentiators

Target market(s) and customers and how they’ll be accessed

Growth plans and top line financial opportunities and ambitions

Critical operational mechanics e.g. resources and key people

The Executive Summary should not

Include the detailed information and research you will rightly prepare and need

Use inappropriate or unfamiliar language that is difficult to understand

As you will recall from module 2, your values are

Your core beliefs that determine and drive your words, thoughts and behaviours

What is important to you, how you judge others and how other people judge you

Knowing and overtly living your values in your new business is crucial as

Customers and clients buy the business values as much as its products and services

You need to overtly project your values as part of your business brand and marketing

Being able to spot and understand your client or customer values will enable you to

Understand and respond to how they like to be treated and do business

Successfully 'tune in', empathise with and deeply engage with clients and customers

Two crucial aspects concerning business values are

Being able to identify, understand and project your values is a powerful business tool

The flip side of this being that if you don’t believe in and live your espoused values

You’ll be detrimentally ‘found out’ by your customers and clients

You could seriously damage your brand and your ongoing success

'Your vision will become clear only when you can look into your own heart.

Who looks outside, dreams; who looks inside, awakes.’

Carl Jung

In the remainder of this module and in modules 6 and 7 we will be taking Jung’s advice to ‘look outside’ at all the things you need to do to start your business and make your ‘dream’ a reality, however, before we do so, let’s take some time to ‘look inside and awake’ as Jung recommends by identifying what your vision for the business is going to be

There are no right or wrong answers when it comes to formulating your vision

Your vision may be far sighted and awe-inspiring, but it doesn’t have to be

Equally, your vision can be quite modest and prudent, if that is what you want

What is important is that the vision provides a clear sense of direction and purpose

The vision does not have to say how you are going to get there, that comes later

What it does need to do is inspire you and others to want to make it happen

Bill Gates’ original paraphrased 1970s vision for Microsoft was ‘a computer on every desk’

When he first promoted his vision, many either politely nodded or impolitely laughed at him

After all, IBM had calculated global demand for high powered computing at seven!

But over time and with enormous energy, drive and determination, Gates made it happen

On a much smaller scale, for example, one specialist HR business start up’s vision, was ‘to be recognised as one of the big three in the UK’

It had two major global competitors that it was never going to catch up with but, equally, it didn’t want to be viewed as just another one of the many other small players, it wanted to be noticed so that it could eventually be sold to realise substantial value

The vision was achieved with the proof being an unsolicited approach from a venture capital company and its subsequent sale to them for a significant sum of money!

Other famous vision statements include

‘To make people happy’ – Disney

‘A just world without poverty’ – OXFAM

'Making the best ice cream in the nicest possible way' – Ben and Jerry’s

Your vision can be as far reaching or as modest as you want it to be

It can also be as broad and aspirational or as narrow and specific as you like

For example, it could be something as simple as

‘The most trusted XXXXXX in YYYYYY’

‘Unique XXXXXX that works and delights’

‘The ‘go to’ place for XXXXXX and YYYYYY’

‘The best XXXXXX at an even better price’

‘To be the number one XXXXXX for YYYYYY’

‘Improving people’s lives by XXXXXX XXXXX’

‘Prompt and lasting solutions to XXXX XXXXXX’

‘The industry standard for XXXXXX XXXXX

Now that we have spent some useful time to ‘look within and wake’ let’s now move forward with the second task to ‘look outside and dream’ to see what your goals are going to be

One of the best ways of identifying and pursuing your goals is to use the tried and tested model of SMART goals i.e.

Specific – is it clear and well defined as to what exactly the goal is?

Measurable – can success or failure of the goal be easily ascertained?

Achievable – is the goal ‘challenging but doable’ or ‘pie in the sky’

Relevant – does the goal relate to and fit in with your life and ambitions?

Time-bound – what is the time frame to achieve the goal and is it viable?

