Whether you are starting up a new business, taking over a business, entering a new phase of development or starting a new business activity within an existing business, you need to ask yourself fundamental questions concerning all aspects of your plans and provide the answers. The results of this thinking process must be formalised in a summary document called a business plan. Throughout an entrepreneurial project, the business plan is a vital strategic and communication tool.
The business plan is used for both internal and external purposes. Used internally, the business plan can be used by an entrepreneur to:
- structure and plan his project;
- monitor the development of his project and regularly inform the stakeholders;
- motivate the staff.
Used externally, the business plan can be used by an entrepreneur to:
- sell his project;
- communicate with the outside world to obtain financing and support.
Who is concerned
A business plan must be drawn up by anyone who wishes to:
- create a business;
- develop the business;
- take over an existing business.
The business plan is not only a tool for the entrepreneur, it is also useful for:
- venture capital companies;
- business angels;
- industrial and commercial partners;
- consultants and
- public administrations.
It is therefore very important that the business plan is adapted to the needs and expectations of different audiences. When reading the document, each audience must get the feeling that the entrepreneur is presenting a coherent and sound project.
The business plan must enable external stakeholders to:
- assess and determine the realism, relevance, potential and viability of the project;
- monitor the development of the project.
It is of utmost importance that the scenarios presented in the business plan are relevant and realistic.
The entrepreneur must therefore:
- have defined his project precisely in terms of:
- business activity;
- form of company and
- qualifications required;
- have carried out a market survey and analysis of the competition;
- have compiled all the elements required to draw up a business and financing plan.
Above all, he/she must make sure:
- not to overestimate the market or the market share that the business can win;
- not to underestimate the competition;
- to select and find adequate financing for the business.
How to proceed
Content of a business plan
The business plan should contain in a concise and structured form all major aspects intrinsic to the business project:
- its history;
- the practical organisation and the start-up strategy;
- its financing;
- the day-to-day management;
- a cost analysis and forecasts for sales, profitability and growth;
- an analysis of the project's external environment, i.e. an analysis of the business' competitiors and an assessment of barriers to market entry.
In short, the entrepreneur must present his project in detail, including the human, strategic, financial and technical aspects.
The business plan should detail:
- the legal aspects such as the legal form, the development of the share capital, the industrial patents (patents, brands, know-how, etc.);
- the characteristics of the products and/or services, presented in a clear and concise manner (an external stakeholder is not necessarily a specialist);
- the characteristics of the business sector and its evolution;
- direct competitors and the features that distinguish your business from theirs;
- the target customer groups, the sales and distribution policy;
- the objectives in terms of market share, turnover and profitability;
- a description of the key people for the project (their roles and experience);
- the projected implementation costs;
- the financial forecast for the project;
- the project timetable;
- the applicable fiscal framework;
- any other useful information for understanding and implementing the project.
When drawing up a business plan, project owners must use clear and concise explanations and not overload the plan with unnecessary details. They must draw up realistic scenarios on the grounds of verifiable information, on which the project strategy and development will be based (over a minimum period of 3 years).
All of the aspects mentioned above are structured around the 4 key elements of a business plan:
- the initial financing plan;
- the profit and loss forecast;
- the cash-flow forecast;
- the financing plan.
The initial financing plan
In order to set up an initial financing plan, the entrepreneur must translate into figures the previously defined strategic choices in the financial forecasts section of the business plan. This plan is a sort of opening balance sheet which takes up, from the beginning, all of the long-term needs and resources required to launch the project.
- long-term needs:
- start-up costs, i.e. expenses for a notarised deed, consultancy services (lawyers, tax experts, etc.) or for preliminary surveys (market surveys);
- acquisition of immovable assets (intangible, tangible, financial), taking into account their depreciation;
- other expenses for fitting out premises, buying furniture and office equipment, IT systems, etc.;
- working capital requirements, in other words the difference between current assets and liabilities:
- current liabilities: debts to suppliers and administrations;
- current assets: stocks, in-process inventory and receivable debts;
- available resources:
- personal contributions (in cash, in kind or in industry);
- public grants;
- bank financing (short, medium or long-term), leasing.
Profit and loss forecast
It takes the form of a table covering the first 3 years of activity, enabling the identification of income and expenses for each of these periods. A distinction is made between the expenses incurred:
- fixed costs (rent, wages, water-gas-electricity, telephone, office cleaning, interest, etc.);
- variable costs (purchasing raw materials, supplies, energy consumption, transport, etc.).
This table is used to ensure the profitability of the project and the ability of the business to handle the costs of any potential loans to be taken out.
Cash flow plan
The cash flow plan presents all expenditures and receipts during the first year of operation.
It takes the form of a table in which are found, month by month, the incoming and outgoing monies associated with operations, investments and financing.
It can be used to determine, in the light of business activity, whether the available cash will suffice to meet the payment due dates.
On the basis of the initial financing and cash flow plans, the profit and loss account and the business plan scenarios, the entrepreneur retraces the evolution of the financial situation over the next three years.
He thereby defines the financing plan of the business project.
This table, which highlights the financial needs and the required financial resources to meet these needs, is used to determine the resources needed by the business to finance its operating cycle and its investment programme.
It is important to keep in mind basic management rules when drawing up this table, in particular that medium/long-term needs must be financed by medium/long-term resources.
In this medium/long-term financing plan, it is also interesting to calculate the break-even point or the profitability threshold. This makes it possible to determine when the production level or the sales volume that will cover costs will be achieved and therefore when the business will start to generate profits.
Various organisations can provide help with drawing up a business plan. Entrepreneurs can benefit from the experience of professionals by using these specialised support services to optimise the quality of their business plans:
- the House of Entrepreneurship provides a free tool: myBUSINESSPLAN and offers monthly training courses about the main steps to set up a business plan;
- the Contact Entreprise team of the Chamber of Skilled Trades and Crafts offers personalised assistance and consultancy services for any craft business project;
- Luxinnovation, the national agency for the promotion of innovation and research, provides individual support for entrepreneurs with innovative projects that wish to set up their business in Luxembourg;
- the 1,2,3,GO interregional business plan contest supports innovative projects in developing their business plan by connecting them with professional coaches;
- many fiduciaries, consulting and law firms can offer a variety of professional services in order to assist entrepreneurs or they can carry out the administrative procedures on their behalf.