What’s the Plan?

The starting point is to make a promise that you will put your plan down in writing. Otherwise you will be like an ostrich with its head in the sand, not do yourself justice and will probably not achieve (or realise) your potential. Too many people run a mile when the subject of a plan comes up. Perhaps armed with some confidence gained from a book on setting up a business, business banking literature, or even after attending a setting-up-in-business course, some people start a plan …but never get it finished.

I think the reason for this is twofold: firstly, fear of the planning process and, secondly, intimidation by some daunting plan templates and spreadsheets seen in books or banking literature. My prescription is a simple, three-page plan that will get you started and then, with experience, you can tweak it up and make it that bit slicker. Please be assured that no one gets the first draft right but the important point is that it is down in writing, you’ve got started and you’re not ignoring it.

Page 1 of the plan

I suggest starting with the really important part – the money. What, financially, do you need to set as objectives to bring you in that £30,000 or £40,000 or £60,000 that you want in your pocket? This takes a bit of thinking through and ties into the page 3 section detailed below. Typically you should be able to come up with two or three simple objectives based around income, gross profit (if you sell products) and overheads. These, as an example, for a freelancer could be:

Objective 1: ‘I aim to invoice £60,000 in my first year of trading based on working at least 200 days at an average billing rate of £300 per day. I will review my billing rates quarterly and my performance monthly.’

Objective 2: ‘I will aim to keep my overheads (after expenses recharged to clients) in my first year to £6,000.’

The key point with objectives is that less gives more: you don’t want a long list of objectives. Just isolate what is important, set it down and double-check that they are SMART (specific, measurable, achievable, realistic and timed).

Page 2 of the plan

The next page should be all about your marketing effort, a topic often misunderstood and mistaken for advertising. I think that this page could be sub-divided into four sections based around your products and your market research.

Products?

Too many people that start their own small business say ‘I am a xxxxx’ and pigeon-hole themselves. There could, in fact, be a range of products that you can offer depending on your experience. Think about each one as a product and specify it within this section so that it stays as a high profile item in your plan as you build your business.

Customers?

For each product ask: Who are my customers? Where are they based? When do they tend to use freelancers? How do they secure freelancers? What are the potential rates? How should I contact them? Keep asking those important questions of who, what, why, where, when and how?, and they will help you tease out all sorts of gems.

Competitors?

Again, ask yourself who, what , why, where, when and how?

Self-promotion?

Given your product(s), your potential customers and competitors, what marketing tools could you use to promote yourself to targeted customers? The output should be a series of activities that you can do to help with promoting yourself. The problem is usually that you end up with a jumble of unfocused ideas – the best way around that is to rank each idea on the basis of priority, impact and cost (free is good!).

Page 3 of the plan

This is your profit and loss forecast for the year. Page 3 is the tricky one. I strongly recommending that you map out the year ahead financially. This will then become your plan or ‘map’ and is the best reality check on your financial viability of going it alone. The beauty of it comes from monitoring your actual performance against the plan and then doing something about it when you are off target. It is not a piece of mystic accounting mumbo-jumbo, and if you can use electronic spreadsheets, it should be can be an even better tool.

A common mistake is not planning for days when you are not able to work. As a rough guide, your target days (based on 5 days a week) will lie somewhere between 185 and 215, depending on the number of planned holidays. Remember some provision for sick days, administration time, training and marketing days. You can then plan the year ahead based on a realistic number of working days to which you apply your average targeted daily rate. Slightly more difficult is estimating your overheads. Some possible costs are shown below but there could be more; discussing potential overheads with other small business owners and your accountant will help you plan your costs.

1. Materials/products for resale (sometimes called direct costs although this ‘cost’ will not usually be appropriate for those supplying a knowledge based service)

And then all your overheads/expenses, for example most businesses may have a need for:

2. Telephone and internet

3. Travel and subsistence

4. Postage

5. Office supplies

6. Accountant

7. Book-keeper/payroll

8. Legal costs and other professional fees

9. Subscriptions

10. Bank charges

11. Marketing

12. Internet/ web-site & upgrade

13. Insurance

14. Training

The final figures are your tax liability and money to set aside for your pension. Your accountant should be able to help you estimate your tax liability from your income and overheads as above. You may even be able to have a go yourself, especially if you are a sole trader where the tax tends to be more straightforward. P.S don’t forget to set that money aside for a pension.

Is there more?

The above approach will give you a first draft and a start: more importantly, it will give you potential go/no-go guidance in the steps towards starting a small business. It is surprising how many people forget about the total cost involved; the reality of the end ‘money to spend’ can be quite sobering after you have got over the initial excitement of billing £60,000. If sharing a bank account, remember to take your partner through the numbers and manage their expectations, as they may get even more excited when they see that attractive VAT-inclusive income land in the business account.

Once you have completed your first plan the secret is to keep it alive and keep reviewing your performance against it. The plan can then be improved and extra sections or pages added to make it an even better tool – perhaps by introducing training targets and/or and steps towards introducing a new ‘product’ to your portfolio. You should (no, MUST) involve other people who can help you improve the plan such as a mentor (this may not be free and the quality varies) or at the very least your accountant and/or a trusted friend or family member that runs their own small business.