Business plans and marketing strategy
Here are tips,
examples, techniques, tools and a process
for writing business
plans to produce effective results.
This free online guide
explains how to write a marketing or business strategy, a basic business
plan, and a sales
plan, using free templates, tools and examples, such as SWOT
Analysis, PEST Analysis,
the 'Ansoff Matrix' and
the 'Boston Matrix'.
Separately the marketing guide offers more specific
explanation and theories and tools for
marketing strategy and
marketing planning, including techniques
and tips for
advertising, public relations (PR), press and media publicity, sales enquiry
lead generation,
advertising copy-writing, internet and website marketing, etc.
The sales training guide offers detailed
theories and methods about sales planning
and selling, extending
to cold calling andnegotiation skills and techniques, especially
relating
to selling.
Sometimes people use the
term business plan when they are referring to a project. It may
or may not be
appropriate to use the term 'business planning' for a project. Some projects
are very substantial
and equate to an autonomous (independent) business activity, in which
case a business plan
is entirely appropriate. Other projects are smaller, perhaps limited to
internal change or
development, and are less likely to require a conventional business plan,
and are quite
adequately planned and managed via project management methods.
Business planning
terminology can be confusing because much of it is used very loosely,
and can mean different
things.
business planning terminology..
Terminology in
business planning is often used very loosely. When people talk and write
about business
planning different terms may mean the same thing, and a single term can
mean different things.
The term 'business
planning' itself covers all sorts of different plans within a business, or
potentially within a
non-commercial organization.
The words 'strategy'
and 'strategic' arise often in the subject of buisness planning,
although there is no
actual difference between a 'business plan' and a 'strategic business
plan'. Every business
plan is arguably 'strategic'. Everyone involved in planning arguably adopts
a 'strategic'
approach.
Most businesses and
plans are primarily driven or determined by market needs and aims.
This increasingly
applies to many non-commercial activities (government services, education,
health, charities,
etc), whose planning processes may also be described as 'business
planning', even though
such organizations may not be businesses in the way we normally imagine
. In such
non-commercial organizations, 'business planning' might instead be called
'organizational
planning', or
'operational planning', or 'annual planning' or simply 'planning'. Essentially
all these
terms mean the same,
and increasingly the tendency is for 'business planning' to become a
generic (general) term
to refer to them.
I should clarify
that finance is of course a major and unavoidable aspect of
business and
organizational
activities, but in terms of planning, finance is a limiting or enabling factor;
finance is a means to
an end, or a restriction; finance in itself is not a basis for growth or
strategy.
Markets/customers, product/service development, and sales, provide the only
true
basis for businesses
to define direction, development, growth, etc., and thereby business strategy
and planning.
Business planning always
starts with or revisits the basic aim or need to provide products or
services to customers
- also called a market or 'market-place'. Consequently business plans
tend first to look
outwards, at a market, before they look inwards, at finance and production,
etc.
This means that most
business plans are driven by marketing, since marketing is the
function which
addresses market opportunity and need, and how to fulfil it.
Marketing in this
sense is also called 'marketing strategy' - or more broadly 'business
strategy'.
In many simple, small,
and/or old traditional businesses, 'marketing' is often seen instead to
be 'sales' or
'selling' (usually because in such businesses selling is the only marketing
activity),
in which case a 'sales
plan' may be the main driver of strategy and the business plan.
Many people use the
words 'sales' or 'selling' and 'marketing' to mean the same thing - basically
selling products or
services to customers, in the broadest sense. In fact, marketing refers to much
wider issues than sales
and selling. Marketing involves the strategic planning of a business
(or other
organizational provider) through to every aspect of customer engagement,
including
market reserach,
product development, branding, advertising and promotion, methods of selling,
customer service, and
extending to the acquisition or development of new businesses. Sales or
selling is an activity
within marketing, referring to th methods and processes of communicating and
agreeing and
completing the transaction (sale) with the customer.
Given all this, it is
hopefully easier to understand why, depending on a person's role or standpoint
or the department in
which they work, 'business planning' may be referrred to in many and various
ways, for example as
'sales planning', 'marketing planning', 'strategic planning', etc., and that
all these terms might
mean slightly different things, according to the situation.
If there is a
technically correct definition of 'business planning', then perhaps we can best
say that
'business planning'
refers to the plan of the overall organization, or to a unit or division
within an organization
with responsibility for a trade or profit. A business plan technically contains
and reflects the
individual plans for the different functions within the whole operation, each
of which
may have its own
detailed 'business plans', which might be called business plans, or more
correctly
departmental or
functional plans according to their purpose, such as a marketing plan, sales
plan,
production plan,
financial plan, etc.
Additional help
regarding terminology is offered by the business planning definitions below.
Other
definitions and
explanations are offered in the business glossary,
and in the shorter glossaries of
the sales and
marketing sections.
Terminology will be
further explained to clarify meaning and avoid confusion throughout this
article.
introduction
Approached correctly,
writing business plans and marketing strategy is usually simpler than first
seems.
Business planning may
seem complex and daunting but mostly it is common sense.
Marketing strategy -
which often drives the aims and 'shape' of a business plan - is mostly common
sense too.
Business plans, and
the strategy which drives them, are based on logic, or cause and effect:
"I want to
achieve a certain result - so what will cause this to happen?"
Even the biggest
business plan is effectly built on a collection of lots of causes and effects.
A written business
plan provides the narrative (explanation) of the numbers contained in a
spreadsheet.
A format or template for the
written business plan, including numbers as required, is given
below.
When we see lots of
numbers in a computer spreadsheet we can forget this, but the numbers
are merely a
reflection of scale and detail, and of computerised calculations and modelling,
etc.
In fact often when we
are confronted with a complex planning spreadsheet containing thousands
of numbers, what we
are actually being offered is a ready-made planning tool. In many cases,
where business
planning is a continuation of an ongoing situation, the most frightening
spreadsheets
can provide a very
easy template for future plans, especially with a little help from a colleague
in
the acciounts
department who understands how it all works.
Ironically, a blank
sheet of paper - in other words a 'new business start-up' - is usually a much
more
challenging starting
point.
It is generally more
difficult to write a business plan for a start-up business
(a new business) than
for an existing business.
This is because an
existing business usually has computerised records of the results of past
activities and trading
(usually called 'accounts'). Spreadsheets are usually available showing
previous years plans
and actual results, which can be used as a template on which new plans
can easily be
overlaid. Writing a new business plan for the continuation or development of
such an
existing situation
obviously enables much of the planning to be based on existing figures, ratios,
statistics, etc.
New business start-up
situations by their nature tend to have no previous results, so we often refer
to this sort of
planning as 'starting with a blank sheet of paper'.
New business start-ups
- especially if you are the owner or entrepreneur - present bigger
planning challenges in
some respects because we have no previous records to act as a guide, but in
other respects they offer wonderful opportunities to create genuinely
innovative and exciting founding principles - your own new business philosophy
- on which your plans can be built and developed.
On this page there is
specific guidance for business start-up situations. See the simple business start-up
principles.
Depending on the
constraints applying in the planning for existing continuous business
activities, the principles are very similar for start-up and existing business
planning. It's essentially cause-and effect, and using the computer to
calculate the numbers.
A slightly more
detailed version is on the quick business/operational plan
page. , and begins with
To explore personal
direction and change (for example for early planning of self-employment or new
business start-up) see the passion-to-profit exercise and
template on the teambuilding exercises page.
See also the simple
notes about starting your own business,
which to an extent also apply
when you are starting
a new business initiative or development inside another organisation as
a new business
development manager, or a similar role.
Here's a free profit and loss account
spreadsheet template tool (xls) for incorporating these factors
and financials into a
more formal phased business trading plan, which also serves as a business
forecasting and
reporting tool too.
Adapt it to suit your
purposes. This plan example is also available as a PDF, see the Profit and
Loss Account (P&L) Small
Enterprise Business Plan Example (PDF). The numbers could be
anything: ten times
less, ten times more, a hundred times more - the principle is the same.
Towards the end of
this article there is also a simple template/framework for a
feasibility study or
justification report,
such as might be required to win funding, authorisation or approval for
starting a project, or
the continuation of a project or group, in a commercial or voluntary situation.
If you are starting a
new business you might also find the tips and information about
buying a
franchise business to
be helpful, since they cover many basic points about choice of business
activity
and early planning.
(Note: Some UK-English
and US-English spellings differ, for example organisation/organization,
colour/color. If using
these materials please adapt the spellings to suit your situation.)
how to write strategic marketing plans, business plans
and sales plans
People use various
terms referring to the business planning process - business plans, business
strategy, marketing
strategy, strategic business planning, sales planning - they all cover the
same basic principles.
When faced with business planning or strategy development task it's
important to clarify
exactly what is required: clarify what needs to be done rather
than assume
the aim from the
description given to it - terms are confused and mean different things to
different
people. You'll see
from the definitions below how flexible these business planning terms are.
business planning definitions
a plan - a statement of intent - a calculated
intention to organize effort and resource to achieve
an outcome - in this
context a plan is in written form, comprising explanation, justification and
relevant numerical and
financial statistical data. In a business context a plan's numerical data -
costs and revenues -
are normally scheduled over at least one trading year, broken down
weekly, monthly
quarterly and cumulatively.
a business - an activity or entity, irrespective of
size and autonomy, which is engaged in an
activity, normally the
provision of products and/or services, to produce commercial gain,
extending to
non-commercial organizations whose aim may or may not be profit (hence why
public
service sector schools
and hospitals are in this context referred to as 'businesses').
business plan - this is now rightly a very general and
flexible term, applicable to the planned
activities and aims of
any entity, individual group or organization where effort is being
converted into results, for example: a small company; a large
company; a corner shop; a local
window-cleaning
business; a regional business; a multi-million pound multi-national
corporation; a
charity; a school; a
hospital; a local council; a government agency or department; a joint-venture;
a
project within a
business or department; a business unit, division, or department within another
organization or
company, a profit centre or cost centre within an an organization or business;
the
responsibility of a
team or group or an individual. The business entity could also be a proposed
start-up, a new
business development within an existing organization, a new joint-venture, or
any new organizational
or business project which aims to convert action into results. The extent
to which a business
plan includes costs and overheads activities and resources (eg., production,
research and
development, warehouse, storage, transport, distribution, wastage, shrinkage,
head
office, training, bad
debts, etc) depends on the needs of the business and the purpose of the
plan. Large
'executive-level' business plans therefore look rather like a 'predictive
profit and loss
account', fully
itemised down to the 'bottom line'. Business plans written at business unit or
departmental level do
not generally include financial data outside the department concerned.