You may find the following format for producing SMART goals useful later in this section

There are four key stages that most successful self-employed businesses go through

The exact timings of these stages will vary, but a broad time frame might be something like

Launch – the first two years; when statistically business failure occurs most often

Establish – years three to five; your proven model now claims its place in the market

Mature – year six until three years before leaving the business, building business value

Exit – the last three years of you’re in the business; before you leave for pastures new

Let’s have a look at each of these stages and what your goals might be for each of them, so that you have a reasonable ‘overview’ picture of what your goals over time might be

In doing so, it is important to recognise that these are your goals now, before you have even started the business and you have a long and winding learning curve yet to travel

You will need to revisit your future goals at least every year if not sooner to re-evaluate and recalibrate them in the light of your changing circumstances, attitudes and ambitions

Your ‘Launch’ phase – the first two years

The launch phase of a new business is, statistically, its most precarious stage as

75% of new business ventures fail in the first year of trading

Another 10% of new business ventures fail in the second year

For the remaining 15% of new business ventures still trading in year three

The likelihood of ongoing success significantly increases, but still isn’t 100%

While no guarantee of success, it’s a definite ‘stepping away from survival’

Needless to say, given these statistics, your shorter term goals may tend towards being modest and tactical, there is nothing wrong with this, but there is also nothing wrong with having a few ambitious and far reaching goals as well

In relation to your ‘launch’ phase of the first couple of years or so complete the following activity below based on your current views and knowledge

Your ‘Establish’ phase – the next few years

Getting your business to this stage means that your proposition works and you can now look towards consolidating and confirming your place in the market

Your confidence will have grown that you have a set of products and/or services that have a demand in your chosen market place(s)

At this stage, some of your goals may possibly be focused on growing your market share and building your critical mass so that you are ‘thriving not surviving’

This stage may also involve an ongoing process of honing your products and/or services and possibly adding new ones to widen your market opportunities

In relation to your ‘establish’ phase (however long you define that) complete the following activity below based on your current views and knowledge

Your ‘Mature’ phase – building value before exit

This is the stage where you have maximum latitude to around whether you want to try and proactively grow the business further or whether you have quite modest hopes and expectations of how far the business will grow

There are no right or wrong answers to your chosen options and aspirations, only what is appropriate and desirable from your perspective

Your decisions at this stage are also crucially linked to your preferred exit route, particularly if a trade sale or management buyout is in your mind, as they will significantly affect the eventual value and price of the business to a potential acquirer

In relation to your ‘mature’ phase (however long you define that to be) complete the following activity below based on your current views and knowledge

Your ‘Exit’ phase – ending your involvement your preferred way

It may seem strange to be discussing your exit from the business before you have even started or commenced trading

However, one of the most frequently quoted adages is ‘Never get involved in anything unless you know the ways you can get out of it’

This is especially true with a business start-up – there must always be an end game

For example, your exit option might include

Selling the business

A management buyout

Passing it on to family

Winding it up

Depending on your preferred exit route, you will need a set of appropriate goals during the last three years of your involvement in the business to give yourself a reasonable chance of achieving the preferred exit route

In relation to your ‘exit’ phase, complete the following activity below based on your current views and knowledge

Your proposition is a clear and succinct explanation of

What you are selling

The needs you can satisfy

The benefits you offer

Another way to think about your proposition is that it about providing solutions to problems

Once your proposition is launched into the market place, listen carefully to any and all feedback or information that may help you to extend or improve your proposition

While the core proposition may remain unchanged over time, it is highly likely that it will develop and mature as you increase your market knowledge and experience

Your proposition is what you are offering, your differentiators are why people should buy it

Essentially, why should people buy from you rather than from one of your competitors?

The answer to that question will be the one or more differentiators you have!

Differentiators from your competitors can be created across a wide range of areas and aspects of your products and/or services including, for example

Perceived quality
Actual quality

Perceived effectiveness
Actual effectiveness

Speed of delivery
Convenience of delivery

Perceived benefits
Actual benefits

Brand awareness
Market presence

Other differentiators?

If you don’t identify and project your differentiators, then you’re buyers will have no reason to choose you over any other competitor, you will be leaving it to pure chance as to whether they pick you or somebody else!

