1. Introduction

This guide will provide assistance to applicants writing business plans for the Knowledge Exploitation Fund (KEF) Entrepreneurship Scholarships. It is not intended to be either exhaustive or prescriptive. It should guide you in how to approach the business planning process and in what form your business plans should be submitted.

After submission the plans will be reviewed by an independent body and assessed against a standard range of criteria. It will then go before a KEF panel, which will make the final decision. All applicants will receive feedback on their plans.

Please remember that you can be assessed only on the information provided in your plans. In other words if you don’t provide a strong rationale for your plans and hard evidence to back up what you’re saying, your plan will carry less weight.

To an extent your plan has to be fit for purpose. In other words there is a general expectation that if you are seeking to establish a complex high growth potential business you will need to provide more evidence and detail than a sole trader.

2. Why write a Business Plan?

Clearly, if you are applying for a KEF scholarship then you have to write a business plan. However, this should not be the only reason for doing so. Many people make the mistake of thinking that writing a business plan is done only for other people’s benefit. It is not.

The Business Plan is a document to communicate your ideas but it is much more than that. It is an expression of the PROCESS that you have been through. This process is your opportunity to structure your analysis and thinking to make sure you have considered all angles and to challenge your assumptions and pre-conceptions. If you are working as a part of a team it is a creative opportunity to establish a collective methodology for the commercial exploitation of your idea. It’s surprising how many "teams" go into business together without discussing in detail what they are trying to achieve, where they are going and how they are going to get there. This is a recipe for recurring problems.

The conclusion is that business planning is an opportunity for you to make sure you know what you’re doing and that you have left no stone unturned. Only then can you communicate this convincingly to other people.

On a final note it is often said that plans are not written they are re-written. In other words the plan should be dynamic - growing and changing with your business. You are an entrepreneur after all and you must be quick on your feet and take advantage of opportunities as they come by. But you have to do this in a calculated way. You have to take calculated risks – not just guess.

Your plan should never be a "one off" document quietly gathering dust in a filing cabinet. Take the opportunity to regularly review your plans. This doesn’t mean you have to re-write your plan every time. But take time-out several times a year to assess where you are and where you’re going.

3. How to approach the planning process

There are many things said about business planning. One of them is that plans are nothing – planning is everything. In other words what is going on here is a process, not a form filling exercise. It is the things you do in the planning process that will go a long way towards helping to produce a good plan. Clearly if you are submitting a document for someone else to read it should look good and tell them what they need to know. However, this must be based on thorough groundwork. There is no way around this. If you are serious about going in to business then start as you mean to go on – treat business planning seriously. Here are some tips for undertaking the planning process:

Gather together the team (if you have one), discuss, brainstorm and agree.

Seek some additional help from a business support agency or an experienced business person to guide you and challenge your thinking.

Immerse yourself in your chosen industry. You need to know how it works. There will be lots of information out there and you need to prove you have a thorough grasp of it.

Study other people’s business models. Most successful business people have a formula to what they are doing – the mix of what they offer and how they offer it.

Give yourself a realistic time-scale to get things done within.

4. What should the Plan look like?

The actual business plan document, which is presented to third parties, KEF included, is a summary of the work you have done in the planning process. It is not everything you have done. It must be clear and concise and it must give the reader confidence that you know what you’re doing. It must be ambitious but realistic. In other words challenging but not so ambitious that you lead the reader to conclude that it isn’t credible.

Pages and pages of tight text are very dull. Graphs, bullet points etc. help to make it more digestible. If you have a very complex idea consider putting certain elements into appendices.

It is difficult to give a prescriptive guide to how long the plan should be but if (including financials but excluding Appendices) it is more than 15-20 pages it’s probably too long.

Don’t forget for most third parties this is their first and maybe only introduction to you and therefore the plan must be smart and presentable.

Below we have given a guide to the sections you should include and what you need to consider for each during the planning stage. Again this is not exhaustive nor prescriptive but should help steer you in the right direction.

Finally make sure that your plan gives a professional impression to the reader, whether that is the KEF Assessment Panel, the Bank or a Venture Capitalist. Hand written plans are not acceptable in this day and age! If you are enrolled at an institution then access to IT facilities should not be a problem. If they are speak to your EC who will be able to point you in the right direction to find suitable facilities.