Most business plans
are in effect sales plans or marketing plans or departmental plans, which form
the main bias of this
guide.
strategy - originally a military term, in a
business planning context strategy/strategic
means/pertains
to why and how the plan will work, in relation to all factors of
influence upon the
business entity and
activity, particularly including competitors (thus the use of a military
combative term),
customers and demographics, technology and communications.
marketing - believed by many to mean the same as
advertising or sales promotion, marketing
actually means and
covers everything from company culture and positioning, through market
research, new
business/product development, advertising and promotion, PR (public/press
relations),
and arguably all of
the sales functions as well. Marketing is the process by which a
business
decides what it will
sell, to whom, when and how, and then does it.
marketing plan - logically a plan which details what a
business will sell, to whom, when and
how, implicitly
including the business/marketing strategy. The extent to which financial and
commercial numerical
data is included depends on the needs of the business. The extent to
which this details the
sales plan also depends on the needs of the business.
sales - the transactions between the business
and its customers whereby services and/or products
are provided in return
for payment. Sales (sales department/sales team) also describes the
activities and
resources that enable this process, and sales also describes the revenues that
the
business derives from
the sales activities.
sales plan - a plan describing, quantifying and
phased over time, how the the sales will be
made and to whom. Some
organizations interpret this to be the same as a business plan or a
marketing plan.
business strategy - see 'strategy' - it's the same.
marketing strategy - see 'strategy' - it's the same.
service contract - a formal document usually drawn up by
the supplier by which the trading
arrangement is agreed
with the customer. See the section on service contracts and
trading
strategic business plan - see strategy and business plan - it's
a business plan with
strategic drivers
(which actually all business plans should be).
strategic business
planning - developing and
writing a strategic business plan.
philosophy, values,
ethics, vision - these are the
fundamentals of business planning, and
determine the spirit
and integrity of the business or organisation - see the guide to how philosophical
and ethical factors fit into the
planning process, and also the principles and materials relating to
You can see that many
of these terms are interchangeable, so it's important to clarify what needs
to be planned for
rather than assuming or inferring a meaning from the name given to the task.
That said, the principles
explained here can be applied to business plans of all sorts. Business plans
are often called
different names - especially by senior managers and directors delegating a
planning
exercise that they do
not understand well enough to explain. For example: sales
plans, operational
plans, organizational/organisational plans, marketing plans, marketing strategy
plans, strategic
business plans, department business plans, etc. Typically these names reflect
the department doing
the planning, despite which, the planning process and content required
in the document is
broadly similar.
Other useful and
relevant business planning definitions are in the business dictionary;
the sales and
selling glossary; some are also in the financial terms glossary, and more - especially
for training
- are in the business and training acronyms listing, which
also provides amusing light relief if this
business planning gets
a little dry (be warned, the acronyms listings contain some adult content).
when writing a business or operating plan, remember...
A useful first rule of
business planning is to decide what you are actually trying to achieve
and
always keep this in
mind. Write your aim large
as a constant reminder to yourself, and to
anyone else involved.
Keeping your central aim visible will help you minimise the distractions and
distortions which
frequently arise during the planning process.
An increasingly vital
and perhaps second rule of business planning is to establish a strong
ethical
philosophy at the outset of your planning. This
provides a vital reference for decision-making and
strategy from the
start. A strong clear ethical code communicates your values to staff,
customers,
suppliers, and creates
a simple consistent basis for operations which conventional financials,
processes, systems and
even people, do not address. It is very difficult to introduce ethical
principles
later into an
enterprise, especially when planning shifts into implementation, and more so if
problems
arise relating to
integrity, honesty, corporate responsibility, trust, governance, etc., any of
which can
have massive impact on
relationships and reputation. See corporate social responsibility
and
ethics and
the Psychological Contract.
It is easy to address
issues of ethics and corporate responsibility when you are the owner of a
new enterprise. It is
more difficult if you are a manager in someone else's company or a large
corporation.
Nevertheless ethics and corporate responsibility are highly significant in
planning,
and strong
justification for their proper consideration can now be made. There are now
plenty of recent
examples of corporations - indeed entire national economies and governments -
which have failed
because of poor regard to ethical considerations. The world is changing and
learning, slowly, but
it is, and anyone ignoring ethics in planning today does so at their own peril.
A third crucial
requirement for business plans is return on investment, or for
public
services and
non-profit organisations:effective use of investment and resources, which is
beyond
simple 'cost control'.
For the vast majority
of organisations, whether companies, public services, not-for-profit
trusts and
charities, all organisations need to be financially effective in what
they do,
otherwise they will
cease to function.
Ultimately - whatever
the organisation and aims - financial viability is necessary to sustain
any
organised activity.
While it's essential
to manage ethical and socially responsible aspects of organisational
aims, these must allow foradequate return on
investment (or in less traditional and 'non-profit'
enterprises, must
allow for the effective use of investment and resources, according
to the
financial requirements
of the particular organisation).
Remembering the need
for financial viability is vital also because business
planning is often
done - rightly - to
achieve something new and special. This tends to focus thinking on creativity,
innovation, ambition,
quality, excellence, perhaps even social good, etc., which can easily distract
planning away from the
basic need to be financially viable - and crucially not to make a loss.
By treating return
on investment as a vital requirement of planning we increase the
likelihood
that plans will be
viable and therefore sustainable.
Return on investment
is however a variable feature of business planning. It is flexible
according to the type
of enterprise, its main purpose and philosophy.
In a conventional
profit-driven corporation return on investment (at an optimal
rate) is typically a
strong strategic
driver for local planning and decisions, and by implication also a basic
requirement of the
enterprise as a whole. On the other hand, in a business or organization
less focused on
shareholder reward, such as a public services trust or charity, or a social
enterprise
or cooperative, return
on investment (at a relatively lower rate), may be a requirement
simply
to sustain viable
operations, according to the aims of the enterprise. In the first
example, return on
investment is the aim; in the second example, return
on investment enables some other higher aim
to be achieved. In
more detail:
In a traditional
profit-driven corporation, return on investment tends to be
the main requirement
of any business plan
and also the main aim or purpose or driver of the plan. In most traditional
corporations return
on investment tends to be at the heart of all activities, since
typically the
corporation exists to
maximize the yield (profit and growth effectively) of shareholder funds
invested
in the business.
Planning in traditional corporations at times forgets this basic obligation,
especially
when a junior manager
is asked to 'write a business plan' for the first time.
In traditional
profit-driven corporations, when a new manager starts to write a business plan
or
operational plan for
the first time (and for some experienced managers also, for the umpteenth
time),
the manager wonders:
What is the aim? What am I trying to achieve? Often when they ask their
own manager, the
manager has the same doubts. The central aim is usuallyreturn on investment.
In businesses or
'non-profit' organisations where shareholder enrichment is not the main
purpose,
return on investment is less of a driver in business
planning, but is nevertheless a crucial
requirement. Such enterprises are becoming more popular,
and will continue to become so,
since the collapse of
the western economies in 2008, and increasing disillusionment with
old-style business
thinking. Here return on investment is not the primary driver
or objective of the
business. Instead the
main driver of enterprise may be some other purpose.
An example of 'some
other purpose' might be the activities of a social enterprise or cooperative,
or maybe an employee
ownership company, or perhaps a trust or charity, whose main aim is (rather
than the traditional
profit generation for external/institutional shareholders) perhaps to benefit
its
members/staff, and/or
to sustain local jobs, and/or to benefit the local community, or maybe to
advance science or
learning or health, etc. Here, while return on investment may
seem less
crucial or appropriate
to planning and operations, the enterprise must nevertheless remain
financially viable, or it ceases to be able to operate at all.
In such
examples, return on investment in business planning is not
usually maximized, but
must still be treated
as an underpinning requirement to planning, and flexed according to the
fundamental aims and
financial requirements of the enterprise.
Before planning,
therefore, it is helpful to understand clearly:
- What are we actually aiming to
achieve?
- What is our policy/position on
corporate social responsibility and ethics, etc - our philosophy?
- And what return on
investment (or alternative financial performance) does our
activity/
- enterprise require - is this a
strategic driver in itself, or simply the means by which we
- maintain our activities in
support of our (point 1) aims?
planning
- cause and effect..
The basic methodology
of business planning is identifying causes and effects, according
to your relevant
business requirements (financials and ethics) and strategic drivers (what we
are
actually aiming to
achieve).
Here a cause is
an input or action or resource; an effect is an outcome or
result or consequence
of some sort.
We want to achieve
xyz effect (for example a given return on investment, or a
certain sales level or
market share,
whatever) - so what should we plan to cause this to happen?
Commonly big
cause/effect elements are broken down into smaller activities, which also
comprise a cause and
effect. (Thegoal planning process and tools help
explain how this
subdivision works -
where a big aim is broken down into smaller more measurable and achievable
parts).
Junior managers have
responsibility for plans and activities which feed into larger departmental
plans
and activities of
senior managers. The plans and activities of senior managers feed into the
divisional
plans of executives
and directors. There is a hierarchy or tree structure of cause and effects, all
hopefully contributing
to the overall organizational aim.
In many good
businesses a substantial business planning responsibility extends now to front
line
customer-facing staff,
and the trend is increasing. In this context, the business plan could be called
also be called a marketing plan, or a sales plan - all departmental plans are
basically types of business planning:
"What you are
going to sell to whom, when and how you are going to sell it, how much
contribution
(gross profit) the sales
will produce, what the marketing and/or selling cost will be, and what will be
the
return on
investment."
Where a department is
a 'cost centre' not a 'profit-centre' - providing products or services
internally to other
departments rather than externally to customers - then the language and
planning
elements may alter,
but the principles remain the same.
Also, these principles
and methods apply to very large complex multinational organizations, which
tend to entail more
and different costs, fixed overheads, revenues, and consequently larger
planning formats; more
and bigger spreadsheets, more lines and columns on each, more attention
and people working on
the numbers, more accountants, and typically - especially at
middle-management
level and above - more emphasis on cashflow and the balance sheet,
alongside basic
'profit and loss' planning.
carry out your market research, including understanding your
competitor
activity
'The market' varies
according to the business or organisation concerned, but every organised
activity has a market.
Knowing the market enables you to assess and value and plan how to
engage with it. A
common failing of business planning or operational planning outside of the
'business' world, is
to plan in isolation, looking inward, when ideas can seem very positive and
reliable because
there's no context and nothing to compare. Hence research is critical. And
this applies to any
type of organisation - not just to businesses. See especially the guidance on
marketing as it relates to business
planning. Planning very much concerns processes. The principles
of marketing will
explain additionally how to put meaning and values into what you plan.
Your market research
should focus on the information you need, to help you to formulate
strategy and make
business decisions. Market research should be pragmatic and purposeful -
a means to an end, and
not a means in itself. Market information potentially covers a vast range
of data, from global
macro-trends and statistics, to very specific and detailed local or technical
information, so it's
important to decide what is actually relevant and necessary to know. Market
information about
market and industry trends, values, main corporations, market structure, etc,
is
important to know for
large corporations operating on a national or international basis. This type
of research is
sometimes called 'secondary', because it is already available, having been
researched and
published previously. This sort of information is available from the internet,
libraries, research
companies, trade and national press and publications, professional
associations and
institutes. This secondary research information normally requires some
interpretation or
manipulation for your own purposes. However there's no point spending days
researching global
statistical economic and demographic data if you are developing a strategy for
a relatively small or
local business. Far more useful would be to carry out your own 'primary'
research (i.e.
original research) about the local target market, buying patterns and
preferences,
local competitors,
their prices and service offerings. A lot of useful primary market research can
be
performed using
customer feed-back, surveys, questionnaires and focus groups (obtaining
indicators and views
through discussion among a few representative people in a controlled
discussion situation).
