Prepare a Business Plan

Every business should have a realistic working business plan and it's essential when you're starting up a business.
A business plan is a written document that describes the
business, its objectives, its strategies, the market it is in and
its financial forecasts.
It has many functions, from securing external funding to
measuring success within your business.
This guide will show you how to prepare a high-quality plan
using a number of easy-to-follow steps.
The audience for your business plan
Many people think of a business plan as a document
predominantly used to secure external funding.
This is important - as potential investors, including banks, may
invest in your idea, work with or lend you money as a result of
the strength of your plan.
But there are other benefits to creating and managing a
realistic business plan - even if you just use it in-house.
It can:

Help you spot potential pitfalls before they happen

Structure the financial side of your business efficiently

Focus your development efforts

Work as a measure of your success

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The following people or institutions may request to see your

business plan at some stage:

Banks

External investors - whether this is a friend, a venture

capitalist firm or a business angel

Grant providers

Anyone interested in buying your business

Potential senior partners

You should also bear in mind that a business plan is a living

document that will need updating and changing as your business
expands.
And regardless of whether you intend to use your plan
internally, or as a document for external people, it should still
take an objective and honest look at your business.
Failing to do this could mean that you and others have
unrealistic expectations of what can be achieved and by when.

What the plan should include

Your business plan is a statement of intent.
It should provide details of how you are going to develop your
business, when you are going to do it, who's going to play a part
and how you will manage the money.
Clarity on these issues is particularly important if you're
looking for finance or investment.

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The process of building your plan will also focus your mind on
how your new business will need to operate to give it the best
chance of success.
Your plan should include:

The Executive Summary - this is an overview of the

business you want to start. It's vital. Many lenders and
investors make judgments about your business based on
this section of the plan alone.

Business Opportunity who

you are, what you plan to sell or offer, why and to whom.

Marketing and Sales Strategy - why you think

people will buy what you want to sell and how you plan to
sell to them.

Management Team and Personnel your

credentials and the people you plan to recruit to work
with you.

Operations - your premises, production facilities,

your management information systems and IT.

Financial Forecasts - this section translates everything

you have said in the previous sections into numbers.

The Executive Summary

The executive summary is often the most important part of
your business plan.
Positioned at the front of the document, it is the first part to
be read.
However, as a summary it makes sense to write it last.

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It may be the only part that will be read.

Faced with a large pile of funding requests, venture capitalists
and banks have been known to separate business plans into
"worth considering" and "discard" piles based on this section
alone.

What is an Executive Summary?

The executive summary is a synopsis of the key points of your
entire plan.
It should include highlights from each section of the rest of
the document - from the key features of the business
opportunity through to the elements of the financial forecasts.
Its purpose is to explain the basics of your business in a way
that both informs and interests the reader.
If, after reading the executive summary, an investor or
manager understands what the business is about and is keen to
know more, it has done its job.
It should be concise - no longer than two pages at most - and
interesting.
It's advisable to write this section of your plan after you've
completed the rest.

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What the Executive Summary is not

A brief description of the business and its products.

It's a synopsis of the entire plan.

An extended table of contents.

This makes for very dull reading.
You should ensure it shows the highlights of the plan,
rather than restating the details the plan contains.

Hype.
While the executive summary should excite the reader
enough to read the entire plan, an experienced investor
or businessperson will recognise hype and this will
undermine the plan's credibility.

Business Opportunity
Your business, its products and services
If you want other people to invest in your business or if you're
writing your plan to focus your existing business activities, you
must be able to clearly convey what your business does.
This part of your plan sets out your vision for your new
business and includes who you are, what you do, what you have
to offer and the market you want to address.
It answers the question - is your idea viable?
Start with an overview of your business:

When you started or intend to start trading and the

progress you have made to date
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The type of business and the sector it is in

Any relevant history - for example, if you acquired the

business, who owned it originally and what did they
achieve with it

The current legal structure

Your vision for the future

Then describe your products or services as simply as possible,

defining:

What makes it different

What benefits it offers

Why customers would buy it

How you plan to develop your products or services

Whether you hold any patents, trademarks or design

rights

The key features of your industry or sector

Remember that the person reading the plan may not

understand your business and its products, services or
processes as well as you do, so it's important to avoid jargon.
It's often a good idea to get someone who isn't involved in the
business - a friend or family member perhaps - to read this
section of your plan and make sure they can understand it.