4.1 Executive Summary

This should be written at the end. It is a brief introduction to your plan, which incorporates the main points from each section of the plan. It should be no more than two pages.

4.2 Mission Statement

The Mission Statement encapsulates in a few sentences why you are going into business. You may think this is obvious, but not so. People start businesses for many reasons and their aims are just as varied. It is particularly important that teams agree on what they are trying to achieve.

If your business is successful you will face many challenges and choices. One of the key things that will determine how you react to these will be the fundamental reasons why you went into business in the first place.

Example: Lets say you start out in business with the following Mission Statement:

"To establish and grow a profitable software company specialising in bespoke solutions to independent retail businesses in South Wales. To provide the founders with a good standard of living in a flexible self-determined working environment".

After three years in business a major customer offers you the opportunity to double the size of your business with a UK wide contract. There are many commercial decisions in this scenario but one of the most important is what it means to you at a personal level. If you look back at your Mission Statement and the reasons why you went into business you may decide that, even if it’s a great commercial opportunity, you may not want it. Of course people’s perspectives change, nothing is cast in stone. You may decide to re-write your Mission Statement in the light of your experiences.

Conclusion: In many ways, particularly as you start out, you are the business, be sure what you want from it. If you don’t know where you’re heading how will you know when you’ve got there?

4.3 Objectives

Your objectives follow on from your Mission Statement but are quantifiable, measurable and time-bound. Ask yourself "How can I judge if I have been successful?" Very often people will lift financial objectives from their forecasts, for example sales and profits for the first three years. But there may be other measurable objectives such as number of customers, personal income, repayment of loans etc.

Conclusion: Set some measurable objectives to aim for and which allow you to assess your progress.

4.4 The Management Team

There is a rather glib statement in venture capital that the three most important factors in any business are management, management and management. When venture capitalists are not being glib they have a point. The single most important factor that will determine whether or not you succeed is you. The plan must tell the reader who you are, about your skills and experience and what you are trying to achieve. The reader will want to get a sense of your personality and motivation. Always append a full CV in your plan.

If you think you have skill shortages, identify them and say what you’re going to do about it. Many of you may be inexperienced in business. How are you going to address this? If there is a team you will need to identify responsibilities. If you are relying on external advisors – who are they?

Conclusion: Management is of fundamental importance in any business you must show that you have the credibility to achieve the plans.

4.5 The Product or Service

Explain your product or service in simple direct terms. The reader needs to immediately grasp the essence of your idea and intuitively it must seem credible. It is good business practice to be able to express exactly what you do clearly and concisely.

If your product or service is complex or technical you will need to summarise it in layman’s terms, explaining what it offers to your customers. You may consider putting further detailed information in an appendix.

Many people think in terms of product or service features but you should also be thinking in terms of the benefits of those features. During the planning process try listing the features of your product or service and then writing after each "which means that………".

Example: "this car has fuel injection" (feature) "which means that its performance is strong - improving your driving enjoyment (benefit). It is also economical - saving you money" (benefit).

You might also ask yourself What makes your idea special? Why should customers buy this? You may have seen the term USP or Unique Selling Point. This comes up a lot in Bank literature. Few businesses can be described as unique. However, if you can add a novel twist, a new way of doing things, a different business formula, or an unusual mix of product or service, it will help to differentiate you from your competition.

If your business is particularly innovative you face additional challenges. In general it is fair to say that innovative businesses are higher risk but potentially higher return than "me too" businesses. Often those with innovative ideas assume that just because their product is faster, cheaper, technically superior etc. customers will automatically buy them. Inertia is a feature of many markets and the best product/services do not always capture the most market share – or indeed enough market share to survive.

Again the issue of fit for purpose arises. If your business is innovative with high growth potential you must be able to demonstrate, with detailed and well thought out strategies and hard evidence, how you will exploit your opportunity.

Conclusion: It is important to be able to express the essence of your product or service clearly and concisely. Think in terms of features and their associated benefits.

4.6 The Market

This is an opportunity to demonstrate you know how the market works, your place in it and that of your competition. In order to do this credibly you will need to have carried out good market research. This is often where entrepreneurs fall down - their idea of market research is a quick scan of Yellow Pages.

Market research need not be expensive but it is time consuming. In many ways this area demonstrates the extent to which you are prepared to be thorough. Sometimes it can be difficult to know where to start. What you’ll find is that if you start somewhere one thing will lead to another and you will begin to build a network of knowledge and contacts.

