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How to plan a business

Wednesday, 19 May 2010

Are business plans worth the paper they're written on? Are they an essential part of a business start-up, or simply a distraction from the real work that needs to be done? Should one be created in the very initial stages and filed away to collect dust, or must it be a living and breathing document that guides all the actions you take as a fledgling entrepreneur?

This series of articles is not about the theory; it's not about which model is right and which one is wrong; and I'm going to attempt to avoid (too many) judgements. As promised, it's going to be a story of a real business start-up, from which we can choose which bits, if any, to benefit from.

NewCo was set up in a hurry. The entrepreneur behind it saw the opportunity (a retail site available for rent) on Sunday, March 28th 2010. As a seasonal business – roughly 40% of turnover in the industry is in the April-Jun quarter – there was very little time to waste, so a meeting with the landlord was set up for the following Tuesday. After a successful initial contact, a more detailed meeting was held the following Wednesday, at which heads of terms were agreed. Then came the crucial question from the landlord: "when do you want to start?"

Initial energy

The answer was a simple one – how does 7am Saturday morning sound? The landlord was slightly taken aback by this, but rather pleased with the level of enthusiasm being shown as well. And so began 3 weeks of intensive physical and mental work to get the retail site into shape and undertake all of the financial and legal work to be ready for opening.

The sketch – part 1

Prior to agreeing heads of terms, the entrepreneur had done a little bit of financial analysis. In really simple terms, she'd looked at:

These numbers had two characteristics: they were rough guesses, but with some evidence to support them; and they were conservative. From these, an estimated gross profit figure was generated for the first year, and a judgement was made as to whether this would be enough to cover costs and make the effort worthwhile.

The sketch – part 2

Given that she made the decision to go ahead, the entrepreneur's judgement above must have been in favour, and she moved onto the second aspect – getting the business ready for trading. The site was run-down and scruffy, there was little cash available to do it up, and, as will become clear, limited time. A rough plan was made, and went as follows:

The planning that was done was very "big picture", with the details being delegated to the people most able to fulfil them. By no means did even this outline plan work perfectly, or without amendment (of which, more in a following article), but there was a plan there.

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So, what have I learnt from observing, and being involved with, this process? I take out three major points from this, that are as applicable to someone in a very large organisations as they are to someone starting their own business.

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I'd love to hear your stories of setting up a business, so please use the comment section below – particularly with your experience of business plans and business planning. If anyone fancies writing a story of their experiences, please get in touch!


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