Chapter 5 : Building a business plan

1. Introduction
At the start of any business, or a new business venture within an existing business, there
is a requirement for a plan. If growth is expected then, this will not be achieved through
a simple organic growth where new products, markets or business opportunities are
stumbled upon haphazardly. Growth needs to be planned and managed. A business plan
is critical when starting a new company, but is also relevant when a new product of
venture is being planned from an existing company. A well formulated business plan is
required in order to:
• Make a case for investment
• Give confidence to customer
• Set targets and goals
• Understand the challenges
• Document the thoughts of the business individuals in black and white.

2. Business plan structure

There are a number of websites and books giving their own version of what a business
plan should contain. Differences can arise dependent on the local culture, the nature of
the business and the size of the business which is envisaged. Irrespective of the local
terminology, a business must contain the following
1. Executive summary
2. Mission statement
3. Company background
4. Product description
5. Marketing plan
6. Competitor analysis
7. SWOT analysis
8. Operations
9. Financial plan
10. Timeline

1. Executive summary: This needs to be a short-punchy description of what the

business will do, how this will be achieved and why there is a compelling argument

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for success. This is the written equivalent of the “elevator pitch” for an investor. This
should be written from a positive perspective but avoid hyperbole and gross over
estimations as these risk losing credibility, Table 1.

Table 1 : Three ways to provide an executive summary

Downbeat “Tribocare Ltd have a product which some customers
may find interesting. The company has staff who are
capable of making and selling a very good lubricant
product to multiple customers. If things go as planned it
is hoped that the company will make money within the
first 12 months”
Positive “Tribocare Ltd have developed a protected novel
technology which provides customer significant cost
savings compared to those offered in the growing global
machine lubricant market. Triobcare’s founders have a
proven technical and financial track record with
established and trusted customer relationships. The plan
returns revenue within 2 months, a gross profit within six
months with growing net profits from month 12.”

Over hyped “Tribocare Ltd have a revolutionary new product which

will take the world by storm and transform any company
where machines operate. Tribocare’s internationally
renowned scientists and executives have already deeply
penetrated global customers in the $46 Bn industrial
lubricant market. Tribocare will see exponential growth
with revenues of $1 Bn within 3 years.”

2. Mission statement: Although somewhat passe with a tendency for generic

blandness, a well scripted mission statement can give a clear concise summary of a
company’s, and by inference its founders, vision, ambition and values. The key to a
good mission statement is one that is concise, but which is not generic. As examples,

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leading UK industrial engineering companies have mission statements which
succinctly summarize their vision :
British Aerospace – “We provide an essential edge to protect what matters most.
We’re working to deliver the highest quality solutions to our customers at the lowest
possible cost, while fueling economic development, scientific research and technology
innovation throughout the country.”
Jaguar Land Rover – “We want to deliver more great products, faster than we have
ever done before. We want to be leaders in the field of environmental innovation. We
want to be sure our customers always come first.”

3. Company background : Any investor’s decision is based not only on the financial
aspects and market but on the individuals who have formed and will operate the
company. At the outset of a company the experience, knowledge, skill, commitment
and other personal attributes are the primary asset of the company. A start up could
have IP, cash and other assets but without a team with capability, it is likely to fail.
The positive attributes of the founding team should be stressed, highlighting how
these can be used to successfully develop and grow the business.

The company background should also inform on the narrative of the company, how
the idea was formed and how it has developed into a business which has potential.
This historical narrative can also be used to show good working relationship between
team, suppliers and potential customers. It can also contain a summary of effort that
the individuals have made in forming the company as this commitment adds to the
company’s integrity and perceived value.

4. Product description: A company is formed in order to sell a product or a series of

products. Whether this be a physical product or a service, its primary aim is to
generate income for the company. If the product is badly defined then it becomes
rapidly evident that the business proposition has not been thought through.

The product should be described highlighting its unique characteristics, why there
exists a demand for the product and why the product meets these demands. For
example in Tricare Ltd’s case this could be

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“Industrial machinery requires lubrication in order to prolong key equipment life,
reduce noise and vibration, control temperature and ultimately provide maximum
productivity of machines in the manufacturing industrial sectors. Machines with
lubricant maintenance management typically have lifetimes 400% greater than their
unmanaged counterparts and are used in all manufacturing companies within the
FTSE 250. Tribocare’s patented lubricating materials provides a thermally stable
eco friendly lubricant for industrial machines. Produced from a plentiful plant source,
the Tribocare product range is able to meet all the demands of industry without
reliance on fossil based oil. This improves company sustainably credentials, can be
more readily stored as well as providing a stable long term priced product.”

5. Marketing plan : Essentially marketing involves asking a few key questions of the
business and its relationship with its customers. In a simplistic view this needs to
identify :
Product (section above) – What is the company selling and the variants / value added
which can be based around this basic product.
Price – Setting the pricing strategy is key to business success. Pitching it too high will
put off potential customers and could lead to lost business to competitors. Pitching it
too low could lead to large sales, but zero profit (or loss). Judging the price that the
market will come from market analysis of competitor prices as well as the perceived
value of the product. Some typical strategies include :
- Premium Pricing: Use a high price where there is a uniqueness about the product
or service. If the product that the company is selling has some additional real or
perceived value, then the price can be elevated beyond the current market.
Consider Apple products. In many instances the core technology is similar in price
to the company, but they are able to sell at a higher price as a result of their brand
and integrated product system.
- Penetration Pricing : The price charged for products and services is set artificially
low in order to gain market share. Once this is achieved, the price is increased.
- Price Skimming : Charge a high price because you have a substantial competitive
advantage.
- Optional Product Pricing : Companies will attempt to increase the amount
customers spend once they start to buy. Optional 'extras' increase the overall price
of the product or service. Car manufacturers give a baseline price then add a series

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 of options (metallic paint, leather interior etc) which, if all were taken, would
increase the total cost substantially.