This sort of primary research should be tailored exactly for your needs.
Primary research
requires less manipulation than secondary research, but all types of research
need a certain amount
of analysis. Be careful when extrapolating or projecting figures to avoid
magnifying initial
mistakes or wrong assumptions. If the starting point is inaccurate the
resulting
analysis will not be
reliable. For businesses of any size; small, local, global and everything in
between, the main
elements you need to understand and quantify are:
- customer (and potential
customer) numbers, profile and mix
- customer perceptions, needs,
preferences, buying patterns, and trends, by sub-sector if
- necessary
- products and services, mix,
values and trends
- demographic issues and trends
(especially if dependent on consumer markets)
- future regulatory and legal
effects
- prices and values, and customer
perceptions in these areas
- distribution and routes to
market
- competitor activities,
strengths, weaknesses, products, services, prices, sales methods, etc
Primary research is
recommended for local and niche services. Keep the subjects simple and
the range narrow. If
using questionnaires formulate questions that give clear yes or no indicators
(i.e. avoid three and
five options in multi-choices which produce lots of uncertain answers) always
understand how you
will analyse and measure the data produced. Try to convert data to numerical
format and manipulate
on a spreadsheet. Use focus groups for more detailed work. For large
research projects
consider using a market research organization because they'll probably do it
better than you, even
though this is likely to be more costly. If you use any sort of marketing
agency
ensure you issue a
clear brief, and that your aims are clearly understood. Useful frameworks
for research are PEST analysis and SWOT analysis.
establish your corporate philosophy and the aims of your
business
or
operation
First establish or
confirm the aims of the business, and if you are concerned with a part of a
business, establish
and validate the aims of your part of the business. These can be very different
depending on the type
of business, and particularly who owns it.
Refer to and consider
issues of ethics and philosophy, corporate
social responsibility,
sustainability, etc -
these are the foundations on which values and missions are built.
Look at the
reasons ethics and corporate
responsibility are so important. And see also the
Consider the Psychological Contract and
the benefits of establishing a natural balance and
fairness between all
interests (notably staff, customers, the organization).
Traditional business
models are not necessarily the best ones. The world is constantly changing,
and establishing a new
business is a good time to challenge preconceptions of fundamental business
structure and purpose.
A business based on a narrow aim of enriching a few investors while
relegating the needs
and involvement of everyone else may contain conflicts and tensions at a
deep level. There are
other innovative business structures which can inherently provide a more
natural, cooperative
and self-fuelling relationship - especially between employees and the
organization, and
potentially between customers and the organization too.
When you have
established or confirmed your philosophical and ethical position, state the
objectives
of the business unit
you are planning to develop - your short, medium and long term aims -
(typically
'short, medium and
long' equate to 1 year, 2-3 years and 3 years plus). In other words, what is
the
business aiming to do
over the next one, three and five years?
Bear in mind that you
must reliably ensure the success and viability of the business in the short
term or the long term is merely an academic
issue. Grand visions need solid foundations. All
objectives and aims
must be prioritised and as far as possible quantified. If you can't measure it,
you can't manage it.
define
your 'mission statement'
All businesses need a
‘mission statement'. It announces clearly and succinctly to your staff,
shareholders and
customers what you are in business to do. Your mission statement may build
upon a general
‘service charter' relevant to your industry. You can involve staff in defining
and
refining the
business's mission statement, which helps develop a sense of ownership and
responsibility. Producing
and announcing the mission statement is also an excellent process for
focusing attention on
the business's priorities, and particularly the emphasis on customer service.
Whole businesses need
a mission statement - departments and smaller business units within a
bigger business need
them too.
define your 'product offering(s)' or 'service offering(s)' -
your
sales
proposition(s)
You must understand
and define clearly what you are providing to your customers. This
description should
normally go beyond your products or services, and critically must include
the way you do
business, and what
business benefits your customers derive from your products
and services, and from
doing business with you. Develop offerings or propositions for each main area
of your business
activity - sometimes referred to as 'revenue streams', or 'business streams' -
and/or
for the sector(s) that
you serve. Under normal circumstances competitive advantage is increased
the more you can offer
things that your competitors cannot. Good research will tell you where the
opportunities are to
increase your competitive advantage in areas that are of prime interest to your
target markets.
Develop your service offering to emphasise your strengths, which should
normally
relate to your
business objectives, in turn being influenced by corporate aims and market
research.
The important
process in developing
a proposition is translating your view of these services into an offer
that means something
to your customer. The definition
of your service offer must make sense
to your customer in
terms that are advantageous and beneficial to the customer, not what is
technically good, or
scientifically sound to you. Think about what your service, and the manner by
which you deliver it,
means to your customer.
Traditionally, in
sales and marketing, this perspective is referred to as translating features
into
benefits. The easiest
way to translate a feature into a benefit is to add the prompt ‘which means
that...'. For example,
if a strong feature of a business is that it has 24-hour opening, this feature
would
translate into
something like: "We're open 24 hours (the feature) which means that you
can get what
you need when you need
it - day or night." (the benefit). Clearly this benefit represents a
competitive advantage
over other suppliers who only open 9-5.
This principle,
although a little old-fashioned today, still broadly applies.
The important thing is
to understand your services and proposition in terms that your
customer will
recognise as being relevant and beneficial to them.
Most businesses have a
very poor understanding of what their customers value most in the
relationship, so
ensure you discover this in the research stage, and reflect it in your stated
product
or service
proposition(s).
Customers invariably
value these benefits higher than all others:
- Making money
- Saving money
- Saving time
If your proposition(s)
cannot be seen as leading to any of the above then customers will
not be very interested
in you.
A service-offer or
proposition should be an encapsulation of what you do best, that you do better
than your competitors
(or that they don't do at all); something that fits with your business
objectives,
stated in terms that
will make your customers think ‘Yes, that means something to me and I
think it could be good
for my business (and therefore good for me also as a buyer or sponsor).'
This is the first
'brick in the wall' in the process of business planning, sales planning,
marketing
planning, and
thereafter, direct marketing, and particularly sales lead generation.
write your business plan - include sales, costs of sales,
gross margins, and if necessary your business overheads
Business plans come in
all shapes and sizes. Pragmatism is essential. Ensure your plan shows what
your business needs it
to show. Essentially your plan is a spreadsheet of numbers with supporting
narrative, explaining
how the numbers are to be achieved. A plan should show all the activities
and resources in terms
of revenues and costs, which together hopefully produce a profit at the
end of the trading
year. The level of detail and complexity depends on the size and part of
the business that the
plan concerns. Your business plan, which deals with all aspects of the resource
and management of the
business (or your part of the business), will include many decisions
and factors fed in
from the marketing process. It will state sales and profitability targets by
activity.
In a marketing plan
there may also be references to image and reputation, and to public relations.
All of these issues
require thought and planning if they are to result in improvement, and
particularly
increasing numbers of customers and revenue growth. You would normally
describe and provide
financial justification for the means of achieving these things, together
with customer
satisfaction improvement. Above all a plan needs to be based on actions -
cost-effective and
profitable cause and effect; inputs required to achieved required outputs,
analysed,
identified and
quantified separately wherever necessary to be able to manage and measure
the relevant
activities and resources.
quantify
the business you seek from each of your market sectors, segments, products and
customer groupings, and allocate investment, resources and activities
accordingly
These principles apply
to a small local business, a department within a business, or a vast whole
business. Before
attending to the detail of how to achieve your marketing aims you need to
quantify clearly what
they are. What growth targets does the business have? What customer
losses are you
projecting? How many new customers do you need, by size and type, by product
and service? What
sales volumes, revenues and contributions values do you need for each business
or revenue stream from
each sector? What is your product mix, in terms of customer type, size,
sector, volumes,
values, contribution, and distribution channel or route to market? What are
your
projected selling
costs and net contributions per service, product, sector? What trends and
percentage increase in
revenues and contributions, and volumes compared to last year are you
projecting? How is
your market share per business stream and sector changing, and how does this
compare with your
overall business aims? What are your fast-growth high-margin opportunities, and
what are your mature
and low-margin services; how are you treating these different
opportunities, and
anything else in between? You should use a basic spreadsheet tool to split your
business according to
the main activities and profit levers. See the simple sales/business planning
tool example below.
ansoff product-market growth matrix - strategic tool
A useful planning tool
in respect of markets and products is the matrix developed by Igor Ansoff
(H Igor Ansoff,
1918-2002), who is regarded by some as the 'Father of Strategic Management'.
Fully titled the
Ansoff Product-Market Growth Matrix, the tool was first published in Harvard
Business
Review, 1957, in
Ansoff's paper Strategies for Diversification.
The Ansoff
product-market matrix helps to understand and assess marketing or business
development strategy.
Any business, or part of a business can choose which strategy to
employ, or which mix
of strategic options to use.
This is a
fundamentally simple and effective way of looking at strategic development
options.
existing products
|
new products
|
|
existing markets
|
market penetration
|
product development
|
new markets
|
market development
|
diversification
|
Each of these
strategic options holds different opportunities and downsides for different
organizations,
so what is right for
one business won't necessarily be right for another. Think about what option
offers the best
potential for your own business and market. Think about the strengths of your
business and what type
of growth strategy your strengths will enable most naturally. Generally
beware of
diversification - this is, by its nature, unknown territory, and carries the
highest risk of failure.
Here are the Ansoff
strategies in summary:
market penetration - Developing your sales of existing
products to your existing market(s). This
is fine if there is
plenty of market share to be had at the expense of your competitors, or if the
market
is growing fast and
large enough for the growth you need. If you already have large market
share you need to
consider whether investing for further growth in this area would produce
diminishing returns
from your development activity. It could be that you will increase the profit
from this activity
more by reducing costs than by actively seeking more market share. Strong
market share suggests there
are likely to be better returns from extending the range of products/
services that you can
offer to the market, as in the next option.
product development - Developing or finding new products to
take to your existing market(s).