The following are some examples of sources of market research information:

Public and University/College Libraries. There may be much relevant material but back copies of commercial market research reports such as Mintel and Keynote are particularly useful.

Trade Associations and Governing Bodies.

Unions.

The Department of Trade and Industry (dti.gov.uk).

Consumer Associations.

Competitors.

Customers.

Suppliers.

Companies House based in Cardiff.

The Central Statistics Office based in Newport, Gwent.

The Patents Office based in Newport, Gwent.

Government Departments.

The Internet.

Yellow Pages.

Welsh Development Agency with offices all over Wales.

In addition you could carry out your own research through a market survey of potential customers. A questionnaire can give useful feedback provided the sample is large enough. Also, provided you don’t have major confidentiality issues, discuss your ideas with people whose opinion you trust. If you have a sensitive innovative idea, perhaps which is patentable, you must take precautions to ensure that those to whom you reveal information undertake to keep this confidential. A confidentiality agreement may be needed. If you are unsure in this area take some advice.

Try to remain objective in your research. The aim is to gather information and assess its implications. You won’t be doing yourself any favours if you simply search for information which just confirms your initial assumptions. At the end of the process you should have learnt many new things. If you haven’t then maybe your research was flawed.

With respect to your competition, don’t simply investigate those you regard as your immediate competitors, you need to review your indirect competition as well.

Example: a train company’s direct competitors are other train companies, but their indirect competition includes cars, buses etc.

In general you may need further guidance in this area. Your Entrepreneurship Champion, Local Enterprise Agency or the Graduating to Enterprise Programme can help.

Conclusion: Being well informed about your market is vital, you must demonstrate you know it inside out.

4.7 The Marketing Strategy

The marketing strategy will be driven partly by the information gathered in your market research. It is difficult therefore to write a credible marketing strategy if you have skimped on your basic market research. Marketing is not just about advertising, it’s about how you interface with your customers.

You will need to answer some fundamental questions:

Who are my customers? – try segmenting your market into different groups. This can be done in lots of ways for consumers it might be age, location, social group etc. For companies it might be location, size, industry etc. This will help you to prioritise your marketing activities.

How will I get my product/service to my customers? - Often referred to as the route to market. This could be selling direct to your customers, selling through distributors or retailers, selling by mail order or the internet, appointing agents, licensing to other companies etc.

What will I charge? – Pricing is a complex area, which you may need help with. The market research should have given you a few pointers. It’s important that you get this right as customers don’t like a lot of price changes. Here are two classic ways of pricing products:

Cost plus – Work out the cost of your product and add a fixed margin on top. Be careful not to make your product/service uncompetitive.

Competitive pricing – Pricing your product in relation to the competition. This is quite common but make sure you’re making enough profit. Don’t assume that just because you’re new to the market you have to be cheaper than everyone else. Remember KEF will not support any business that seeks to undercut their competitors on price alone.

How will I promote the product/service? – This is the area that people often associate with marketing and for a new business it is very important. Ensure you have enough in your budget to drive your sales. Remember all markets are very competitive and unless you tell your customers, tell them again and then remind them they may not even know you exist. Relying on a bit of advertising, word of mouth and/or a web site is unlikely to be enough in the start up phase.

There is a good deal of difference between marketing and selling. We don’t have enough space to explore this fully. However there is a saying - "marketing is what you do to make the phone ring, selling is what you do after it has rung" - which helps to define the focus of these activities.

Conclusion: The marketing strategy defines how you will interface with your customers. It is not just about advertising.

4.8 Operations

This section should cover all the aspects of how you are going to organise your business. You must show you have thought through all the issues in detail. Below are some of the things you should consider:

Trading status – self employed, sole trader, limited company, partnership, limited partnership. You are advised to take legal and tax advice in this area. Your trading status will also determine how you pay your tax. The Inland Revenue can provide useful advice and assistance in this respect.

People. Do you need to employ anyone? If so who and when and what will you pay them.

Premises. If you are considering buying or leasing you should take professional advice.

Insurance. You may by law need to carry employers and public liability insurance at a minimum.

VAT registration. Again take advice in this area but talk to HM Customs and Excise who can point you in the right direction.

Equipment and vehicles.

Banking arrangements.

Conclusion: All the creative thinking in the world will come to nought if you have not considered in detail how the business will operate and the day to day practicalities.

