The Purposes of a Business Plan

Once an entrepreneur has a business idea and an agreed set of objectives, it is usual to set these out in a document known as a business plan. The plan will identify the objectives of the business, and detail how it intends to achieve them. It has been suggested that ‘a business that fails to plan is one that plans to fail’. There is no set format for a business plan. The structure and content will vary widely from business to business, depending on its size, the nature of the product, and the expertise of the writer. However, it is important for any business plan to consider the following five areas in some detail:

1. Objectives

2. How the business/product will be marketed

3. How production will be organized, and the methods to be used

4. Resource requirements (physical, human, and financial)

5. Methods of finance

Producing a well-structured business plan is important for a number of reasons:

· It is a valuable exercise for the owner(s). It forces them to evaluate their business idea, market potential, and competition, assess their present financial situation, plan for the future, and set realistic output, sales, and profit targets.

· To identify resource requirements. For example, the plan will set out the business experience and skills of the owners, how many workers they will need, the skills they require, equipment and vehicle requirements, the size and location of suitable premises, and types and amounts of materials. Business start-up costs will also be identified, and the amount of external finance needed.

· To support an application for finance. A bank will insist on seeing a business plan before deciding to lend the owner(s) money. A plan will identify the key factors that will determine the success of the business, and how much of their own money the owners are willing to invest in the venture.

· To monitor business performance. The plan allows the business owner(s) to compare actual figures against projections. Forecasts of output, sales, cash flows, profit and loss accounts, and balance sheets can be compared against outturn, usually every month or every three months.

Legal and Insurance Implications

Business law

An entrepreneur setting up a new business must have an understanding of the basics of business law. This is because being in business brings a wide variety of legal and other responsibilities which, if ignored, can be very costly and disruptive to the running of the organization. If a business does break the law, it is not an acceptable defense to plead ignorance. The major categories of law which affect businesses are as follows:

Employment law. The relationship between employers and their employees is regulated by a number of laws. The main ones in the UK are:

· Industrial Relations Act 1971

· Race Relations Act 1976

· Employment Protection (Consolidation) Act 1978

· Employment Act 1980

· Equal Pay Acts 1970, 1983

· Sex Discrimination Act 1975, 1986

· Wages Act 1986

· Employment Act 1989

· Trade Union Reform and Employment Rights Act 1993

Together, these acts give employees the right to:

· A written statement of terms and conditions of employment

· Guaranteed payment of wages and an itemized pay slip

· Statutory sick pay

· To return to the same job after illness

· Redundancy payments

· Maternity leave for female employees and the right to return to the same job afterwards

· Non-discrimination on grounds of sex, race, marital status, religion, and Trade Union membership

· Protection against unfair dismissal

· Time off for public duties

Health and safety. A number of laws have been in existence for many years to protect employ­ees and members of the public from health and safety hazards at work. These include:

· The Factories Act 1961

· The Offices, Shops and Railway Premises Act 1963

· The Fire Precautions Act 1971

· The Health and Safety at Work Act 1974

· Control of Substances Hazardous to Health Regulations (COSHH) 1988

In January 1993, six new Directives of the European Union came into force concerning health and safety in member countries. The so-called ‘six pack’ of legislative measures cover:

· Management of health and safety

· Provision and use of work equipment

· Manual handling operations

· Workplace conditions

· Issue of personal protective equipment

· Use of display screen equipment

Health and safety legislation in the UK requires employers ‘to ensure as far as is reasonably practicable, the health, safety and welfare at work of all staff’. Positive steps to prevent accidents and to promote health and safety must be taken by all organizations. Employers must:

· Develop and display a written policy on health and safety

· Maintain a safe working environment

· Provide safety equipment and, where appropriate, clothing free of charge

· Keep detailed records of accidents, and make regular assessments of health and safety risks in the workplace

All new businesses need to consider very carefully how they will ensure health and safety at work. The penalties for negligence on the part of employers can be very severe. New entrepreneurs should seek advice on health and safety before setting up in business.

Environmental protection. The Environmental Act 1990 and a growing body of European law on the environment regulate the behaviour of firms in the UK, and this is supported in Britain by the Inspectorate of Pollution. Taken together, these laws control many thousands of different industrial processes, which might, if uncontrolled, cause noise or chemical pollution in the air, land, or water. Local authorities are also required by government to monitor some 30,000 industrial processes for unacceptable levels of pollution.