Marketing and Sales Strategy

Your markets and competitors
In this section you should define your market, your position in
it and outline who your competitors are.
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In order to do this you should refer to any market research

you have carried out.
You need to demonstrate that you're fully aware of the
marketplace you're planning to operate in and that you
understand any important trends and drivers.
You should also be able to show that your business will be able
to attract customers in a growing market despite the
competition.
Key areas to cover include:

Market - its size, historical data about its development

and key current issues

Target customer base - who they are and how you know
they will be interested in your products or services

Competitors - who they are, how they work and the share
of the market they hold

Future - anticipated changes in the market and how you

expect your business and your competitors to react to
them

You also need to know how your competitors' advantages and

disadvantages compare to your own.
Describe any competitive analysis you have carried out and
include some what-if scenarios that show how your business
would deal with customers' changing needs or any other market
changes.

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Marketing and Sales

This section should describe the specific activities you intend
to use to promote and sell your products and services.
It's often the weak link in business plans so it's worth
spending time on to make sure it's both realistic and
achievable.
A strong sales and marketing section means you have a clear
idea of how you will get your products and services to market.
Your plan will need to provide answers to these questions:

How do you plan to position your product or service in the

market place?

Who are your customers?

Include details of customers who have shown an interest
in your product or service in the plan and explain how you
plan to go about attracting new customers.

What is your pricing policy?

How much will you charge for different customer
segments, quantities etc?

How will you promote your product or service?

Identify your sales methods eg direct marketing,
advertising, PR, email, e-sales.

How will you reach your customers?

What channels will you use?
Which partners will be needed in your distribution
channels?

How will you do your selling?

Do you have a sales plan?
For example, will you sell by phone, via a website, face-toface or through retail outlets?

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Management Team and Personnel

Your team's skills
Your business plan needs to set out the structure and key skills
of both your management team and your staff.
It should identify the strengths in your team and your plans
to deal with any obvious weaknesses.
The management team
If you're looking for external funding, your management team
can be a decisive factor.
Explain who is involved, their role and how it fits into the
organisation.
Include a paragraph on each individual, outlining their
background, relevant experience and qualifications.
Include any advisors you might have such as accountants or
lawyers.
If you're looking to satisfy your bank manager or other
investors, you need to demonstrate that your management
team has the right balance of skills, drive and experience to
enable your business to succeed.
Key skills include sales, marketing and financial management as
well as production, operational and market experience.

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Your investors will also want to be convinced that you and your
team are fully committed.
Therefore it's a good idea to set out how much time and money
each person will contribute to the business and the salaries and
benefits you plan to draw.
Your people
Give details of your workforce in terms of total numbers and
by department.
Spell out what work you plan to do internally and if you plan to
outsource any work.
Other useful figures might be sales or profit per employee,
average salaries, employee retention rates and productivity.
Your plan should also outline any recruitment or training plans,
including timescales and costs.
It's vital to be realistic about the commitment and motivation
of your people and spell out any plans to improve or maintain
staff morale.

Operations
Your operations
Your business plan also needs to outline your operational
capabilities and any planned improvements.
There are certain areas you should focus on.

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Location

Do you have any business property?

What are your long-term commitments to the property?

Do you own or rent it?

What are the advantages and disadvantages of your

current location?

Production facilities

Do you need your own production facilities or would it be

cheaper to outsource any manufacturing processes?

If you do have your own facilities, how modern are they?