Place (route to market) : The “Place” is also known as channel, distribution, or

intermediary. It is the mechanism through which goods and/or services are moved
from the manufacturer/ service provider to the user or consumer. Essentially it defines
how the product reaches the consumer. Will be a direct sale, through an agent,
through a retailer, through a intermediary (wholesaler) or through a franchise
agreement. How the product makes it way from the company to the end customer has
an operational and financial implication. Every time a product is passed along the
supply chain, each company will add their margin so either the final product price
goes up or the manufacturer reduces its “trade” cost. Direct sales may seem attractive,
but this requires a larger sales force and customer enquiry team to deal with the end
user’s returns, complaints etc.

Promotion: Without awareness of the product, customers will not purchase the
product. The channel by which potential customers are made aware should be
specified, e.g. digital marketing, social media through influencers, traditional media
advertising, specialist trade publications, sponsorship, trade fairs, tele sales or a
visiting sales team. For each promotion channel the target customers, expected costs
and projected sales targets should be specified. The means by which targets are
reviewed and refined as the business grows also needs to be addressed.

6. Competitor analysis: No matter how novel and creative a product, there is no

product that does not have a competitor. The first cars had competition from the
horse, the first trains had the stagecoach, the first computers had humans with
mechanical calculator, the first mobiles had landlines etc. An honest and realistic
competitor analysis is critical to the credibility of the business plan. As well as direct
competitors, then a novel product has a competitor in simply not using a product. A
product where shoe laces have in built LEDs may not have a direct competitor, but the
majority would not use the product.

As well as those immediate market competitors, any competitor analysis should also
be aware of social or technological trends which may impact the attractiveness of the

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product. For example, a new product which helps a petrol engine run more efficiently
may have been perfectly viable 10 years ago but with the move to electrification of
transport, it will have a limited product life.

7. SWOT analysis. A SWOT (Strengths – Weaknesses – Opportunities – Threats)

analysis should be written from a positive but realistic perspective. Obvious omissions
from the SWOT analysis will be seized upon by potential investors as a sign of
naivety, or worse deception.

Table 2 : SWOT analysis for the Tribocare ltd summarized in Table 1

Strengths Weaknesses
- Strong executive team with blend of - Limited initial capital
engineering and commercial skills - Limited production capability
- Positive response from product trials - No established brand
- Strong IP position in current market - Key knowledge in few people
Opportunities Threats
- Growth in international markets - Market is conservative
- Licencing manufacturing to - Big competitors can copy product,
subcontractor ignoring IP. Limited cash reserves
- Product range expanded for new for IP battle
applications - Discounting by big competitors

8. Operations: The operations should describe how in practice the company will
operate. Effectively it is the summary of who will do what where, who holds
responsibility, how the product will flow and how the company is organised. This can
include organizational charts, product flow charts, descriptions of the main physical
assets which will be used and the means by which the company will interacts with
suppliers and customers.

9. Financial plan: At a minimum it should contain a recent (of initial if it is a start-

up) balance sheet and a cash forecast. If the company has been trading for a period,
then it should also include a profit and loss account. For a prospective investor each of

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these documents will be examined in detail in order to gauge the current health of the
company and its prospective health as the company grows.

The balance sheet and profit and loss are a statement of fact based on current and
historical data and notwithstanding issues related to asset value, depreciation and
liabilities which may be questionable, they should be relatively easy to justify.
However, as most business fail on the basis of lack of cash, the cash forecast is
subjective and is always inspected particularly rigorously as it is really based solely
on opinion and best guesswork. As it is subjective, it will give potential investors an
appreciation of the attitude, ambition and realism of the founders. If the business has
not been trading, then a summary projected profit and loss can be used to demonstrate
when the company will begin to return a profit.

10. Timeline: The timeline is important when specific defined dates have not been
used in the financial plan. The financial plan has year 1, tear 2 etc then the timeline is
required to set the absolute start date and give potential investors and customers a
realistic time when they can expect the business to trade.

3. Closure.
This chapter has introduced the concept of the business plan as an essential tool
/document which is required when starting a company or business venture. At the end
of the chapter, you should understand :
I understand
Why the business plan is important.

The structure and content of the business plan and what each element
brings to the plan as a whole
How the plan needs to be pitched in terms of controlled, reality based
positivity.
How the business plan is only the start of the process of growing a
business.

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Bibliography
1. “Management accounting for Non-specialists” by P. Atrill & E. McLaney,
published by Prentice Hall Europe, ISBN 0-13-982927-X
2. “The essence of financial accounting”, by A. Buckley, published by Prentice Hall,
ISBN 0-13-356510-6
3. “A practical guide to preparing a business plan for smaller and medium sized
enterprises”, published by Chartered Institute of Management Accountants.
4. “Quantative methods for business decisions” – Jon Curwin and Roger Slater,
published by Chapman & Hall. ISBN 0 412 40240 8.

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