Firms breaking anti-pollution laws may be subject to heavy fines. Therefore, it is essential for new businesses starting out to establish whether or not any of their production processes are likely to contravene the law, and, if so, what it would cost to put this right. For example, does the business result in hazardous waste by-products? How can waste be kept to a minimum, and how can it be disposed safely?

Consumer protection laws. A body of laws exists to protect consumers from misleading claims by producers and from the sale of goods of poor quality. These include:

· Food and Drugs Act 1955

· Weights and Measures Act 1963

· Trade Descriptions Act 1968

· Unsolicited goods Act 1971

· Consumer Credit Act 1974

· Consumer Safety Act 1978

· The Sale of Goods Act 1979

· Foods Act 1984

· Consumer Protection Act 1987

· Trademark Act 1994

Together these acts make it illegal to:

· Prepare or sell food in unhygienic conditions

· Use false or misleading weighing equipment

· Give short measure

· Give false or misleading descriptions of goods and services

· Send goods to customers who have not ordered them and then demand payment

· Not provide consumers with copies of credit agreements

· Not provide correct and full details of credit arrangements

· Sell goods which might be harmful to consumers

· Sell goods that are not of merchantable quality

· Sell defective goods that may cause damage or harm to consumers or their property

In addition a number of laws exist to control anti-competitive behaviour by firms, such as colluding to fix prices. These are:

· Monopolies and Trade Practices Act 1948

· Restrictive Trade Practices Act 1956

· Fair Trading Act 1973

· Restrictive Practices Act 1976

· Competition Act 1980

· Monopolies and Mergers Act 1965

Most of these laws will apply to large well-established firms who are able to dominate markets, known as monopolies and oligopolies. However, even small firms may be able to dominate the supply of a good or service to a local market and use this power to fix high prices and deter new competition.

Additional laws regulate opening times for shops and public houses, and forbid the sale of cigarettes, alcohol, and fireworks to children.

Insurance

Asset insurance. A large proportion of capital in a business will be invested in physical assets, such as buildings and machinery. Asset insurance aims to protect firms, through financial compensation, in the event of loss or damage to these assets. Because types of insurance and premiums vary, it is often worthwhile to seek the advice of a specialist insurance broker. Organizations will usually insure their assets against the following risks:

· Fire: damage to assets resulting from fire, flood, lightning, storms, riots, and vandalism.

· Theft: loss of assets through theft. Many businesses pay an extra insurance premium to cover assets both when they are on the firm’s premises, and when they are authorized to be removed for use elsewhere (known as all risks cover). In such cases, it is essential to make sure that a sufficiently high insurance premium is paid to cover the full replacement value of the assets.

· Disruption of trading: this covers the firm against loss of earnings from sales, usually as a result of claims under fire insurance cover. Fire and disruption of trading insurance, taken together, will pay for damage to assets, and compensate the firm for any loss of earnings due to damaged assets.

Firms are not required by law to take out asset insurance. However, it would be very foolish for a firm not to insure against this kind of loss or damage, given the high proportion of business capital that assets consume, and the difficulty of replacing them without financial compensation. Although premiums can be very high, the consequences of fire or theft for business can be devastating.

Public, product, and employers’ liability. Firms are required by law to insure for public, product, and employers’ liability. The costs are justified, because a successful claim for damages by a member of the public or employee could bankrupt a firm.

· Public liability insurance: firms must insure themselves against causing injury to a member of the public as a result of their business activities – for example, if a highly polished floor in a shop caused a customer to slip over and hurt oneself. Such insurance also covers loss or damage to customers’ property. This is an important safeguard for the public and for firms, because without it, a claim from a member of the public for damages could easily bankrupt a business. The insurance is important for the public, because it guarantees them compensation if the firm is at fault.

· Product liability insurance: firms must also insure themselves against claims by members of the public for damages due to loss or injury caused by the use of their goods or services – for example, if an electrical product catches fire and causes damage, due to an internal fault. This insurance also covers a business for the legal costs which might be incurred in defending itself against claims made against it by a member of the public.

· Employers’ liability: this provides protection against claims for compensation from employees involved in accidents at work.

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