What is the capacity compared with existing and

forecasted demand?

Will any investment be needed?

Management Information Systems (MIS)

Have you got established procedures for stock control,

management accounts and quality control?

Can they cope with any proposed expansion?

Information Technology (IT)

InformationTechnology (IT) is a key factor in most

businesses, so include your strengths and weaknesses in
this area.

Outline the reliability and the planned development of

your systems.

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Financial Forecasts
As part of your plan you will need to provide a set of financial
projections which translate what you've said about your
business into numbers.
You will need to look carefully at:

How much capital you need if you are seeking external

funding

The security you can offer lenders

How you plan to repay any borrowings

Sources of revenue and income

You may also want to include your personal finances as part of

the plan at this stage.
Financial planning
Your forecasts should run for the next three (or even five)
years and their level of sophistication should reflect the
sophistication of your business.
However, the first 12 months' forecasts should have the most
detail associated with them.
Include the assumptions behind your projection with your
figures, both in terms of costs and revenues so investors can
clearly see the thinking behind the numbers.
What your forecasts should include
Cashflow statements - your cash balance and monthly cashflow
patterns for at least the first 12 to 18 months.
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The aim is to show that your business will have enough working
capital to survive so make sure you have considered the key
factors such as the timing of sales and salaries.
Profit and loss forecast - a statement of the trading position
of the business: the level of profit you expect to make, given
your projected sales and the costs of providing goods and
services and your overheads.
Sales forecast - the amount of money you expect to raise
from sales.

Presenting your business plan

To make sure your business plan has the maximum impact,
there are a number of points to observe.
Keep the plan short - it's more likely to be read if it's a
manageable length.
Think about the presentation and keep it professional - even if
you only intend to use the plan in house.
Remember, a well presented plan will reinforce the positive
impression you want to create of your business.
Tips for presenting your plan

Include a cover or binding and a contents page with page

and section numbering.

Start with the executive summary.

Ensure it's legible - make sure the type is ten point or

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above.

You may want to email it, so ensure you use email-friendly

formatting.

Even if it's for internal use only, write the plan as if it's
intended for an external audience.

Edit the plan carefully - get at least two people to read it

and check that it makes sense.

Show the plan to expert advisers - such as your

accountant - and ask for feedback. Redraft sections they
say are difficult to understand.

Avoid jargon and put detailed information - such as

market research data or balance sheets - in an appendix
at the back.

Make sure your plan is realistic.

Once you've prepared your plan, use it.
If you update it regularly, it will help you keep track of your
business' development.
Further help and advice
Your accountant, if you have one, or your bank can offer
support.
Your local Business Link has specialist advisers who can help
you with business planning.
You can find your local Business Link through our Contacts
Directory.
Enterprise Agencies offer free business counselling and can
help you prepare your business plan.

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You can find your local Enterprise Agency on the National

Federation of Enterprise Agencies website.

Here's how having an up-to-date business plan helped my

business
Darren Jones
AKC Home Support Services

Darren's top tips:

"Make sure your business plan reflects your personal

vision - don't just put things in because you think its what
someone else wants to read."
"Be objective. It is important to weigh up the pros and
cons."
"Get assistance whenever you can."

Darren Jones launched his care business, AKC Home Support

Services, in 1991 with his wife Sharron.
Although writing their business plan was one of the first things
the couple did, Darren admits he originally saw it as a bit of a
chore.
Now, he takes a different view, believing it has helped the
business stay on track and true to its goals.
What I did
Write the plan
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"When we started the firm I knew we needed a business plan

