Stages in Planning for a New Business Venture

This resource is designed specifically for Unit 5 of the Edexcel BTEC qualification, 'Business Enterprise'.

Aim

The aim of this resource is to lead you through the stages that have to be followed in planning for a new business venture. In reality, the new business venture could be one being developed by an existing business, which may have decided to branch out into another area or develop a new plant etc. Alternatively, it could be an entirely new business venture being set up by an individual or a small group or people.

The assessment for the BTEC National expects you to look at the venture from the point of view of a new business for self-employment. This resource will, therefore, look at the business plan with this in mind.

Images: Self-employment businesses can range from a newsagent to a DJ. Copyright: Stephen Lewis, stock.xchng and Guido Giardino, stock.xchng

At the end of the resource, you will have built up a business plan incorporating all the main areas for consideration. These are:

• Financial Planning - looking at sources of finance, forecasts of cash flow, sales, costs and so on.
• Marketing - looking at ways in which the marketing of the venture will be carried out.
• Legal Framework - ensuring that all the legal requirements of setting up a new venture are adhered to and considered.
• Operational Planning - looking at the nitty-gritty of everyday production issues - securing supplies, hiring staff, deciding on production methods and so on.
• Self-Development Planning - what skills do you have and what do you lack in order to run the business successfully?
• Networking - who do you need to know and how do you get to know them to ensure your business takes off?

Part of the skills involved in BTEC courses are in the way in which you demonstrate the ability to research information and to evaluate the value of that information in relation to your area of study. This resource will not do the work of building the business plan for you but will offer guidance and advice throughout about where to find information, what issues to consider and how to try to make the plan as realistic as possible.

At the end of the process, you will have a completed business plan and you should be in a position to be able to explain your ideas and plan through a presentation and answer questions on aspects of your plan.

Watching the TV programme Dragons' Den(http://www.bbc.co.uk/dragonsden/) might be helpful to you in seeing how business plans that seem to be good on the surface can be ripped apart on closer analysis. Whilst your audience might not be quite so vicious as the panel in the TV programme, you will need to be in a position to defend your ideas and planning in order to secure the higher awards in the assessment schedule.

The first stage in the process is to look at the idea of a business plan. A business plan provides details of all aspects of the proposed business from cash-flow estimates to marketing plans. Most banks would require a business plan from any prospective business seeking financial support as a means of assessing the viability of the business.

Now that you have an understanding of the necessity and importance of a business plan, you will need to do some preliminary thinking about the type of business you want to start. There are a wide range of different ideas provided by Edexcel in the BTEC specification(http://www.edexcel.org.uk/VirtualContent/75799/btec_Business_Nats_dunits2.pdf) on page 83 [PDF, 2.2 MB], from being an au pair through to writing.

Whatever you are thinking of, you need to consider a number of key points:

• What type of product or service are you offering to customers?
• What are the needs that the product or service fulfil?
• Who are the potential customers for your product?
• What sorts of financial resources will you need and how will you get hold of the finance for the project?
• How will you make your product/service known to your potential customers?

Business is simple in concept: think of something someone else wants to buy at a price, which covers the cost of providing it, and you're in! The difficult thing is really identifying what it is that people might want!

Image: What is the local demand for window cleaning, and what equipment will you need to set up in business? Copyright: Nick Cowie, stock.xchng

At this stage of the business plan, you have fairly sketchy ideas without much detail. For example, if you were considering setting yourself up in business as a window-cleaner, you might be able to identify a local need and are thinking of targeting home owners. You might also have worked out what you need to run the business - a van, ladders, bucket, squeegee, etc - but do not have much in the way of details about how much these things cost or the precise nature of the local market. The next stage, therefore, is to try to get more detail.

Many business plans produced by students suffer from a lack of reality - this is in part due to the difficulties of getting accurate information but can also be due to a lack of care in the gathering of information.

One of the important points about such a business plan at this level is that it serves to help the prospective business identify whether it will be viable or not. There is always a tendency to ignore the evidence collected and assume the business will be a roaring success even though everything you have collected suggests it will not!

At this level, the emphasis is on your ability to evaluate the viability of the business. It will be very clear to the assessors of your work whether your evaluation is based on the facts gathered as opposed to a wildly optimistic view that has no basis in relation to the evidence you have collected.

This next phase in your study will be very important, therefore. You should be prepared to accept that the quality of the information you collect and the problems faced in getting accurate information will mean that you have to treat the information with a degree of scepticism; this is fine provided you demonstrate that you are aware of the limitations of your research.

In many respects, therefore, the more simple your business idea, the better, as it will mean the research will be easier to do and will be more accurate, thus allowing you to be able to evaluate it more effectively.

The examples that follow will be based on the idea of setting up in business as a window cleaner but the principles can be applied to most business ideas within this section.

Financial Planning

Image: What kind of ladder will you need? How much will it cost? Copyright: Derek Jones, stock.xchng

The financial planning section requires you to consider the following issues:

• Costs and prices
• Cash flow monitoring
• Record keeping
• Setting up financial reserves and contingency plans
• Availability of long term or emergency finance

For a window cleaner, I have already identified the items I need to acquire to be able to run the business. Checking on the costs involved, therefore, needs some further research. Examples are given below:

• I need a van - what type is appropriate, how much will it cost, what are the insurance and tax costs? How much will the petrol costs be?
• I need ladders - how many and what type? If the round is likely to be domestic properties only (as opposed to high rise office blocks for example) then a ladder that can reach relevant heights is essential. I would also need a ladder that is able to reach lower levels but is not so bulky to carry around.
• I need the basic equipment - cloths, leathers, buckets, squeegees and so on.
• I need to have some business cards to advertise my service.

To get details on the costs involved, use Web sites to check out the price of a van (new or second hand?) Get details of the miles per gallon, insurance bracket and tax group. The tax group might vary depending on the size of the engine and the emissions. Is it worth buying a van or would it be cheaper to lease one?

Task 4

The following sites will help in this instance but remember such sites are likely to be available for a range of other business types.

Transport:

• Arrow Financial Services Insurance Quotes (http://www.arrow1066.co.uk/motor_insurance.htm)
• Vans4You (http://www.vans4you.co.uk/default.asp)
• Perrys Used Vans (http://www.perrys.co.uk/usedcar?ID=X96QBQS159P00F1&vans_F=Y)
• 0700-Vans - more used vans (http://www.0700-vans.com/)
• Driver and Vehicle Licensing Agency (DVLA) ()

Equipment:

• Express Cleaning Supplies (http://www.express-cleaning-supplies.co.uk/oos/windowcleaningsupplies3/)
• Greenham (http://www.greenham.com/search.aspx?search=window+cleaning)
• The Clean Team (http://www.thecleanteam.com/)

Ladders:

• Clow Group Ltd. (http://www.clowgroup.co.uk/)
• LadderStore.com (http://www.ladderstore.com/index.php?adv=google)

You could also go into your local DIY store and get prices of the ladders they have available.

Business Cards:

• Castle Print & Design (http://www.castleprint.co.uk/)
• Business Cards Online (http://www.business-cards-online.co.uk/default_bcu.asp)

You may of course decide you have the skills to produce them via your own computer!

Having calculated your costs, you are then in a position to start thinking about your prices. As a starting point, look at the pricing structures of window cleaners in your local area. This may involve asking friends, neighbours and relatives about their window cleaners and how much they pay, or getting information by phoning up a range of window cleaners in your area. (Explain to them what the aim of the project is rather than posing as a customer - ethically this is more appropriate but be prepared for some of them to refuse to give you the information you require.) This also helps you to identify what the prospective competition is likely to be.

Task 5

• Using the information gathered and your knowledge of pricing strategies, what pricing strategy do you think it most appropriate to use and why?
• What price do your think you will charge at this stage and why?

Marketing

Marketing is about identifying consumer needs and seeking to satisfy those needs profitably. In a window-cleaning business, how can you offer some form of competitive advantage (time of day, special kind of service), which might persuade customers to use your service? You will also need to identify the level of demand for such a service and the type of market you will be targeting.

Image: In an area with lots of elderly people, you might decide to offer a special discount for pensioners. Copyright: Peter Hamza, stock.xchng

Task 6

Get information about the type of market in your area. Use Up My Street(http://www.upmystreet.com/) or the Office for National Statistics (ONS) Neighbourhood data(http://neighbourhood.statistics.gov.uk/Default.asp?nsid=false&CE=True&SE=True). Conduct a small-scale survey to identify the extent of the likely market for your service.

Having got the information from Task 6, you are now in a position to be able to assess the likely demand and thus can confirm or adjust your pricing strategy. If you can assume your measure of demand is reasonably reliable then you can estimate the weekly and monthly demand and thus begin to build up a cash flow forecast. You can do a practice run on managing cash flow by completing the Biz/ed Cash Flow Simulation(http://www.bized.co.uk/learn/business/accounting/cashflow/simulation/index.htm).

Self-Development Planning

Having the desire to set up and run a business is only part of the process. Any business person needs a range of skills and abilities not just related to the task itself but also an ability to manage the financial accounts, cope with the paperwork, liaise with a range of different people from all walks of life and so on.

Image: Do you have the skills to cope with all the paperwork and accounting required to run a business? Copyright: Johann Snyman, stock.xchng

Doing some form of skills audit will be a useful step on this path to identify where you might need some help in the future in running the business. For example, if you are scared of heights then perhaps the idea of window cleaning might not be very wise!

Task 9

For your business, identify the range of skills that you might need to be able to run the business successfully. Make some comments on the level of competence you think you have in relation to the skills necessary to identify what additional training or development you might require.

Networking Image: Networking during the early days of setting up a business can be critical to its success. Copyright: Malachy Mooney, stock.xchng The last section is networking. This involves the contacts that you might need to help develop your business and may include building relationships with local trade associations such as the local Chambers of Commerce and trade associations. Networking is becoming increasingly important for many small businesses as a means of building contacts that help develop the business and is even a key part of the marketing process.