An elevator pitch is a posh phrase for having a short, attention grabbling story to tell to whoever is in front of you at the ‘drop of a hat’

The situations where you may use an elevator pitch will vary enormously e.g. an informal conversation, a social gathering, a formal presentation or meeting, etc

Your elevator pitch needs to be compelling, it needs to powerfully tell potential buyers why they should use you instead of somebody else

Typically, an elevator pitch will include

Who you are and any business or trading name you are using

What you are selling and the benefits you are offering them

What makes you different and better than your competitors

Why they should engage with you and how you want to do so

A call to action for them or you, or both of you, to do something

Pricing is as much an art as it is a science

Ultimately, the right price is what somebody is prepared to pay, so the ‘art of pricing’ is in discovering what that price (or range of prices) might be

We will return to look at the principles and practicalities surrounding the ‘art of pricing’ in more detail in the next module – Business Marketing (module 6)

For now, in this module, we will look at the science of pricing by looking at the five most frequently used methodologies, namely

Cost-plus pricing

Going-rate pricing

Perceived-value pricing

Market-positioning pricing

Break-even pricing

Lets spend some time looking at each of these ways of pricing

Cost-plus pricing

Sometimes also referred to as ‘Markup pricing’

As the name suggests, you work out what the total production and distribution costs are going to be and then add a margin that is sufficient to sustain the business and yourself

Clearly, if the resultant price is not attractive to your target market purchasers then it will not be a sustainable pricing position, unless you reduce the margin you apply

To generate a cost-plus pricing figure you need to calculate the total costs over a relevant time period e.g. per week/per month/per quarter

Similarly, over the same time period you also need to calculate your business and financial needs and satisfy yourself that you will sell sufficient of your products/services to

Going-rate pricing

This type of pricing is driven by whatever the prevailing market price is for similar offerings

It is a form of pricing that is particularly appropriate in markets where it is difficult to establish compelling differentiators or where it takes a long time to embed differentiators with buyers

One of the dangers of this type of pricing is that your competitors may be more established than you and may therefore enjoy economies of scale that you will not have as a new player

So, once you have identified what the going-rate is, you need to make sure you can live with it for the foreseeable future

Perceived-value pricing

This method of pricing looks at the issue from the perspective of the value the buyer places on the offering, rather than what it might actually cost to deliver

One of the best examples of this type of pricing is in the insurance world

The cost of delivering an insurance product is calculated by an actuary who will calculate the cost of covering the risk(s) being insured based on the anticipated claims rate plus some clever maths and algorithms

However, the perceived risk that people believe they are covering may be way in excess of the the actual claims rate on the risks being covered

As result, insurance products that have a high perceived value amongst buyers can be priced at a level far higher than would be needed to cover the claims rate generated

It is also a method of pricing that is common with luxury and premium branded offerings where perceived value dominates the buyer’s preferences

Market-positioning pricing

This type of pricing focuses on your objectives in the market place, perhaps best explained by the following diagram

Let’s spend a little time looking at each of these options

Skimming – a high price with low quality

Most relevant where high development or research cost need to be recovered

This pricing strategy which is highly profitable for as long as it lasts

Eventually each market you are selling in will recognise the value gap

Pricing will then have to fall to attract a new market segment

Early purchasers may become unhappy that later purchasers are paying less

If the brand becomes sufficiently tarnished, the business may run out of customers

Basement – a low price with low quality

Unless well resourced, it’s difficult for a new business to compete purely on price

Offers longevity in the market place provided you can generate a livable profit

Will often require a high turnover due to the low per unit profit margins

Works particularly well if your business has a cost competitive advantage

Customer loyalty is to the price not the brand, so building brand loyalty is difficult

If an even more price aggressive competitor appears, fickle customers will move on

Premium – a high price with high quality

The high quality must be perceived for the high price to be paid

High quality must also be actual as well if demand is to be sustained

The high margins may be even higher if the actual cost of sale is low

Awareness and recognition of the brand as ‘premium’ is crucial to success

Penetration – a low price with high quality

If the primary goal is to capture market share quickly, this is a positive way to do so

Offering a quality proposition at reduced prices requires deep pockets to sustain it

Unlike skimming, which favours the seller, this route to market share favours the buyer

Once the target market share has been captured, pricing can be increased over time

It’s a long and challenging journey to move from here to becoming a premium brand

Break-even pricing

As the name implies, this type of pricing seeks to ensure that you know what you need to do to cover all of your fixed and variable costs

