Starting out - writing a business plan

If you are looking to buy your first salon, or developing an existing business, a well-drafted business plan is not only key when seeking finance, it is also a valuable business tool.

And because circumstances, people and opportunities change, a good business plan should be more than just a snapshot of the future; it should aim to portray the moving picture and ever-evolving situation. As such, it needs to be regularly reviewed and updated, thereby becoming a valuable aid to good management.

The benefits

Those who plan ahead invariably benefit from the effort and time spent pulling their thoughts together into a document. A good plan will help you:

• Step back from day-to-day work and consider the overall direction of the salon.
• Make better-informed judgements, having previously considered the effect of some actions on profitability, rather than part-way through the project.
• Ensure your business decisions drive the salon in the right direction.
• Ensure there are adequate resources and working capital to achieve business goals.
  
   
  
  Also, a properly documented business plan will help:
  
  
• Provide the vision and direction to focus the business.
• Inspire confidence and belief in the salon's potential.
• Provide a document that is recognised by lenders and can be used as a basis for lending decisions.
• Enable your staff to take part in the long-term future of the business by setting out clear objectives that help to define career paths.

There is no definitive guide as to the precise form and content of a successful business plan because its structure is largely determined by its particular purpose. However, there are five golden rules that need to be followed when constructing one:

• Keep it simple for your reader to understand
• Keep it focused on your needs
• Ensure it is relevant to the reader's interests
• Be accurate and prepared to justify decisions
• Be realistic - information must be credible

With these golden rules in mind, there are, of course, a number of elements to include.

General

Explain the importance of the products you will sell, the services you will offer and their market potential - avoiding technical language and detailed specifications. 

• Bear in mind that the reader might not have specialist knowledge of hairdressing, and your proposal might be one of many they have to read. Focus on the real issues, giving projections for sales, costs and cash
  
  flow, for example, but reserve financial detail for the appendix.
  
  
• Remember to explain assumptions. If you're aiming to raise finance, state clearly the level of funding needed and why it is required.

Executive summary

This overview should encapsulate the whole business plan and ideally fit on one page. It is normally written after the main sections are finished, and focus the reader's attention on the important elements of the business plan.

The business and key people

Describe the legal status (company, sole trader or partnership) of the business, its history, facilities and organisational structure, while also stating its strategy, vision and mission statement. It is particularly important to outline the skills of partners, directors, managers and key staff, since the reputation and experience of those involved could heavily influence the success of the business. Include brief CVs.

The product/service

Clarify the range of products and services to be offered, stating what is special about them and any others you might offer in the future. It's also important to note any niche markets. If the company is responsible for any achievements or has won competitions, these should be mentioned.

Business market

Analyse turnover by product or service, indicating the profitability of each area. Note whether each is declining/static/growing and why, as well as giving the business's current and projected market share. An overview of economic conditions or legislation relevant to the business is useful.

Clients

Briefly describe the salon's potential clients and, where appropriate, analyse turnover by what your clients spend. This section will highlight any dependency on a category of customers and highlight the risks. For example, consider whether you serve a disproportionately high number of younger clients who might change to a newer salon at the drop of a hat, should one open.

Marketing and advertising

Outline your marketing activities to demonstrate how you plan to identify and develop new business.

Competitors

Note major competitors, their strengths, weaknesses and market share. Consider how vulnerable the salon might be to any particular competitor.

SWOT analysis

The business's major strengths, weaknesses, opportunities and threats should be analysed. Don't avoid weaknesses and threats, as these can be only be dealt with once identified. This could encompass road traffic plans, other salons, changing population and the economy.

Premises and facilities

Report whether the premises and equipment will be owned or leased, whether they fulfil existing and future needs, and summarise any major financial commitments. Outline future capital expenditure and indicate the current state of facilities.

Personnel requirements

Include the number of employees and anticipated employment needs, and note the skills that are generally available. Give an indication of your salon's training policy, recruitment and promotion policies.

Financial information

This is normally provided as an appendix and might include some summary narrative, together with a clear indication of funding requirements. The following should be covered:

• A summary of the (proposed) profit and loss account.
• Key ratios to demonstrate the salon's strength - for example, gross profit, return on capital employed.
• Profit and loss projections.
• Cashflow projections.
• Forecast balance sheet.
• Detailed explanation of any assumptions.
• Sensitivity analyses - 'What if' scenarios. For example, the impact of changes in interest rates.

Writing a business plan shouldn't faze you. But if you need extra guidance, visit the government's Business Link website www.businesslink.gov.uk.