28. So, you are thinking of starting a new business!

guest blog by Peter Rogol of Goodman Jones LLP.

You have an idea that might work.  The more you think about it, the better it seems.  You’re convinced – people will love  it!  It’ll sell itself, it’s going to break the mould, it’s hotter than hot cakes, you’re more Zuckerberg than Zuckerberg himself.

You talk to friends, to family.  They’re so impressed, they say they want to support you. But how much do you need?  When?  What are you going to give them in return?

You go online and begin identifying the steps you need to take to get your idea out there.  You realise you need a business plan, so you throw all your thoughts into Word and try to assemble them in logical order.  You must include financial projections, so you open an excel worksheet and start putting down numbers. You guess a sales figure, no more than a guess because it can’t be anything else.  Is it credible, should you double it, and in year two of your plan, will it double again, or treble, perhaps quadruple?  You estimate a cost of sales figure, you think you can price this fairly easily.  But does the margin look right, and how does VAT work? And what about overheads?  Space costs, staff costs, admin items – and then there’s marketing, and marketing budgets.  So that’s another number you conjure up.  And you’ve read that the business plan should not only show how profitable your enterprise will be, but should also deal with your cash requirement.  So you try to link your profit projection to cashflow.

You’ve also understood you need CV’s on the main players in your business, and you’ve seen somewhere something that suggests there must be more than one – but there’s just you!  So you think about your friends and family – who will you actually need to help you, and can you knock out CV’s for them?

Your reading throws up lots of acronyms – EBITDA, RoC, EPS, CEO etc etc.  And phrases  – Due Diligence, gearing, investor return, cash burn rate etc etc.  To add weightiness to your tome, you throw some of these – judiciously – into Word.

Your masterpiece completed, you present it to your backers.  Now you’re not just a person with a bright idea, you’re a person who understands your business too.  But one of your backers says “what about SEIS – does it qualify?” and you realise there’s a side to this you haven’t covered – the investor side.  You do some research, you find out about SEIS and EIS, perhaps you qualify, so you expand your masterpiece.  And someone else says “what about IP?”, yet more research, a further addendum.  Another says “what’s the exit strategy?” – more effort.  Then someone else says “that’s all well and good, but what happens if your year two projections don’t pan out – where’ll you go for additional funding?”

And in the midst of all this, you’re trying to tweak your idea, iron out the bugs, address the what-ifs.  You simply don’t have the time to do it all.

As with most things in life, practice makes perfect.  The more business plans you draft, the better they get.  Great – but not much help when you’re preparing your first.  The best thing you can do is to spend time with someone who’s done it before, better still, with someone who’s reviewed dozens of start-up plans.  They’ll tell you about the importance of the executive summary, they’ll point out that investors back credible people more than credible ideas, they’ll ridicule exponential forecasting, they’ll say you must address the issue of the competition.  With their guidance, you’ll produce a business plan that won’t just impress family and friends, but might also withstand scrutiny from those whose critical judgement counts.  Will it get you the funding you need?  Just how good is that idea?

A guest blog by Peter Rogol

Peter is a partner at Goodman Jones LLP and can be contacted on peter.rogol@goodmanjones.com

Posted in Tectona Ten - Reporting, Tectona Ten - Strategic Leadership.

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