This is an attractive
strategy if you have strong market share in a particular market. Such a
strategy
can be a suitable
reason for acquiring another company or product/service capability provided it
is relevant to your
market and your distribution route. Developing new products does not mean
that you have to do
this yourself (which is normally very expensive and frequently results in
simply re-inventing
someone else's wheel) - often there are potential manufacturing partners
out there who are
looking for their own distribution partner with the sort of market presence
that you
already have. However
if you already have good market share across a wide range of products for
your market, this
option may be one that produces diminishing returns on your growth investment
and activities, and
instead you may do better to seek to develop new markets, as in the next
strategic
option.
market development - Developing new markets for your
existing products. New markets can
also mean new
sub-sectors within your market - it helps to stay reasonably close to the
markets
you know and which
know you. Moving into completely different markets, even if the product/service
fit looks good, holds
risks because this will be unknown territory for you, and almost certainly will
involve working
through new distribution channels, routes or partners. If you have good
market share and good
product/service range then moving into associated markets or segments
is likely to be an
attractive strategy.
diversification - taking new products into new markets.
This is high risk - not only do you not know
the products, but
neither do you know the new market(s), and again this strategic option is
likely to
entail working through
new distribution channels and routes to market. This sort of activity
should generally be
regarded as additional and supplementary to the core business activity, and
should be rolled out
carefully through rigorous testing and piloting.
Consider also your
existing products and services themselves in terms of their market
development
opportunity and profit potential. Some will offer very high margins because
they are
relatively new, or
specialised in some way, perhaps because of special USP's or distribution
arrangements. Other
products and services may be more mature, with little or no competitive
advantage, in which
case they will produce lower margins. The Boston Matrix is a useful way to
understand and assess
your different existing product and service opportunities:
boston matrix model - product/service development
The Boston Matrix
model (also called the BSG Matrix, Growth-Share Matrix, and variations
around these titles)
is a tool for assessing existing and development products in terms of their
market potential, and
thereby implying strategic action for products and services in each of the four
categories reflected
in the model. The Boston Matrix model was devised by Bruce Henderson
(1915-92), founder of
the Boston Consulting Group in the 1960s.
It has been adapted in
many ways. A simple version is shown here below.
Like other four-part
2x2 matrix models, the Boston Matrix is a very quick and easy method for
analysis, thinking and
decision-making, while being unavoidably limited in its handling of subtlety
and detail. Often in
business and strategic thinking too much detail is unhelpful - instead, clarity
and ease of
understanding are extremely helpful, especially in communicating ideas to
teams and groups, in
which circumstances the Boston Matrix is an excellent aid.
low market share
|
high market share
|
|
growing market
|
problem child
|
(rising) star
|
mature market
|
dog
|
cash cow
|
cash cow - The rather crude metaphor is based on
the idea of 'milking' the returns
from previous
investments which established good distribution and market share for
the product. Products
in this quadrant need maintenance and protection activity, together
with good cost management,
not growth effort, because there is little or no additional growth
available.
dog - This is any product or service of
yours which has low market presence in a mature or
stagnant market. There
is no point in developing products or services in this quadrant.
Many organizations
discontinue products/services that they consider fall into this category,
in which case consider
potential impact on overhead cost recovery. Businesses that
have been starved or
denied development find themselves with a high or entire proportion of
their products or
services in this quadrant, which is obviously not very funny at all, except to
the
competitors.
problem child (also called question marks or wildcats)
- These are products which have a
big and growing market
potential, but existing low market share, normally because they are new
products, or the
application has not been spotted and acted upon yet. New business development
and project management principles are required
here to ensure that these products' potential can
be realised and
disasters
avoided. This is
likely to be an area of business that is quite competitive, where the pioneers
take the risks in the
hope of securing good early distribution arrangements, image, reputation
and market share.
Gross profit margins are likely to be high, but overheads, in the form of costs
of
research, development,
advertising, market education, and low economies of scale, are normally
high, and can cause
initial business development in this area to be loss-making until the product
moves into the rising
star category, which is by no means assured - many problem children products
remain as such.
rising star - Or 'star' products, are those which
have good market share in a strong and growing
market. As a product
moves into this category it is commonly known as a 'rising star'. When
a market is strong and
still growing, competition is not yet fully established. Demand is strong;
saturation or
over-supply do not exists, and so pricing is relatively unhindered. This all
means
that these products
produce very good returns and profitability. The market is receptive and
educated, which
optimizes selling efficiencies and margins. Production and manufacturing
overheads are
established and costs minimised due to high volumes and good economies
of scale. These are
great products and worthy of continuing investment provided good growth
potential continues to
exist. When it does not these products are likely to move down to cash cow
status, and the company
needs to have the next rising stars developing from its problem children.
After considering your
business in terms of the Ansoff matrix and Boston matrix (which are thinking
aids as much as
anything else, not a magic solution in themselves), on a more detailed level,
and for
many businesses just
as significant as the Ansoff-type-options, what is the significance of your
major
accounts - do they
offer better opportunity for growth and development than your ordinary
business? Do you have
a high quality, specialised offering that delivers better business benefit on a
large scale as opposed
to small scale? Are your selling costs and investment similar for large and
small contracts? If so
you might do better concentrating on developing large major accounts
business, rather than
taking a sophisticated product or service solution to smaller companies
which do not
appreciate or require it, and cost you just as much to sell to as a large
organization.
customer
matrix
This customer matrix
model is used by many companies to understand and determine strategies
according to customer
types.
good products
|
not so good products
|
|
good customers
|
develop and find more customers
like these - allocate your best resources to these existing customers and to
prospective customers matching this profile
|
educate and convert these
customers to good products if beneficial to them, failing which, maintain
customers via account management
|
not so good customers
|
invest cautiously to develop and
improve relationship, failing which, maintain customers via account
management
|
assess feasibility of moving these
customers left or up, failing which, withdraw from supplying sensitively
|
Assessing product type
is helped by reference to the Boston matrix model. There is a lot of
flexibility as to what
constitutes 'good' and 'not so good customers' - use your own criteria.
A good way to do this
is to devise your own grading system using criteria that mean something
to your own situation.
Typical criteria are: size, location, relationship, credit-rating and
payment terms, is the
customer growing (or not), the security of the supply contract, the
service and support
overhead required, etc. This kind of customer profiling tool and exercise
is often overlooked,
but it is a critical aspect of marketing and sales development, and of
optimizing sales
effectiveness and business development performance and profitability. Each
quadrant requires a
different sales approach. The type of customer also implies the type of
sales person who
should be responsible for managing the relationship. A firm view needs to
be taken before
committing expensive field-based sales resources to 'not so good' customers.
Focus prospect
development (identifying and contacting new prospective customers) on the
profile which appears
in the top left quadrant. Identify prospective new customers who fit this
profile, and allocate
your business development resources (people and advertising) to this audience.
Consider also What are
your competitor weaknesses in terms of sectors, geographical territory and
products or services,
and how might these factors affect your options? Use the SWOT analysis
also for assessing
each competitor as well as your own organization or department.
Many organizations
issue a marketing budget from the top down (a budget issued by the
Centre/HQ/Finance
Director), so to speak, in which case, what is your marketing budget and how
can you use it to
produce the best return on investment, and to help the company best to meet its
overall business aims?
Use the models described here to assess your best likely returns on
marketing investment.
The best way to begin
to model and plan your marketing is to have a record of your
historical (say last
year's) sales results (including selling and advertising costs if
appropriate and
available) on a spreadsheet. The level of detail is up to you; modern
spreadsheets can
organize massive amounts of data and make very complex analysis quick easy.
Data is vital and will
enable you to do most of the analysis you need for marketing planning. In
simple terms you can
use last year's results as a basis for planning and modelling the next year's
sales, and the
marketing expenditure and activities required to achieve them.
simple
business plan or sales plan tools examples
These templates
examples help the planning process. Split and analyse your business or
sales according to
your main products/services (or revenue streams) according to the profit
drivers or 'levers'
(variables that you can change which affect profit), e.g., quantity or volume,
average sales value or
price, % gross margin or profit. Add different columns which reflect your own
business profit
drivers or levers, and to provide the most relevant measures.
quantity
|
total sales value
|
average value
|
% gross margin
|
total sales or gross margin
|
|
product 1
|
|||||
product 2
|
|||||
product 3
|
|||||
product 4
|
|||||
totals
|
Do the same for each
important aspect of your business, for example, split by market sector (or segment):
quantity
|
total sales value
|
average value
|
% gross margin
|
total sales or gross margin
|
|
sector 1
|
|||||
sector 2
|
|||||
sector 3
|
|||||
sector 4
|
|||||
totals
|
And, for example,
split by distributor (or route to market):
quantity
|
total sales value
|
average value
|
% gross margin
|
total sales or gross margin
|
|
distributor 1
|
|||||
distributor 2
|
|||||
distributor 3
|
|||||
distributor 4
|
|||||
totals
|
These simple split
analysis tools are an extremely effective way to plan your sales and
business. Construct a
working spreadsheet so that the bottom-right cell shows the total sales or
gross margin, or
profit, whatever you need to measure, and by changing the figures within the
split
(altering the mix,
average prices, quantities, etc) you can carry out 'what if?' analysis to
develop the
best plans.
If you are a competent
working with spreadsheets it is normally possible to assemble all of
this data onto a
single spreadsheet and then show different analyses by sorting and
graphing according to
different fields.
When you are happy
with the overall totals for the year, convert this into a phased monthly
plan, with as many
lines and columns as you need and are appropriate for the business. Develop
this
spreadsheet by showing
inputs as well as sales outputs - the quantifiable activity (for example,
the numbers of
enquiries necessary to produce the planned sales levels) required to produce
the
planned performance.
Large businesses need extensive and multiple page spreadsheets. A business
plan needs costs as
well as sales, and will show profit as well as revenue and gross margin, but
the
principle is the same:
plan the detailed numbers and values of what the business performance
will be, and what
inputs are required to achieve it.
Here's a free MSExcel profit and loss account
template tool for incorporating these factors and
financials into a more
formal phased business trading plan, which also serves as a business
forecasting and
reporting tool too. Adapt it to suit your purposes. This plan example is also
available
as a PDF, see
the Profit and Loss Account
(P&L) Small Enterprise Business Plan Example (PDF).
The numbers could be
anything: ten times less, ten times more, a hundred times more - the principle
is the same.
Consider also indirect
activities that affect sales and business levels, such as customer service.
Identify key
performance indicators here too, such as customer complaints response and
resolution levels and
timescales. Internal lead referral schemes, strategic partnership activity; the
performance of other
direct sales activities such as sales agencies, distributorships, export
activities, licensing,
etc. These performance factors won't normally appear on a business plan
spreadsheet, but a
separate plan should be made for them, otherwise they won't happen.
write
your marketing plan or business plan
Your marketing plan is
actually a statement, supported by relevant financial data, of how you
are going to develop
your business. Plans should be based on actions, not masses of historical
data. The historical
and market information should be sufficient just to explain and justify the
opportunities,
direction, strategy, and most importantly, the marketing actions, methods and
measures - not to tell
the story of the past 20 years of your particular industry.
"What you are
going to sell to whom, when and how you are going to sell it, how much
contribution (gross
profit) the sales produce, what the marketing cost will be, and what will be
the return on
investment."