Your fixed costs are what you pay out whatever you have sold and are not affected by how much you sell e.g. rent, purchase of equipment, stationery, insurances, utilities, car purchase/maintenance, selling travel costs general living costs etc

Your variable costs are those that change according to how much is sold e.g. stock used in each sale, other people’s delivery time used, delivery travel, venue costs, etc

Perhaps the best way understanding how this type of pricing works is via the following example and visual representation

For example, to sell your proposition your business may involve

Buying physical items you have made or bought to sell

Selling other people’s time directly or indirectly

Paying for delivery and/or distribution costs of each sale

Utilising a combination of these elements

We need to invent a business to provide an example of how break-even pricing works, so let’s take the example of a business that involves all three elements, namely XYZ

Specifically, for each unit of the proposition XYZ sells (which could, for example, be widgets, a training/consulting hour, other service or product, etc) let’s assume that XYZ will need to spend

£6 per unit on materials and or products

£40 per unit on labour costs to deliver

£4 per unit on travel delivery costs

So the variable cost per unit of selling for XYZ is £50 per unit

Let’s also assume that XYZ’s annual fixed costs are £20,000 p.a. consisting of: commercial rent/insurances/utilities, car maintenance/depreciation and minimum gross (pre-tax) living costs the owner of XYZ needs to generate

The final piece of the jigsaw is XYZ’s expectations of the number of units sold during the year which, for XYZ, we will assume is 200 per annum

From this information, depending on how many units XYZ expects to sell per annum the break-even price for XYZ will be

So on the numbers we conjured up in the above discussion, the calculation would be

The more units you expect to sell, the lower the BEP will be, for example, if you anticipated selling twice as many unit i.e. 400 units per annum, then the calculation on the same set of numbers would be

Another way of looking at and using the break-even type formula is to set your price based on one or more of the other methodologies we have discussed so far and then work out what your break-even sales need to be i.e.

Our previous formula of

Becomes

So, using the last figures we looked at of £20,000 fixed costs, £50 variable cost per unit and £100 per unit price, your break-even total sales would need to be

The two key elements of your brand are the business entity brand and your personal brand

As a self employed business person, to a large extent these two elements will be intertwined

You will need to ensure that they are mutually congruent, coherent, cohesive and integrated

For now though, let’s look at each of them separately before you start pulling them together

Corporate brand

Your corporate brand encapsulates the experience the buyer can expect from your business, for example, perhaps one of the most iconic examples of a strong brand is McDonald’s

Across the 100+ countries and 38k+ outlets where McDonald’s provides it’s offering, you know the experience you will have, right down to the taste of the food, whether you like or not!

The main elements of your corporate brand will include

Trading name – embodying the proposition, it may or may not be the company name

Corporate logo – an easy to recognise visual representation of the proposition

Business strapline – a short, punchy phrase capturing proposition’s essence

Business card – combining your contact details with the above three elements

Website design – projecting your online image and search engine optimisation

Sales materials – hard and soft copy presentations, brochures, letter heads, etc

Advertising style – local, regional or national coverage to project consistent messages

Social media branding – ensuring everything you post, say, or upload fits the story

Personal brand

The vast majority of the guidance provided in module 3 (Selling Yourself) applies here in relation to your personal brand, so it would be worth referring back and refreshing yourself with the key learning points

The key additional points concerning your personal brand to add are

The only meaningful measure of the value and effectiveness of your personal brand are the views about you expressed by your potential and actual customers

Where people have purchasing choices, they will tend to prefer and buy from you if they feel an affinity and empathy towards your personal brand

So, in essence, you need to consciously and proactively create and propagate an image of yourself that will encourage people to want to buy from you

For your personal brand to be believed and perpetuated, being genuine and authentic is essential, so congruence with your values and who you really are is essential

This module has enabled you to

Appreciate the value, importance and benefits of producing a business plan

Understand what the key components of an effective business plan are

Prepare an attention grabbing, clear and effective executive summary

Identify your rationale for the business including your: values, vision and goals

Create and articulate your offering including the: proposition, price, differentiators, elevator pitch and brand

Go to the next module by CLICKING HERE

Go to the Self-Employment main menu by CLICKING HERE