4.9 Risk Factors and SWOT analysis

This section demonstrates that you understand the challenges you face as well as the opportunities. Short, sharp bullet points should suffice.

One of the key questions you should ask yourself and one which will be asked by any investor is "Is the potential return from this venture commensurate with the risk". You must show you are taking a calculated risk.

Clearly, starting a new business involves considerable uncertainty and risk. It’s useful if you can identify those key areas of risk, what you can do to minimise them and any measures you could take if they were to materialise.

A SWOT analysis (Strengths Weaknesses Opportunities and Threats) is a good way of summarising the overall risk profile of your business. Strengths and Weaknesses are internal factors and Opportunities and Threats external. Don’t worry if the some factors appear as both Strengths and Weaknesses or Opportunities and Threats.

Example: being a small, low overhead, fast moving new business is a Strength. But being a small new start up business is also a Weakness. Likewise a major new contract is a good Opportunity but being dependent on a major new contract is also a Threat.

Conclusion: Risk and SWOT analysise helps to encapsulate the risk/return profile of your business.

4.10 The Financial Forecasts

For non accountants (and even some accountants) preparing financial forecast can seem daunting.

The most important thing is to get your cashflow right. Even if you have no financial background you will find cashflows are pretty easy to understand. Basically the cashflow represents the flow of cash through the business. In effect it mirrors your bank account. You will find attached pro forma cashflow statements for three years. You do not have to use these if you have alternatives.

The important thing is to consider each line of both your cash inflows and your cash outflows in detail. They must be prudent and realistic and reflect the narrative of the plan.

Include a list of assumptions behind the forecasts. For example how long it will take for your customers to pay you, how you have built your sales forecasts, the source of any other cash inflows etc. The reader cannot be expected to guess where inflows are coming from and they can only assess how reasonable your forecasts are if you explain how you have constructed them.

If you are considering registering for VAT you will need to take further advice to understand how it works, what the full implications are and some of the options open to you. HM Customs and Excise can help in this respect. Most businesses can opt to register for VAT. However once you reach a certain turnover threshold (currently £52,000 per annum) you must register. If you are or plan to be VAT registered the attached cashflow forecast allows you to insert your net VAT payment to HM Customs and Excise. The payment to (or repayment from) HM Customs and Excise will be the difference between the VAT you charge on top of your sales and the VAT reclaimed by you on your purchases.

Also included is a pro forma break-even analysis. This will help you determine at what point your business becomes profitable. There are significant differences between profit and cash. You should take time to understand these and may need to take further advice. Ultimately all businesses go bust because they run out of cash. Even profitable businesses can go bust if they run out of cash.

These proformas are relatively rudimentary and you may need to modify them to suit your particular circumstances. If you do so make sure you understand fully how they work first.

The KEF application requires you to prepare 3 years Cashflow and a Break-even analysis as a minimum. However, you may also decide to produce Profit and Loss and Balance Sheets forecasts. If your business is a high growth opportunity then this is highly desirable. However, for many, this is a complex time consuming task, which may be difficult for you to do accurately without professional help. Ultimately your forecasts must be fit for purpose.

Conclusion: Your financial forecasts must be accurate and achievable. At a minimum you should prepare three year cashflows and a break even analysis which you can do yourself using the attached pro-formas. If your business has high growth potential you should consider producing profit and loss and balance sheet forecasts as well, for which you may need extra help.

4.11Curriculum Vitae

To enable not only the KEF Assessment Panel but other interested parties who may wish to see your plan, a detailed curriculum vitae should be put in as an appendix. It should give FULL details of education, training and work experiences including dates and qualifications in full. Failure to provide this information will lead the panel to assume that you are not eligible for a Scholarship.

4.12 Summary

Remember that this plan is essentially for you to understand your business and what it will entail. It is also vital for any one outside the business so that they can also understand what it is you want to achieve and whether you can do it. You may consider that after having researched for the plan you feel you are not quite ready to make the big step into venturing – not everyone is! If you feel that this may be the case, talk to the EC and ask their advice on perhaps getting more experience or qualifications. The worst thing that can happen is that you start a venture ill prepared and then fail. It will dent your confidence greatly and you may give up on the idea of ever being your own boss. With the right preparation and knowledge your chances of failure are greatly reduced. Use this guide to help you decide if or when it is best to start your venture.