As stated above it is
easiest and best to assemble all of this data onto a spreadsheet,
which then allows data
to be manipulated through the planning process, and then changed and
re-projected when the
trading year is under way. The spreadsheet then becomes the basis
of your sales and
marketing forecasting and results reporting tool.
As well as sales and
marketing data, in most types of businesses it is also useful to include
measurable aims
concerning customer service and satisfaction.
The marketing plan
will have costs that relate to a marketing budget in the overall business plan.
The marketing plan
will also have revenue and gross margin/profitability targets that relate to
the turnover and
profitability in the overall business plan. This data is essentially numerical,
and so needs also some
supporting narrative as to how the numbers will be achieved - the
actions - but keep the
narrative concise; if it extends to more than a half-dozen sheets make sure
you put a succinct
executive summary on the front.
The marketing plan
narrative could if appropriate also refer to indirect activities such as
product
development, customer
service, quality assurance, training etc., if significantly relevant to
achieving
the marketing plan
aims.
Be pragmatic -
marketing plans vary enormously depending on the type, size and maturity of
business. Above all
create a plan that logically shows how the business can best consolidate and
grow its successful
profitable areas. The marketing plan should be a working and truly useful tool
-
if it is, then it's
probably a good one.
sample business plan, marketing plan or sales plan sample
structure
and example format/template
Keep the written part
of the business plan as concise and brief as possible - most situations and
high-ranking
executives do not need to see plans that are an inch thick. If you can make
your case
on a half dozen pages
then do so. Particularly if your plan is more than 5-6 pages long,
produce an executive
summary (easiest to do when you have completed the plan) and insert
it at the beginning of
the document. If you need to include lots of reference material, examples,
charts, evidence, etc,
show these as appendices at the back of the document and make sure
they are numbered and
referenced during the main body of the plan. Each new section should start
at the top of a new
page. Number the pages. Important plans should be suitably bound. All
business plans should
be professionally and neatly presented, with no grammar and spelling errors,
clearly laid out in an
easy to read format (avoid lots of upper-case or fancy fonts or italics as
these are all
difficult to read). Your business plan contents and structure should be as
follows:
business plans structure - a business planning template
- Title page: Title or heading of the plan and brief
description if required, author, date
- , company/organization if
applicable, details of circulation and confidentiality.
- Contents page: A list of contents (basically the sections listed
here, starting with the
- Introduction page) showing page
numbers, plus a list of appendices or addendums (added
- reference material at the back
of the document) allowing the reader to find what they need
- and navigate the document
easily, and to refer others to particular items and page
- numbers when reviewing or
querying.
- Introduction page: Introduction and purpose of the plan, terms of
reference if applicable
- (usually for formal and large
plans or projects).
- Executive summary page: Optional and usually beneficial, this should
normally be no
- more than a page long (or it's
not an executive summary) - the key points of the whole
- plan including conclusions,
recommendations, actions, financial returns on investment, etc.,
- clearly readable in a few
minutes.
- Main body of plan: sections and headings as required, see template
below.
- Acknowledgments and
bibliography/reference sources: if
relevant (only required
- normally for very large formal
plans)
- Appendices: appendices or addendums - additional detailed
reference material, examples,
- statistics, spreadsheets, etc.,
for reference and not central to the main presentation of your
- plan.
business
plans - main body sections examples template
This sample template
is typical for a sales/marketing/new business development business plan.
(A business plan for a
more complex project such as an international joint-venture, or the
formation of a new
company including manufacturing plant or other overhead activities
would need to include
relevant information and financials about the overheads and resources
concerned, and the
financials would need to show costs and profits more like a fully developed
profit and loss
account, with
cashflow projections,
balance sheet, etc.) Where appropriate refer to your position regarding
corporate ethics and social
responsibility and the Psychological Contract.
While these aspects are
not mechanisms within
the plan, they are crucial reference points.
- Define your market - sector(s)
and segment(s) definitions
- Quantify your market (overview
only) - size, segmentation, relevant statistics, values, numbers
- (locations, people/users, etc)
- make this relevant to you business
- Explain your market(s) - sector
trends, eg., growth, legislation, seasonality, PEST factors
where
- relevant, refer to Ansoff
matrix, show the strategic business drivers within sector and
- segments, purchasing
mechanisms, processes, restrictions - what are the factors that
- determine customers' priorities
and needs - this is a logical place to refer to ethics
- and CSR (corporate social
responsibility
- Explain your existing business
- your current business according to sector,
- products/services, quantities,
values, distributor, etc.
- Analyse your existing customer
spread by customer type, values and products/services
- including major accounts (the
'Pareto Principle' or the '80:20 rule' often applies here, eg.,
- 80% of your business comes from
20% of your customers)
- Explain your products and
services - refer to Boston matrix and especially your strategic
- propositions (what these propositions will do for your
customers) including your USP's and
- UPB's (see sales training section and acronyms)
- Explain you routes to market,
gatekeepers, influencers and strategic partners - the other
- organizations/individuals you
will work with to develop your market, including 'what's in
- it for them', commissions,
endorsements, accreditations, approvals, licenses, etc.
- Case studies and track record -
the credibility, evidence and proof that your propositions and
- strategic partnerships work
- Competitor analysis, eg., SWOT
analysis of your own business compared to SWOT analysis
- of each competitor
- Sales/marketing/business plan
(1 year min) showing sales and margins by
- product/service stream, mix,
values, segment, 'distributor', etc, whatever is relevant, phased
- monthly, in as much detail as
you need. This should be on a spreadsheet, with as
- many different sheets as
necessary to quantify relevant inputs and outputs.
- List your strategic actions (marketing
campaigns, sales activities, advertising, etc) that will
- deliver the above, with costs
and returns. This should be supported with a spreadsheet,
- showing cost and return on
investment for each activity.
Tip: If the business
plan concerns an existing activity, use the previous year's sales/business
analysis as the basis
for the next year's sales/business plan. Adapt as necessary according to your
new strategic plans.
other
business planning and marketing issues
staffing
and training implications
Your people are
unlikely to have all the skills they need to help you implement a marketing
plan.
You may not have all
the people that you need so you have to consider justifying and obtaining
extra. Customer
service is acutely sensitive to staffing and training. Are all of your people
aware of
the aims of the
business, its mission statement and your sales propositions? Do they know what
their responsibilities
are? How will you measure their performance? Many of these issues feed
back into the business
plan under human resources and training, where budgets need to
be available to
support the investment in these areas.
customer
service charter
You should formulate a
customer service charter, extending both your mission statement and
your service offer, so
as to inform staff and customers what your standards are. These standards
can cover quite
detailed aspects of your service, such as how many times the telephone will be
permitted to ring
until the caller is gets an answer. Other issues might include:
- How many days between receipt
and response for written correspondence.
- Complaints procedure and
timescales for each stage.
This charter sets
customer expectations, so be sure you can meet them. Customers get
disappointed
particularly when their expectations are not met, and when so many standards
can be set at
arbitrary levels, think of each one as a promise that you should keep.
Business-to-business
customers would expect to agree these standards with their suppliers and
have them recorded as
part of their contracts, or as SLA's (service level agreements). Increasingly,
large customers demand
SLA's to be tailored to their own specific needs, and the
process of developing
these understandings and agreements is absolutely crucial to the
maintenance and
development of large contracts.
Remember an important
rule about customer service: It's not so much the failure to meet
standards that causes
major dissatisfaction among customers - everyone can make a mistake -
the biggest cause of
upset is the failure of suppliers to inform customers and keep them updated
when problems arise.
Not being told in advance, not receiving any apology, not getting any
explanation why, and
not hearing what's going to be done to put things right, are key areas of
customer
dissatisfaction, and therefore easy areas for suppliers to focus their efforts
to
achieve and
communicate improvements.
A special point of
note for businesses that require a strong technical profile among their service
staff: these people
are often reactive by nature and so not good at taking initiative to identify
and
anticipate problem
areas in customer service. It's therefore helpful to establish suitable
mechanisms
and responsibility to
pick up problems and deal with them - a kind of trouble-shooting capability -
which can be
separately managed and monitored at a strategic level. Do not assume that
technically-oriented
staff will be capable of proactively developing customer service solutions and
revisions to SLA's -
they generally need help in doing so from staff with high creativity, empathy,
communications and
initiative capabilities.
establish systems to measure customer service and staff
performance
These standards and
the SLA's established for large customers need to be visible, agreed
with customers,
absolutely measurable. You must keep measuring your performance against them,
and preferably
publishing the results, internally and externally. Customer complaints handling
is a key
element:
Measuring customer
complaints is crucial because individual complaints are crucial areas to
resolve, and also as a
whole, complaints serve as a barometer for the quality and performance
of the business. You
need to have a scheme which encourages, not discourages, customers
to complain, to open
the channels as wide as possible. Most businesses are too defensive where
complaints are
concerned, preferring to minimise their importance, or to seek to justify and
excuse
them. Wrong.
Complaints are the opportunities to turn ordinary service into unbeatable
service.
Moreover, time and
again surveys suggest that anything up to nine out of ten people do not
complain to the
provider when they feel dissatisfied - they just keep their dissatisfaction to
themselves and the
provider never finds out there's a problem, even when the customer chooses
to go elsewhere. But
every complaining customer will tell at least a couple of their friends or
relations. Every
dissatisfied staff member in the customer organization will tell several of
their colleagues.
Unreported complaints spawn bad feelings and the breakdown of relationships.
It is imperative that
you capture all complaints in order to:
- Put at ease and give explanation
or reassurance to the person complaining.
- Reduce the chances of them
complaining to someone else.
- Monitor exactly how many
dissatisfied customers you have and what the causes are,
- and that's even more important
if you're failing to deliver your mission statement or service
- offer!
- Take appropriate corrective
action to prevent a re-occurrence.
- If appropriate (ie for large
customers) review SLA's and take the opportunity to agree new
- SLA's with the customer.
implications
for IT, premises, and reporting systems
Also relating to your
business plan are the issues of:
Information Technology
- are your computers and communications systems capable of giving you
the information and
analysis you need? How do you use email - is it helping or hindering your
business and the
quality of service you give to your customers? What internet presence and
processes do you need?
How should your voice and data systems work together? What systems
need to be available
to mobile staff? What customer relationship management (CRM) systems
should you have? How
should you consider all these issues to see the needs and opportunities?
IT and communications
systems increasingly offer marketing and competitive advantage to
businesses in all
sectors - make sure you know hat IT can do for you and for your customers.
Premises - Review your
premises and sites in light of your customer service, distribution,
and customer
relationship requirements. Pay particular attention anywhere in your
organization that
your customers visit -
the impression and service you give here is critical.
Reporting systems - If
you can't measure it you can't manage it, and where finance and business
performance is
concerned this is certainly true. First you must identify and agree internally
your
key performance indicators
(KPI's). Identify every aspect of your service
or performance that is
important - then you
need to be able to measure it and report on it, and where people are involved
in performing to certain
standards then the standards and the reporting needs to be transparent to
them also.