but saw it more as a document for everyone else than
something to help us.
If I started another business tomorrow I would write one
much more willingly as it brings a number of benefits - from
helping you secure finance to keeping you focused on your
goals.
"We got help from our local enterprise centre, looked at
examples from other businesses and a template from the bank.
We mixed and matched bits from these sources because not
everything applied to us.
For example, because we were going into a new market we
couldnt write about our competitors but needed a lot of
information about the market for care services."
Consult the plan
"We used our business plan to set out the financial and
strategic goals we wanted to achieve in the short and longterm.
We review it annually now unless theres a significant shift in
our market and then we use it to immediately re-evaluate our
goals.
"Our business plan has also helped us to avoid expanding too
quickly.
Early on, we were offered work in another county.
This seemed great but when we looked at our business plan
and particularly our cashflow forecasts - we realised it was
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important to establish a firm base in one county before taking

on work in another otherwise we would overstretch ourselves."
Use the plan
"We purchased a residential unit four years ago and our
business plan definitely helped us demonstrate why the bank
should lend us the money.
Without it being put down on paper I dont think it would have
sounded like a very viable suggestion.
"The home added a different dimension to the business in
which we had no trading record so the bank lent us the money
according to our past performance.
We could also show that we would offset some of the cost by
using part of the new building as office space.
"Our plan also helped us to get support from Shell LiveWire the organisation that assists 16-30 year olds to start and
develop businesses - as you must have a business plan to enter
its competitions.
We were awarded prizes twice - not only bringing in extra
money but publicity too."
What I'd do differently
Work on the plans presentation
"I would have tried to get more assistance and perhaps made
the document look a bit more professional.

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It's your way of gaining support for your business and is the
one thing that your bank manager will remember apart from
how you were dressed."
Get as much help and advice as possible
Show the plan to an independent third party - such as friends
or family who have run their own businesses - who will be able
to point out if anything is missing.
It's much better to make mistakes on a practice run than when
it really matters.

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Related web sites you might find useful

Read sample business plans at the bplans.org.uk website
http://www.bplans.org.uk/spu/businessplans.cfm
See a library of business plan templates on the Microsoft
Office website
http://office.microsoft.com/search/results.aspx?
Scope=TC&Query=business+plan&CTT=6&Origin=EC0103311210
33
Download a guide on getting to grips with competitors from
the Chartered Institute of Marketing website (PDF)
http://www.cim.co.uk/mediastore/10_minute_guides/10_min_G
et_To_Grips_With_Competitors.pdf
Find out how to create a sales and marketing strategy on
the Chartered Institute of Marketing website
http://www.cim.co.uk/cim/ser/html/infHow.cfm?
objectID=3CD45711-DCC6-4CB7B854F8761140182F&displaytype=full
Use the business planning software at the Alliance and
Leicester Commercial Bank website (registration required)
http://www.allianceleicestercommercialbank.co.uk/content/SU080024.asp
Buy an online course on Finance and Budgeting at the
learndirect business website
http://www1.learndirect-business.com/?
target=framework.asp?
framework_id=15%26parent_id=78%26display_courses=true

Page 19 of 36

Example of a Business Plan

Global Marketing Business Plan
1.0 Executive Summary
West Pacific Marketing Consultants aims to provide marketing
services to targeted business environments in Indonesia, Asia,
and the west Pacific region. This plan seeks to generate a
significant increase in company sales and profits from
the delivery of retainer consulting, project consulting, market
research and industrial analysis, feasibility studies, and
strategic analysis and reporting services, compared to the
preceding year.
The highlights of this plan are the targets: gross margin and
sales-revenue. The targeted gross margin for each of the first
five years of this plan are $1.7 million, $2 million, $2.4 million,
$2.9 million, and $3.5 million, respectively. The sales-revenue
targets for the same five years are $2.1 million, $2.5 million,
$3 million, $3.6 million, and $4.3 million, respectively. These
figures represent 2.00%, 2.02%, 2.01%, 1.94%, and 1.73%,
respectively, of the key prospects available for West Pacific
Marketing Consultants. These targets are attainable through a
proactive approach to the candidacy of clients, teaming-up with
technology providers, and partnering with reputable local and
regional engineering suppliers and construction firms to reduce
competition, improve pricing, and reduce risks. The projected
marketing budget for each year will be $444,640, $502,380,
$568,469, $644,426, and $731,799, respectively.
This business plan has been created on the basis of five
years of market research, which spanned March of 1996
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through November of 2000. Data conclude the size and growth

of the market and geographical segments, customer needs,
perception, and buying behaviour trends have been on the
upswing, and are expected to continue in this trend for the
next five years. West Pacific Marketing Consultants feels
that it is able to fill the hole in the marketing niche, and will
benefit from operations beginning in January, 2001.

