Posted: Tue 2nd Aug 2022
Whether you’re looking to start a business or you already run one, planning is vital to its early stage development, future growth and longevity.
Your business plan is crucial, as not only does it describe your business but it will help you to explain your idea, set your objectives and evaluate your success.
The body of your business plan should focus on three key building blocks - operational, marketing and people. In this month’s blog we take a deep dive into the operational section, giving you the lowdown on what you need to cover to help your business plan, and ultimately your business, succeed.
So let’s kick off by answering the most obvious question: what is the operational section of your business plan?
In a nutshell, the operational part outlines the detail of your day-to-day operations. It describes what you need to run your business from the processes to the resources and the finance.
If you want to secure a bank loan or attract investors this section is especially important. It shows clearly where any finance could be needed and where you might have already used capital to purchase the physical assets necessary for the running of your business.
In our previous blog ‘How to build a business plan’ we looked at top line detail for the operational part of the business plan. Here we break it down in more detail showing what you need to think about and include for each topic.
This is the part where you note all the equipment you need to run your business - the physical necessities.
This could include plant, machinery, tools, office furniture, vehicles and anything else vital to your business operations.
If any equipment is crucial for your business, you must include it here.
In this section, chart how your products and services are created and how they are delivered to the customer.
For a product, detail the entire production cycle without giving away any trade secrets - the concept, how it’s made, its journey to the production line and on to the customer.
Outline the manufacturing process in succinct steps. Don’t forget to include mentions of testing and how you oversee quality control.
Give the reader of your business plan an idea of how long the manufacturing process takes, how you manage customer lead times and how you meet delivery requirements.
Repeat the process for any services focusing on the delivery to the customer.
Your financials should include but not be limited to set-up costs, break-even and stress (or burn) calculations, projected cashflows, profit and loss, and balance sheet calculations.
Stress calculations involve quantifying risks in the context of wider scenarios including calculating the impact of both isolated events and ongoing risks.
This is where you describe your products and services. In essence, what they are, who will use them - the nuts and bolts of what you offer.
Include product and service descriptions from brochures and websites in the appendix of your business plan to support the information you give here.
Explain your unique selling point and why people should buy from you. In particular, try to show the problems you solve for customers and the benefits.
If your product or service fills a gap or improves on what has been done before, then explain how. This will be of interest to investors looking for something new.
You can expand on the detail you give here in the marketing section of your business plan. Look out for future blogs when we will be covering this topic!
Setting the price of your products and services can be challenging and is something that small business owners often struggle with. It’s essential that you compare the pricing against the costs of creating and delivering your products and services.
Your profit is your entire income minus your costs. If you don’t understand your costs, you won’t know your profit. If you don’t show that you understand your pricing against the costs an investor will not be able to see the potential of investing with you.
Your business could be a great opportunity for an investor!
This is where you outline your strategy for dealing with debtors and creditors.
Having a process in place will make life much easier for you and also show any investors that you mean business!
It’s a case of finding the right balance for your cash flow. Your terms and conditions for customer payments will dictate how quickly you can pay your suppliers and avoid getting into the red.
Choosing your business structure is one of the first things you do when you start a business.
The main options are: limited company, sole trader, and limited liability partnership (LLP).
Explain your chosen legal structure. If you are a limited company, list any directors and the company secretary if applicable. Name your partner in any LLP arrangement.
It’s essential that you have somewhere to trade from. Are you a brick-and-mortar or an online business?
Give details of where you trade from, whether it’s a shop, a factory, a restaurant, an office or another venue. Give the location and size of your business premises. If you trade online give your website address.
If your business is in the start-up stage, providing details of the business owner’s financial situation or survival budgets can really help potential investors and/or lenders to have confidence in a business and the business owner’s resilience during the early stages of the business.
The founder of any business is crucial to its success - a small business even more so. Any investors or banks will want to know who the founder is as this can often play a deciding factor in whether they want to invest. Providing evidence that a business owner is financially sound is crucial to building trust.
Earlier in the business plan, in the executive summary, there is the opportunity to tell your story and what makes you tick to attract interest. This is the place to tell your financial story and show that you have what it takes to effectively manage money in a business, particularly any investment.
This is where you detail how you source materials and what you need for your business to operate.
Outline how you purchase what you need to manufacture your products and list any key suppliers.
If you run a services business, you may not need raw materials but you will need to source your tools of the trade from a mobile phone to office stationery and computers.
List any service providers you depend on to run your business, such as website developers, merchant accounts, vehicle leasers, and then outline their terms.
Suppliers are often the cornerstone of any business which cannot function without the provision of its products and services.
When setting up a business, it’s vital that you ask: "Do I need a business licence?"
Some specialist activities and business types need a licence before it’s legal to trade.
You may require one-off licences for individual business activities.
Use the Licence Finder tool on gov.uk to find out which licences apply to your business.
You also need to check the specific regulations for your industry, for example, if you provide financial services, check with the Financial Conduct Authority (FCA).
List any licences and specific regulations you need to adhere to in the operational section.
What technology do you need to operate as a business?
Make a note of everything here including computers, software, databases, CRM systems, communications hardware, your website and any devices such as mobile phones.
It might help to get out a piece of paper and list all your technology to make sure nothing is missed. Ask your staff as they may use a software package that you’ve forgotten to include.
The environment is a serious issue for everyone. Investors will want to know about your green credentials and how your business approaches environmental issues.
What does your business do to reduce its carbon footprint and be more sustainable? Do you recycle, use solar power, have a paperless office etc? Do you have sustainability targets, such as being carbon neutral by 2025?
Include your environmental and carbon reduction plans and pledges.
If you have an environmental policy, mention it here and include the full policy in your appendix.
Please note that we have covered many of the things you need to focus on in the operational section of your business plan, but this is not comprehensive. You may need to add further detail depending on the nature of your business.
The operational section of a business plan is vital. It describes the essentials you need to run your business.