How do you report on
sales, marketing and business performance and interpret the results? Who
needs to know? Who
needs to capture the data?
communications
and ongoing customer feedback are essential
Having an open
dialogue with your customers is vital. There's a double benefit to your
business in
ensuring this happens:
- You nip problems in the bud and
stay aware of how you're performing.
- Your customers feel better about
the service you provide as a result of the communications,
- or from the fact that the
channel is open even if they don't use it - it's human nature.
Try to devise a
standard feedback form. It can double as a promotional tool as well if it's
made
available on a wider
scale. The form can carry details of your mission statement, service offer
and your customer
service charter.
Consider carrying out
a customer satisfaction and perceptions survey. There are many ways
to do this on a small
or large scale, and valuable feedback is always obtained from customer survey
exercises.
tips for starting a small business or self-employment -
for non-financial people
Some of us are not
naturally inclined towards the sort of detailed financial thinking that is
required for traditional
detailed business planning. If this is you, you'll possess other valuable
capabilities that will
be useful in your own enterprise, and you'll maybe find it helpful to use
this alternative
approach to planning a new enterprise or self-employment. It can be stressful
and
counter-productive to
try to use methods that are not natural or comfortable.
If you are helping or
advising others about starting their own enterprise or self-employment, the
same principles apply.
Not everyone is naturally good at business planning, but everyone who
dreams of being
self-employed or who wants to start and run their own independent enterprise
is capable of doing
so, provided they work to their strengths, capabilities and passions.
People running
successful enterprises come in all shapes and sizes, from all backgrounds, all
ages,
with skills, passions,
and capabilities in any field you can imagine. Anyone can run their own
business
or be successful in
self-employment given the simple determination to do so. Business and
enterprise is not just
for stereotypical 'business-types'; the benefits and advantages of being your
own boss are available
to us all.
Here are some pointers
for people considering starting their own new enterprise, or for helping others
to do the same.
First, and especially
if you are not clear of your own real strengths, or what direction to pursue,
focus on using tools
to understanding your own personality style and strengths. Then use this
knowledge to imagine
and realise how your natural capabilities can be used to best effect in
defining
and providing your own
services or running your own enterprise.
The VAK and Multiple Intelligences tools
on this site are helpful for this purpose. They assess
people's strengths
completely differently to traditional IQ or academic evaluations, which are
extremely narrow and
generally not relevant at all for people who want to be their own boss.
Understanding
personality is also useful since personality-type greatly influences the way
that a
person approaches
self-employment or running an enterprise, and what sort of service or business
to offer. The Personality Styles page
provides a lot of explanation about this.
Many people are
conditioned by schools and over-cautious parents to under-estimate their own
potential and
capabilities, which is a big reason to take a fresh look at what you are good
at, and to
re-think and
understand better the ways that your personality type tends to be successful in
life
and usiness.
There are many ways to
be successful and independent in life aside from building and running a
conventional business
and adhering to conventional financial planning methods.
The basic economics of
becoming successfully independent in any sort of venture are actually
extremely simple, and
focusing on the following simple fundamentals (a process really) can help many
folk turn your dream
or an idea into a successful enterprise or self-employment reality. It's
usually
easiest to think first
of these factors in terms of daily, weekly or monthly numbers and values, and
then to extend the figures
to give totals for a whole year:
1. What's your product
or service? (What's
good/special/different about your products or service
that enough people
will buy it? And importantly is this something that you have a real passion
for?
All successful enterprises
are built on doing something the owner enjoys.)
2. What does it cost
to make/buy in/provide the product or service? (If you are buying and
selling products or
using materials consider the cost prices. If the main resource is your own time
then attach a cost to
your labour that reflects your available time for the work and the wage you
need to draw. Divide
your required annual wage by the number of work hours available to you,
and this is your
notional hourly labour cost.)
3. What price will the
product/service sell for? (Ideally
small businesses need a healthy profit
margin or mark-up -
doubling the cost is good if the market will accept it. A mark-up of less than
50% is cause for
concern unless you are selling products in relatively high volumes or values.
Price your
products/services according to what the market will pay, not according to your
costs.
Take into account your
competitors and what they charge and their relative quality. Service
businesses that use
only the person's time are often very attractive and profitable because there
is no added
complication of buying and holding stock - hence why window-cleaning,
sign-writing, repairs,
gardening, decorating, tutoring, writing, therapy, training, coaching and
consultancy, etc., are
such good businesses for people who prefer a simple approach to
self-employment and
enterprise. Consider the effect of VAT especially for 'consumer' businesses
- ie., selling to the
general public - assuming your business is or must be VAT registered. Private
consumers of course
are more sensitive to VAT than business customers who can generally
reclaim VAT should you
have to add it to your prices.)
4. Who will buy the
product/service? (Identify your
customers and market. Do you know
this for sure? Test
your assumptions: this is a critical part of the proposition and generally
benefits
from more thought and
research to confirm that a big enough market exists for your idea. Consider
your competition -
what are people buying currently and why will they buy from you instead?)
5. How much/many do
you need to sell in a year? And how many customers do you need?
(This is a vital part
of the proposition to confirm that the gross profit (the difference
between costs of
bought in products/labour and sales revenues) covers your/their financial needs
(including a living
wage and other fixed costs of running the enterprise. Again remember the
affect of VAT on your
selling prices if applicable.)
6. How will people
know about the service/product? (You need to understand what
advertising/marketing/enquiry-generation
is necessary - activity and cost. There is usually a
cost for generating
new customers, especially in the early stages of a new enterprise. Once the
business is
established, say after six months to a year, 'word-of-mouth' referrals are for
some
businesses all that is
required to produce new customers - especially those based in a local
community, but
virtually any new enterprise requires marketing at its launch. See the articles
on
7. Does all this add
up, and better still provide a cash surplus at the end of a year? - if so
then it's probably a
good business model.
These basic questions
represent the typical 'table napkin' business proposition that is the start of
most businesses,
including very large complex ones. People who dislike and are not fluent in
detailed business
calculations might find the above process a useful starting point when thinking
about how to begin a
new enterprise or a venture in self-employment.
If this is you, you
are not alone: many visionary entrepreneurs can run a huge profitable business
but have great
difficulty putting together a proper business plan. Hence many highly
successful
business leaders rely
heavily on their financial directors to take care of the financial details,
leaving
them free to get on
with the business activity that makes best use of their natural skill, be it
creativity,
selling,
service-provision, people-skills, technical skills, or whatever.
Incidentally the above
factors are the essential components which make up a basic Profit and
Loss Account, which is
the primary management tool for a business of any scale and complexity.
Here's a free MSExcel profit and loss account
template tool for extending these factors and
financials into a more
formal phased plan, which also serves as a business forecasting and reporting
tool too. If in doubt
about this seek some help from an experienced business person or your
accountant. Adapt it
to suit your purposes. The example P&L trading plan
is also available as a
pdf. The numbers
could be anything - ten times less, ten times more, a hundred times more - the
principle is the same.
company types and financial set up - quick guide
When you have
confirmed and refined the basic viability of your business idea you can then
begin
getting to grips with
the more detailed aspects of forming the business itself.
This necessarily
includes deciding your type of business constitution - the legal format of your
company - or 'company
type' as it is often described.
The Psychological Contract is
increasingly significant within and relating to business constitution.
Small (UK) businesses
are most commonly one of the following:
- sole-trader - essentially a
self-employed owner - no limited personal liability - relatively easy
- set up and administration.
- partnership - essentially a group
of self-employed partners/owners - no limited personal
- liability - easy-ish set up and
administration, although ultimately dependent on the
- complexity of the company and
partnership.
- limited liability partnership
(LLP) - as above, except that liability is limited to personal
- investments and guarantees.
- limited company (abbreviated to
Ltd after the company name) - liability is limited to the
- assets of the company -
registered with Companies House and legally obliged to publish
- accounts.
There are less common
variations of limited companies, and other business structures and
constitutions, for
example:
- social enterprise - various
structures including , trusts, associations and especially cooperatives
- - these are not common typical
or traditional business structures, but social enterprises are
- growing in popularity, and will
be explained in more detail on this website in due course.
- Meanwhile here is useful information about cooperatives.
- public limited company (plc) -
not appropriate for small companies.
Sole-trader and
partnership companies are very easy to set up and administer, but the
owner/partners
are personally liable
for all business debts and potential claims, so good insurance cover
(including professional
indemnity and public liability) is essential especially if business liabilities
are
potentially serious.
A limited liability
partnership offers protection to partners in terms of personal liabilities, in
that liabilities
are limited to the
extent of personal investment and any other guarantees. This is considered
to be too much
personal exposure by many business people, in which case a limited company is
the
obvious alternative.
A limited company
exists in its own right - a tricky concept to understand for many people -
basically meaning that
financial liabilities belong to the company (its shareholders, to the value of
their shares in other
words) rather than the directors and executives of the business, as would apply
in a partnership.
Limited companies ultimately offer more flexibility for large complex
businesses but
can be
over-complicated and administratively heavy if all you want to do is run a
local shop or
landscape gardening
business or modest training or coaching business.
Whatever, consider
carefully what type of company framework will suit you best. Once established
it can be quite
difficult to unravel and change if you get it wrong - not impossible, but a
nuisance
if you could have got
it right first time with a bit of extra thought at the planning stage.
A good accountant will
help you decide what is best for your situation from a legal and financial
standpoint, although
before this you should think for yourself what sort of business structure
best fits your wider
business situation, and especially your business aims and philosophy. Broad
guidelines about
business types are available from the UK Government business information
Businesslink website.
You'll need a business
bank account. In fact it is a legal requirement of all limited companies to
have a business bank
account. Shop around. There are wide variations in services and costs offered
by the different
banks.
You must also
understand and organize the tax implications for your type of business.
Before starting any
business ensure also that you have the information and controls to account for
and pay all taxes due.
Helpfully to learn
more about this in the UK, most tax affairs are within the responsibilities
of HM
Revenue and Customs - until they too change their
name to something very silly. That said, the
relevance today of HM
(Her Majesty's) is a bit puzzling when you stop to think about it and surely
due for updating to
the modern age. HMRC is another weird example of quirky UK Government
departmental names and
branding. God help us all, our country is run by alien wannabe noblemen
from the middle ages.
VAT (Value Added Tax
or your national equivalent) is an issue warranting serious thought if your
business is small
enough to have a choice in the matter. Beyond a certain turnover (£68,000 as
at 2010) any UK
business must register for VAT. Check the HMRC website for the current
position.
Being VAT registered
means you must charge VAT on all VAT-rated supplies, which means also
that the VAT you
receive on payments from your customers must be paid to HM Revenue and
Customs. (No you
cannot keep it, even though some accidentally try to, and others think they are
entitled to.)Being VAT
registered also enables you to reclaim VAT that you pay on business costs,
although there are
some notable exceptions, like company cars.
Retail and consumer
businesses are especially affected by VAT. Private consumers cannot claim
back VAT, so the
effect of VAT on pricing and margins needs careful thought in planning any
consumer business.