Note: All figures within this plan are in the U.S. dollar, and
reflect the currency exchange rate of $1 = Rp 7,200.
Highlights

1.1 Objectives
West Pacific Marketing Consultants' objectives are to make an
equal and fair profit in the business-to-business (B2B) and
business-to-consumer (B2C) marketing services industry. This
goal is to be reached by attaining the numbers below:
1. Sales of $2.1 million in 2001, $2.5 million in 2002, $3
million in 2003, $3.6 million in 2004, and $4.3 million in
2005.

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2. Average gross margin at 80.18%.

3. Net income at 44.10% of sales in 2001, 45.04% of sales in
2002, 45.90% of sales in 2003, 46.69% of sales in 2004,
and almost 50% of sales in 2005.

1.2 Mission
West Pacific Marketing Consultants offers companies,
government institutions, nongovernmental organizations (NGO),
and individuals reliable, high quality, and cost-effective
consulting services for various purposes. Our services include
business development, market development, market
intelligence, industrial sectors analysis, and channel
development on a global scale, as well as sales assistance for
global companies in the Indonesian market.
The situation in Indonesia is currently characterized by the
facts that times are tough, investment appetites are low,
industries are cutting costs, and budgets are being slashed.
Fully aware of this situation, West Pacific Marketing
Consultants, after completing a five year research study, has
come to the conclusion that its potential clients would be
interested in doing things in a smarter way, with good support
of a reliable and efficient market intelligence. West Pacific
Marketing Consultants believes that it can provide both
solutions and value creations to its clients. Its senior executive
consultants have been working with some reputable U.S.-based
global companies for more than 14 years, and have extensive
knowledge of Indonesian, Asian, and Pacific business
environments.

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1.3 Critical Success Factors

There are two keys to success that West Pacific Marketing
Consultants is focused on. These are broadly characterized as
Internal and External Factors, and are explained in more detail
in the following two sections.

1.3.1 Internal Factors

The company feels that it controls its own success through
some basic internal factors.
These are:
1. Selling and Marketing Power. The services the company
provides are made attractive in order to maintain a
certain percentage of B2B and B2C clients.
Being a market intelligence services provider, business
and market development consulting services provider, and
business and sales representative, West Pacific
Marketing Consultants demonstrates a successful
approach in converting its reputation into an excellent
brand to ensure the conversion of its clients' knowledge
into their intellectual property, thus creating value for
its clients.

2. Excellence in fulfilling the promise. Clients do not buy

features, they buy benefits.
To realize a benefit, a claim must be made and proof
presented. This company has had success on claim after
claim.
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3. Developing visibility to generate new business leads.

Participation by the company in online business
affiliations with reputable global players of e-business
technology is a necessity.
Two of these players are Palo Alto Software and
B2BToday.com. Strategic relationships must also be made
with companies, government institutions, regional
(provincial) government offices, and NGOs, as well as
with individual customers.
4. High-quality service and customer satisfaction.
Everything the company sells is guaranteed; therefore,
the services have to do what the customers want, and do
it well.
Long-term customer satisfaction is critical to the survival
of the company.
5. Create multiple opportunities from a single line of
expertise. West Pacific Marketing Consultants is able to
leverage from a single pool of expertise into multiple
revenue generation opportunities: business development,
market development, market intelligence, industrial
sectors analysis, and channel development on a global
scale, as well as sales assistance for global companies in
the Indonesian market.

