Having a strong, realistic business plan is essential to the success of any pub or licensed trade business - and it is the basis on which any lender will make the decision whether to invest money in your venture.
Whether you are an experienced publican or starting in the trade for the first time, a business plan enables you to analyse your business, where it sits within the industry and local area, where you want to get to and how you are going to achieve your goals. Here are my top 10 tips for getting the financial aspects of your business plan right.1
It may sound obvious, but make sure your overall business plan is structured, clear and concise. The plan is selling both you and your business, so you need to make sure the most important information stands out. Back up all forecasts and projections with relevant supporting commentary. This is particularly important when it comes to financial data, as it will be the basis on which any lending will be decided.2
Your plan should include basic information about you, your business and what you're selling - the who, what, why, when and where. What type of business are you opening? Are you relying on custom from the local area or are you planning to attract customers from further afield? What part will you play in the local community? What will be your main revenue streams? Include all relevant details about your staff, premises and equipment and whether these are already in place or whether investment is necessary first. 3
A SWOT - Strengths, Weaknesses, Opportunities and Threats - analysis will help you look objectively at your business, not only how it stands up against competitors in the local area but how it compares to similar licensed trade businesses across the UK. Don't shy away from highlighting weaknesses and threats and critically analysing them - for example a new pub or restaurant moving into the local area and threatening your current customer base. Remember, a bank will do this anyway, and if you've already done it yourself it demonstrates that you're thinking of the potential pitfalls and how you would go about addressing them, financially and otherwise.4
On the flip side of the coin, be prepared for success and fast expansion and be clear about how you would cope. Consider your plans for growth and the impact this will have on your costs. If you're considering opening a second site, increasing your opening hours or just boosting existing trade, the cost of recruiting, training and developing staff could grow and your management costs are likely to increase to cover the larger infrastructure, so make sure any possible expansion is incorporated into your figures. 5
Your forecasts should run for the next three to five years, with the first year's forecasts having the most detailed breakdowns. Correct financial information is essential. It needs to underpin the business case (both historical and forecasted figures) and explore variables, contingencies and sensitivities, for example to cover a quiet trading period.
Double and triple check all your figures to ensure they are 100 per cent accurate - much of your plan will hinge on your figures and forecasts.6
Cash is the lifeblood of the pub trade so a comprehensive cashflow analysis is vital. Include cash balance and monthly cashflow patterns for the first one to two years, including key factors such as sales and salaries. This will show exactly how much capital you will need to operate the business. A common error is to ask for too little financial support, which is a recipe for disaster. 7
A month-by-month sales forecast is also important. Existing publicans should review last year's sales in order to forecast expected sales for the coming year, while new businesses will have to use their judgement along with market research. Again, remember to be realistic. It might take a while for sales to build up after you open, so consider plotting in a quiet period for the first few months and detail how you plan to cover your outgoings should this occur. 8
A profit and loss forecast will enable you to evaluate the level of profit you expect to make based on sales against costs. Make sure you include all your outgoings. This should encompass not only general operational costs but key calendar dates which will affect your finances such as your corporation tax or VAT deadlines. Also think about costs which are outside your control, for example any increases in the minimum wage and levels of taxation. 9
Keep a close eye on your competitors and any changes in the local area and make the necessary adjustments. Remember that as your business grows and develops so might those of your competitors, so you need to stay on your toes.10
A business plan is a blueprint for the future which should be updated as your business moves forward. Think of it as a living document and revisit it as your circumstances change - at least every year - taking into account new product lines, staffing requirements, cashflow, growth and legal or tax implications.
Steve Jennings is director of business banking at Alliance & Leicester Commercial Bank