Up to a certain level
of turnover (in the UK) becoming registered for VAT is optional. If your
business turnover is
likely to be below the threshold for mandatory VAT registration, you must
decide for yourself if
the advantages outweigh the disadvantages. The main advantages of VAT
registration are:
- your business will be perceived
by certain people - especially other businesses - to be larger
- and more credible (not being
registered for VAT indicates immediately that your turnover is
- below the VAT threshold)
- you will be able to reclaim VAT
that you are charged on legitimate allowable business costs
The main disadvantages
of being VAT registered are:
- the administrative burden in
keeping VAT records and submitting VAT returns (although
- this has been enormously
simplified in recent years so that for small simple businesses it is
- really not a problem at all)
- risks of getting onto cashflow
difficulties if you fail to set funds aside to pay your VAT bills (see
- the tax tips below)
Information about VAT
(and all other tax issues) is at the UK Government HM
Revenue and Customs
website:http://www.hmrc.gov.uk
VAT is not the only
tax. Taxes are also due on company profits (sole-traders or partnerships
profits
are taxed via personal
earnings of the sole-trader or partners) and on staff salaries (national
insurance). A
sole-trader or partnership can employ staff, in which case national insurance
tax is
due on salaries paid
to employees, which is different to the tax that employees pay themselves.
Failing to retain
funds in a company to pay taxes is a serious problem that's easily avoided with
good
early planning.
Contact your tax office. Inform them of your plans and seek their help. Tax
offices
are generally
extremely helpful, so ask. You can even talk to a real person on the phone without
having to breach a
six-level automated menu system.
Ideally find a decent
accountant too. Preferably one who comes recommended to you. With all
the greatest respect
to accountants everywhere, accountants are quite commonly very intense
people, like
solicitors and scientists, very much focused on process, accuracy, rules, etc.,
which in
terms of personality
fit can be a little at odds with the style of many entrepreneurs. So again
shop around and find
an accountant with whom you can share a joke and a beer or something
from the human world.
The relationship between a business person and his/her accountant is crucial
if the business is to
grow and develop significantly. Accountants might seem at times to be from
another planet, but I
can assure you the good ones are bloody magicians when it comes to business
development,
especially when the figures get really interesting. The statement that one
stroke
of an accountant's pen
is mightier than the world's most successful sales team, is actually true.
For many
entrepreneurs, the ideal scenario is to grow your business large enough to
support the
cost of a really
excellent finance director, who can take care of all the detailed legal and
financial
matters for you, and
leave you completely free to concentrate on growing the business -
concentrating your
efforts and ideas and strategy externally towards markets and customers,
and internally towards
optimizing innovation and your staff.
See the quick tax tips below,
especially for small businesses which might not easily be able to achieve
immediate and accurate
control of their tax liabilities, which is one of the major early risks for a
new
successful small business.
tax tips - understanding and accounting for taxes from the
start
A significant
potential problem area for newly self-employed people, and for new business
start-ups,
is failing to budget
and save for inevitable taxes which arise from your business activities.
N.B. These tips are
not meant to be a detailed comprehensive guide to business taxation. This
section merely
addresses a particular vulnerability of new start-up businesses in failing to
set aside
sufficient reserves to
meet tax liabilities, especially small businesses, and even more especially
sole-traders and
partnerships and small limited companies, which lack expertise in accounting
and
consequently might
benefit from these simple warnings and tips related to tax liabilities.
In general these issues
would normally be managed via a cashflow forecast, together with
suitable financial
processes to allocate and make payments for all costs and liabilities arising
in
the course of trading.
I recognise however that many small business start-ups do not begin with
such attention to
financial processes, and it's primarily for those situations that these
particular notes
are provided.
These notes in no way
suggest that this is the normal fully controlled approach to planning and
organizing tax
liabilities and other cashflow issues within any business of significant scale.
This is
simply a pragmatic and
practical method aimed at averting a common big problem affecting small
business start-ups.
While your type of
company and business determines precisely which taxes apply to you, broadly
taxes are due on sales
(for VAT registered businesses in the UK, or your VAT equivalent if outside
the UK), and on the
profits of your business and your earnings. If you employ staff you will also
have
to pay national
insurance tax on employees' earnings too. Generally sole-traders and
partnerships have
simpler tax arrangements - for example, profits are typically taxed as personal
earnings - as compared
with the more complex taxes applicable to limited companies, which also
pay taxes on company
profits and staff salaries.
Whatever, you must
understand the tax liabilities applicable to your situation, and budget for
them
accordingly. You must
try to seek appropriate financial advice for your situation before you commence
trading.
Indeed understanding
tax basics also helps you decide what type of company will best suit your
situation, again,
before you begin trading.
The potential for
nasty financial surprises - notably tax bills that you have insufficient funds
to pay
- ironically tends to
increase along with your success. This is because bigger sales and profits
and earnings
inevitably produce bigger tax bills (percentage of tax increases too in the
early growth
of a business), all of
which becomes a very big problem if you've no funds to pay taxes when due.
The risks of getting
into difficulties can be greater for the self-employed and small partnerships
which perhaps do not
have great financial knowledge and experience, than for larger Limited
Company start-ups
which tend to have more systems and support in financial areas.
Start-ups are
especially prone to tax surprises because the first set of tax bills can
commonly be
delayed, and if you
fail to account properly for all taxes due then obviously you increase the
chances of spending
more than you should do, resulting in not having adequate funds to cover
the payments when they
are due.
Risks are increased
further if you are new to self-employment, previously having been employed
and accustomed to
receiving a regular salary on which all taxes have already been deducted, in
other words 'net' of
tax. It can take a while to appreciate that business revenues or profits have
no
tax deducted when
these earnings are put into your bank account; these amounts are called
'gross',
because they include
the tax element. Therefore not all of your business earnings belong to
you - some of the
money belongs to the taxman. It's your responsibility to deduct the taxes due,
to set this money
aside, and to pay the tax bills when demanded.
Additionally, if you
are a person who is in the habit of spending everything that you earn, you must
be
even more careful,
since this tendency will increase the risks of your being unable to pay your
taxes.
Failing to get on top
of the reality of taxes from the very beginning can lead to serious debt and
cashflow problems,
which is a miserable way to run a business.
So you must anticipate
and set aside funds necessary to meet your tax liabilities from the very start
of your business, even
if you do not initially have a very accurate idea of what taxes will be due, or
you lack effective
systems to calculate them - many small start-ups are in this position.
Nevertheless it is too
late to start thinking about tax when the first demands fall due.
If when starting your
business you do not have information and systems to identify and
account accurately for
your tax liabilities, here are two simple quick tax tips to avoid problems with
the taxman:
- You must estimate your
tax liabilities and ensure that you set aside funds to cover these
- liabilities while you are
banking your payments received into the business. The easiest way
- to do this is to identify the
taxes applicable to your business, for example VAT and your own
- personal income tax and
national insurance. Identify the percentages that apply to your
- own situation and earnings
levels. You can do this approximately. It does not need to be
- very precise. Add these
percentages together, and then set aside this percentage of all your
- earnings that you receive into
your business. Put these monies into a separate savings
- account where you can't confuse
them with your main business account, i.e., your 'working
- capital' typically held in a
current account.
- Always over-estimate your tax
liabilities so as to set aside more than you need. Having a
- surplus is not a problem.
Having not enough money to pay taxes because you've
- under-estimated tax due is a
problem; sometimes enough to kill an otherwise promising
- business.
Here's an example to
show how quickly and easily you can plan and set aside a contingency to
pay your tax bills,
even if you've no experience or systems to calculate them precisely. This
example is based on a
self-employed consultancy-type business, like a training or coaching
business, in which
there are no significant costs of sales (products or services bought in) or
overheads, i.e.,
revenues are effectively the profits too, since there are minimal costs to
offset
against profits:
example of
estimating and setting aside money to pay taxes
1. In the UK VAT on most products and services is 17.5%. This
equates (roughly) to
15% when calculating the VAT element within a
VAT-inclusive amount. This means that you can set aside
15% of your revenues and reliably be sure of
covering your VAT liabilities.
2. In the UK personal income tax and national insurance
combined is roughly 30% of earnings up to about £30,000 (a little over in
fact), rising to 49% - call it 50% - of earnings above £30k - roughly. N.B.
Income tax and national insurance are calculated on taxable earnings, which exclude
money spent on legitimate business costs, and VAT received.
These figures in the above example are
approximate I emphasise again, which is all you need for this purpose, moreover
the approximations are on the high side of what the precise liabilities
actually are. Accountants call this sort of thinking 'prudent'. It's a
pessimistic approach to forecasting liabilities rather than optimistic, which
is fundamental to good financial planning and management: if the pessimism is
wrong then you end up with a surplus (which is good), but if you are wrong in making
optimistic forecasts and estimates (over-ambitious sales, and lower-than-actual
costs and liabilities), then you run out of money (which is bad). Back to the
percentages.. Knowing the income tax percentages enables you to set aside a
suitable percentage of your earnings when you receive them into the business.
Roughly speaking, for earnings up to £30k you need to set aside 30% tocover
income tax and national insurance. For earnings over £30k you need to set aside
50% to cover your income tax and national insurance. (Earnings below £30k
remain taxable at 30%). Remember you can arrive at these figures based on the
VAT exclusive revenues, but to keep matters simpler it is easier to use an adjusted
total percentage figure to apply to the total gross earnings. If it's kept very
simple and quick you'll be more likely to do it - and/or to communicate the
method effectively to your partner if they are responsible for handling the
financials, as often happens.
Given this example, if in your first year your
gross revenues (banked payments received) are say £50,000, assuming you are VAT
registered, then your tax liabilities will be (roughly):
17.5% VAT liabilities equates to
15% of gross sales revenues
|
£7.5k
|
(again we are assuming no
significant costs to offset these figures)
|
30% Income tax/NI on first £30k
earnings
|
£9.0k
|
total net earnings are say £42.5k,
being £50k less £7.5k VAT, again we are assuming negligible costs to offset
against earnings
|
50% Income tax/NI on remaining
£12.5k earnings
|
£6.25k
|
£12.5k of the net £43.5k earnings
is taxed at the higher rate, again assuming negligible costs offset against
earnings
|
total tax liabilities = 45.5%, or
to be extra prudent call it 50%...
|
£22.75k
|
(£22.75k total tax ÷ £50k gross
revenues = 45.5%)
|
From this example you
can see that setting aside 45.5% of earnings (yes it's a lot isn't it - which
is why you need to anticipate it and set the money aside) would comfortably
cover VAT and income tax liabilities. To be extra safe and simpler in this
example you could round it up to 50%. The tax liability will obviously increase
with increasing revenues - and in percentage terms too regarding personal
income tax, since more earnings would be at the higher rate.