6. Key management team. The right management team is

integral, and must have a strong foundation in marketing,
management, finance, and services development.
The company is confident in its team.

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1.3.2 External (Business Environment) Factors

The Asia-Pacific Region is now living in an interesting era: the
process of change from the "old economy" to the "global new
economy" brings a tremendous development growth of ecommerce, mobility of capital, and liberalization to the region.
Since the new global economy brings new economics, new
market structures, new industry structures, and new company
structures, the profile of customers has also changed.
Customers have evolved from "solution demander" to "value
demander," and from "clients" to "business partners." West
Pacific Marketing Consultants is proactively focused on
establishing relationships with multiple digital contents,
companies, government institutions, regional (provincial)
government offices, NGOs, and individual customers as its
prospective business partners.

Marketing Strategies for Small Businesses

Challenges and Limitations
There is no doubt that marketing can present significant
challenges for the small businesses. The limited human and
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financial resources implicit in being a small business places

practical constraints on what marketing activity can be carried
out. This means that, while in theory marketing principles are
applicable to all organisations regardless of size, the ability to
apply and implement many of these principles is likely to vary with
size depending on the availability of resources.
A. Know your Strengths and Weaknesses
To utilise resources optimally, you need to play to your strengths
and minimise your weaknesses. Some of the typical strengths and
weaknesses of small businesses are:
Strengths
Flexibility

Weaknesses
Reactive; random oscillation from active to
passive marketing

Knowledge of local
Limited resources/Lack economies of scale
market
Credible as specialists Short term view
Strong reliance on passive word of mouth
Entrepreneurial spirit
for sales
Focus on developing sales through new
Responsive
customers
Limited awareness of what marketing
Innovative
really is
Tendency to 'shot gun' promotional
activity
Too many eggs in one basket/ too few
customers
Limited market intelligence
Limited planning

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As businesses pass through the transitions from small to medium

sized, there will be a tendency for some of these strengths and
weaknesses to diminish, but even if you are at the upper end of
medium sized, still ask yourself honestly whether any of these
weaknesses still apply to your business?
The rest of this article presents strategies to optimise your
resources. Whilst addressing these weaknesses.

i. List your own business' strengths and weaknesses

Make a list of your own business' strengths and weaknesses,
getting input from your management team and as many of your
employees as possible. Compare your strengths and weaknesses
with those of your main competitors. Check whether you need to
take corrective action to minimise weaknesses and identify where
you can exploit strengths that your competitors don't have.
ii. Short-term versus flexibility
There is a tendency for the marketing activity of smaller
businesses to be short term, ad-hoc, and reactive leading to a
fire-fighting culture. This can cost money and time, because
resources are not optimally deployed as a result of not
considering the fuller, longer-term picture. However, a balance is
needed. The ability of the smaller business to be flexible and
respond rapidly to market changes is a major strength in the
right context. This is particularly the case in fast moving markets
and when in competition with larger businesses who are far less
likely to be able to respond as quickly.
In order to avoid 'short-terms' whilst maintaining flexibility, you
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need an overall strategy for your activities to fit into. If you

check whether your response to market situations is consistent
with your overall strategy you can decide whether a particular
course of action is appropriate.
Before you can develop a strategy, you need to identify your
objectives, i.e. what you want to achieve in a particular market.
Once you have your objectives and a strategy, you are well on the
way to having a marketing plan. You may well have this in your
head, but it's much better to write it down so that you have
something to keep you on track and to show to others in your
business.

B. Adopt a focused strategy, avoid the shotgun

Avoid trying to aim too widely with your marketing because your
resources will be spread far too thinly to be effective. The word
FOCUS should be the key word for small businesses.

i. Segment your market

Not all of your customers within your market have the same
needs. Think of an orange as your market and within that each
orange segment represents individual customer groups with
distinct and different needs. