Nobody plans to fail but many fail to plan – The importance of Business Planning

The importance of planning can not be stressed to minimise the risk of failure and ensure that any designer is not part of the transient fashion theme of “here to day but gone tomorrow”. Planning for success starts here!

If you want to become successful you can not, emotionally or financially, afford to rush into ideas and actions without a clear plan of where you are and where do you want to be. The more time you spend on preparation the less likely you are to have to contend with all types of business failures in the future.



There are a host of Business Support Organisations (BSO’s) there to help you along the way but fundamentally you are in the driving seat. You know your strengths and weaknesses and you also know the threats to your business and the opportunities out there that can represent the big time. So how can you start this process to help eliminate mistakes?



Become organised! Find the ideal place for you to think, analyse and strategise. Some people prefer absolute quite and calm, others the outdoor”¦.whatever your ideal place is find it and use it. You will have ideas buzzing around at a million miles per hour”¦..harness them and start to put your business plan together in a logical manner. Only then you can be sure that your business proposal is viable.



What do I put in my business plan? The questions below are just a starting point and another article specific to business plans will be available shortly:



– What previous experience have you had?

– Where are you and/or your business now?

– Where are you going?

– How will you get there?

– What will it cost to get there?

– What and how much do you need to get there?

– What are your expected returns?





Covering the above questions demonstrates your ability to plan for success. If you are approaching banks, BSO’s, Enterprise Agencies for funding and loans it shows that you know what you are doing. When the plan is finished keep using it as your guidelines, update and review what you have written and amend accordingly.



How do I write my business plan?

There is no magic formula here, no set rules and the level of detail in your plan does depend on the nature of your business. However, Fashion-Enter have drawn up an initial quick checklist for you to use as a guidel



1) Summary of Business



Name, Location, Product/Service offered, market and competition, your technical and management strengths, business goals, mission statement, financial needs and how money will be used and then the earnings projection



2) Market Analysis



Total market for product or service (this can be at an international, national and regional level), Industry trends, target market, customer demand (use accredited data if possible from newspapers, Verdict Reports, Retail trends etc) and competition



3) Products and Services



Full description required at the different levels of markets, how your product and service compares with the competition in terms of quality and price.



4) Market Strategy



Overall strategy including product, price, promotion and place in particular you need to confirm your pricing policy to your different end users and market segments and how will you sell, distribute and provide back up sales service.



5) Management Plan



What is the type of your business e.g. partnership, sole trader or limited company (see issue 3 of LFF newsletter), number of employees, CV’s of your key personnel, do you need an organisational chart so everyone knows who should report to who. How will you control your finances and what is your operating plan; how is your company going to work on a day by day basis?



6) Financial Data



You may need to show your personal bank statements from the previous three months especially if you are seeking a loan or funding. You will need to show detailed cash flow projects for the short terms, medium term and long term. Concentrate on the short term over a year period. This involves showing a profit and loss statement, balance sheet, capital expenditure on the office, machinery etc and then each section needs to be explained.



Some designers have asked how to prepare a break-even analysis and we have provided 5 ways for you to review your business and its needs:-



i) Work out your gross profit (do not include VAT)



Projected sales £75,000



Less Direct Costs

Purchases (materials) £32,500

Labour costs £20,000 £52,500



Gross profit £22,500 (a)



ii) Work out your gross profit margin



Gross profit (a) £22,500 x100 = Gross profit margin 30% (b)

Sales £75,000



iii) Calculate your overheads

Indirect costs

Business salaries

(Incl. your earnings/drawings) £6,000

Rent £2,000

Rates £ 500

Light/heat £ 500

Power £ 400

Telephone £ 100

Insurance £ 500

Maintenance £2,000

Advertising £1,500

Bank interest/HP £1,500

Other expenses £1,500

Total overheads £16,500 (c)



Remember indirect costs are costs that have to be paid even if you do not make any sales. Another term to explain these costs are Fixed costs.



iv) Calculate the actual turnover you require to break even.



Overheads (c) £16,500 x 100 = Break even sales £55,000 (d)

Gross profit margin (b)



This figure relates to the monetary value of sales. Check the number of units that have been sold to achieve the monetary value. Ask yourself the question”¦.is this level of unit sales viable? Can you achieve these sales?



v) Calculate the monthly target to break even



Break-even sales (d) £55,000 = Monthly break-even sales £9,167 (e)

6 (i.e. six months)



This means that profits occur once the break-even point has been reached. As overhead costs have been allowed for the break-even calculation profits occur at a rate of 30% (i.e. the gross margin % – figure b) on projected sales over and above the break-even figure



Projected sales £75,000

Less break-even sales £55,000 (d)

£20,000

X Gross profit margin 30% (b)

= Profit for six months £ 6,000 (f)



Remember these figures can still be affected by the actual sales figures achieved, if there is an increase or decrease in gross profit margin or an increase or decrease in overheads but it gives you an indication of what you need to achieve and a guideline to work by.



Cash flow is King”¦..how to forecast



Without cash flowing through the business there is no business! Hence cash flow control is vital to the day to day survival of your company. Even if you have a full order book and every sale you make is highly profitably it doesn’t mean anything unless your customers (debtors) pay on time. Delays in payment can jeopardise your business.



Producing a cash flow analysis or statement will help you prevent this situation occurring. It shows when money is coming in and when money has to go out. There are intricate forms that can be filled in and literally some entrepreneurs use bits of paper to do rough calculations and reconciliation’s to ensure that the banks and sponsors are happy.



Some designers like to produce a 12 monthly forecast in line with selling seasons but others like to review no more than the next six months. What ever period you choose one piece of strong advice is that each week you should reconcile receipts and outgoing with your account at the bank. At any one time you need to know your account balance and any potential problems that are looming.



There are no quick fixes in business organisation and planning. Can there be anything more rewarding than setting up your own collection, your own unit, your own retail shop from an idea that you had? With determination, planning and hard work the world can be your oyster but remember Rome was not built in a day and every empire needs strong foundations. The key to success really is in business planning.