This feature was placed by ICAEW.
Starting a business can be a life changing activity providing lots of opportunities, but to make the most of the experience good planning is essential and accessing the right advice can be critical for success.
Running your own business can be an immensely rewarding experience. Every year approximately 400,000 new businesses start up in the UK. Decisions taken in the early years can be the most difficult as well as the most important, particularly for first-time entrepreneurs and those with no previous business knowledge or experience.
When you have an idea for a new product or service, the impulse is to start sharing it with the world as soon as possible. However, the fact is that in the UK one in three new businesses ceases to trade within three years and, after ten years, only one in five is still in business.
Preparation is key
This particularly applies to researching the market and testing your product or service. Getting the pricing right is a significant factor. Research shows that being under-capitalised is the most common cause of business failure. So it pays to get a business plan together with robust cash flow and profit forecasts.
Whether you need to prepare a formal business plan as part of raising finance from a bank or private sources or not, it is advisable to put together forecasts of trading for the first two years. It is surprising how many entrepreneurs under-estimate the amount of time, money and effort involved in getting a business up and running. This usually means they start on a shoe string and struggle to get finance to expand.
A profit and cash flow forecast can be ‘flexed’ to show how much scope there is for slippage and whether having some finance in reserve is necessary. And once the forecasts are in place they can be essential tools for keeping track of the new business’ progress. Achieving targets is the best indicator of good management – and can be used to demonstrate to customers and suppliers you can be trusted with orders and credit.
Profit and cash flow forecasts can be created using spreadsheets or specific software. For those not comfortable with creating financial information your chartered accountant can help.
Business plans must be exciting but credible
In addition to being exciting and credible, business plans must have clearly identified customer benefits and evidence of growth and future prospects. An executive summary is vital, clearly stating your financial objectives, the business idea and profit forecasts.
For a bank this may be all that is required. But if you are seeking outside investment, in addition to the executive summary, you will need to take into account the following:
- A history of the company;
- Current and future products and/or services (including patents);
- Sales channels and delivery;
- How products will be produced;
- How the business is operated and why it will be successful;
- A description of the market and sector and details of the marketing strategy and sales and distribution process;
- Full details of the management team;
- Financial information (including debt finance already in place); and
- A risk analysis.
Your business plan is a crucial pillar of future success and at times like this the professional advice of a chartered accountant, who is equipped to question, analyse and offer insight, can prove invaluable.
This will help you to set realistic financial targets, establish budgets, plan ahead and compare forecast figures with actual results. Whether you are planning to secure bank finance, raise equity finance or monitoring performance against your own benchmarks, a business plan is a valuable tool.
With so many businesses struggling to survive, it’s helpful to be able to draw on the expertise of leading financial experts. Start today with a free straightforward, open discussion with an ICAEW Chartered Accountant. There’s no catch, no obligation and no charge for your first session.
To find your nearest ICAEW Chartered Accountant visit usinessadviceserviceblog.com.
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