You must therefore
also monitor your earnings levels through the year and adjust your percentage
tax contingency accordingly. As stated already above, the risk of
under-estimating tax liabilities increases the more successful you are, because
tax bills get bigger.
In truth you will have
some costs to offset against the earnings figures above, but again for the
purposes of establishing a very quick principle of saving a fixed percentage as
a tax reserve until you know and can control these liabilities more accurately,
the above is a very useful simple easy method of initially staying solvent and
on top of your tax affairs, which are for many people the most serious source
of nasty financial surprises in successful start-up businesses.
The above example is very simple, and is
provided mainly for small start-up businesses which might otherwise neglect to
provide for tax liabilities. The figures and percentages are not appropriate
(but the broad principle of forecasting and providing funds for tax liabilities
is) to apply to retail businesses for example, or businesses in which staff are
employed, since these businesses carry significant costs of sales and
overheads, which should be deducted from revenues before calculating profits
and taxes liabilities. Neither does the example take account of the various
ways to reduce tax liabilities by reinvesting profits in the business, writing
off stock, putting money into pensions, charitable donations, etc.
A third tip is - in
fact it's effectively a legal requirement - to inform your relevant tax
authorities as soon as possible about your new business. Preferably do this a
few weeks before you actually begin trading. That way you can be fully informed
of the tax situation - and your best methods of dealing with tax, because there
are usually different ways, and sometimes the differences can be worth quite a
lot of money.
I do not go into more
detail about tax here because it's a very complex subject with wide variations
depending on your own situation, for which you should seek relevant information
and advice from a qualified accountant and/or the relevant tax authorities.
template and structure for a feasibility study or project
justification report
First, and
importantly, you need to clarify/confirm the criteria that need to be fulfilled
in order to justify starting or continuing the project or group, in other
words, what do the decision-makers need to see in order to approve the
project or its continuation?
Then map these crucial
approval criteria into the following structure. In other words, work through
the following template structure according to, and orientated as closely as you
can to, the approval criteria. (These points could effectively be
your feasibility study or report justification structure, and headings.)
- past, present and
particularly future ('customer') need (for the
outputs/results produced by group or project)
- benefits and outcomes
achieved to date for what cost/investment
- benefits and outcomes to
be produced in the future
- resources, costs, investment,
etc., required to produce future required outcomes and
benefits (identify capital vs revenue costs, i.e., acquisition of major
assets and ongoing overheads)
- alternative methods or ways of satisfying needs, with relative
cost/return (return on investment) comparisons (ie., what other
ways might there be for satisfying the need if the group or project
doesn't happen or ceases?)
- outline strategy and financial plan, including people,
aims, philosophy, etc (ideally tuned to meet the authorising power's
fulfilment criteria) for proposed start or continuation of project
(assuming you have a case, and assuming there is no better alternative)
Keep it simple. Keep
to the facts and figures. Provide evidence. Be clear and concise. Refer to the
tips about effective writing. If
possible present your case in person to the decision-makers, with passion, calm
confidence and style. Look at the tips onpresentations, and assertiveness.
Tips on finding and working with business planning advisors and
consultants
If you need help
putting together a business plan, and if you want to get the best from the
engagement, it's important to find the right person to work with, and to
establish and maintain a good working relationship with them. If you are great
big organisation you'll probably not need to work with outsiders, and if you do
then you'll probably opt for a great big supplier, however there are
significant benefits from working with much smaller suppliers - even single
operators - and if you are a small business yourself, then this is probably the
best choice anyway: to seek a good single operator, or small partnership of
experts. Here are some ideas of what to look for.
You'll be best finding
someone who meets as much of this criteria as possible:
- lives close-by you so you can
work face-to-face with them and get to know each other properly, and so
that their time is efficiently used, instead of being in traffic on their
way to and from your place
- is high integrity and very
discreet
- is grown-up and got no baggage
or emotional triggers - wise and mature - and it needn't be an age thing
- can help you see and decide
where and how you want to take the business, rather than tell you where
he/she thinks you need to go - a mentor not an instructor
- understands or can immediately
relate to your industry sector and type of work
- is experienced working with small
family companies, but is also a big picture strategist and visionary
(advisors who've only ever worked with big corporations can sometimes be a
bit free and easy with relatively small amounts of money - you need
someone with a very very practical approach to managing cash-flow, and
real business realities, who've worked in situations without the
protection of vast corporate bureaucracy and the lack of transparency that
this often brings)
- is triple-brained or
whole-brained - mostly front-brained - (see the stuff on Benziger) -
intuitive-creative, thinking, but also able to be personable and grounded,
subject to the point below
- complements your own strengths
and fills the gaps and weaknesses in your collective abilities (again see
the stuff on Benziger and Jung etc) - ie., if collectively you need hard
facts and figures and logic then seek people with these strengths -
conversely if you are strong on all this, then seek the creative humanist
ethical strengths - he/she must work with you in a balanced team - so that
the team has no blind spots, and no subjective biases in style or emphasis
- has two or three referees you
can talk to and see evidence of past work (although if you check most of
the above it will be a formality)
- doesn't smoke or drink too much
- isn't desperate for the work
As regards finding
someone like this, without doubt the most reliable and quickest method is
by networking introductions through trusted people. The person
you seek might be three or more links away, but if it's a friend or associate
of someone trusted, by someone who's trusted, by someone you trust, then
probably they'll be right for you. Start by talking to people you know and
asking if they know anyone, or if they know anyone who might know anyone - and
take it from there.
The chances of finding
the right person in the local business listings or directory, out of the blue
and from cold, are pretty remote.
Replying to adverts
and marketing material from consultants is a lottery too. You'll find someone
eventually but you'll need to kiss a lot of frogs first, which takes ages and
is not the cleverest way to spend your valuable time.
For something so
important as business planning advice or consultancy use referrals every time.
Referrals work not
only because you get to find someone trusted, but the person you find has a
reasonable assurance that you can be trusted too, you see: good suppliers are
just as choosy as good clients. It works both ways.
Be prepared to reward
the person in whatever way is appropriate and fair (I'm thinking percentage
share of incremental success beyond expectations - perhaps even equity share if
the person is really good and you'd value their on-going contribution and
help).
Often the best people
won't ask for much money up front at all, but from your point of view you will
attract a lot more commitment and work beyond the call of normal duty from them
if you reward higher than they ask or need.
Good suppliers are
immensely motivated by good clients and lots of appreciation, even if they
don't want the financial reward.
Good suppliers have
usually seen too many ungrateful greedy people taking them for granted and
penny pinching, and will tend to sack clients like these without even telling
them why, and move on to more deserving enjoyable work with people who are fair
and appreciative, which is how you'll be I'm sure.
Finally, when you've
found the right person, always continually agree expectations and invite
feedback about how the relationship is working, not just how the work is going.
starting your own business - or starting any new business
These are the simple
rules for planning and starting your own business. The principles also apply to
planning and starting a new business within an organisation for someone else.
In amongst the
distractions and details of new business planning, it is important to keep
sight of the basic rules of new business success:
Your successful new
business must offer something unique that people want.
Uniqueness is vital
because otherwise there is no reason for customers to buy from you.
Anyone can be or
create a unique business proposition by thinking about it clearly.
Uniqueness comes in
all shapes and sizes - it's chiefly being especially good and different in a
particular area, or field or sector.
Uniqueness can be in a
product or service, or in a trading method, or in you yourself, or any other
aspect of your business which makes what you are offering special and appealing
to people.
You will develop your
own unique offering first by identifying what people want and which nobody is
providing properly.
Second you must ensure
that your chosen unique offering is also an extension of your own passion or
particular expertise or strength - something you will love and enjoy being the
best at - whatever it is.
Every successful
business is built on someone's passion.
new
business start-ups by older people
If you already have a
career behind you, and you wonder if you've got it in you to compete and
succeed in the modern world, consider this.
First - you have
definitely got it in you to succeed.
Experience and wisdom
are fundamental building blocks of success, and will be for you from the moment
you start looking at yourself in this way.
The reassuring wisdom
that older people generally possess is extremely helpful in forming trusting
relationships - with customers, suppliers, partners, colleagues, etc - which
are essential for good business.
Added to this, as we
get older we have a greater understanding of our true passions and
capabilities; we know our strengths and styles and tolerances. This gives older
people a very special potency in business. Older people know what they are good
at. They play to their strengths. They know which battles they can win, and
which to avoid.
Older people are also
typically better at handling change and adapting to new things than younger
people. This is because older people have had more experience doing just this.
Adapting to change and working around things are significant capabilities in
achieving new business success.
If you are an older
person considering starting a new business, think about the things you can do
better than most other people - think about your strengths and use them.
business
start-ups for younger people
Younger people can be
very successful starting new businesses just as much as older people can be.
The essential
principle of playing to your strengths applies, although the implications are
different for younger people compared to older people.
Younger people are
likely to have lots of fresh ideas. This is an advantage, so avoid people pour
cold water on them.
Test your ideas on
potential customers, rather than to take advice from those people who are ready
with their buckets of water.
Next, get the help you
need. It's difficult for young people to know all the answers.
You'll have the ideas
and the energy to make things happen, but consider the gaps in your experience,
and the things you don't enjoy doing, and seek good quality reliable help for
these things.
Getting good help at
what you can't do or don't want to do will enable you to put all your energy
into what you are good at and what you want to spend your time doing.
Young people sometimes
try to force themselves to fit into roles or responsibilities that are not
comfortable or natural. This is de-stabilising and stressful. Learn what you
love and excel at, and focus on building success from this.
Which brings us back
to playing to your strengths.
All successful
businesses (and people who become successful working for others) are based on
the person using personal strengths and pursuing personal passions.
Success in business is
always based on doing something you love and enjoy, which is fundamentally
related to your natural strengths and unique personal potential, whatever that
is.
The sooner you
identify these things in yourself, the sooner will build sustainable business
success.
planning
business success - in summary
Spreadsheets, mission
statements, planning templates and other process elements of new business creation
and development are tools. They enable the business to be properly structured,
started and run. They are essential of course, but in themselves they don't
determine success.
Business success is
determined by deeper factors.
Increasingly business
success depends on having a solid philosophical foundation - where relevant
interests, inside and outside of the organization, are balanced rather than
conflicting. The bigger the business, the more widely it must consider how it
relates to external interests and responsibilities - to society and the world
at large.
A business with this
sort of harmony and balance built into its shape and principles at the outset
has a huge advantage over a business which contains tensions and competing
pressures. Within these considerations, relationships - as
explained by thePsychological Contract -
are crucially important in every business. Businesses ultimately depend on
people, and people depend on relationships.
Aside from this - and
without diminishing the significance of other vital business components such as
reliability, value, quality, etc., which are necessary merely to survive at a
basic level - uniqueness and passion are the
remaining special ingredients for success:
- Uniqueness (just one word, with
so many implications) - so that people will want what you offer, and
- Passion, so that you will enjoy being and offering your best - and so that this belief and commitment conveys to others.
Power by http://www.businessballs.com/
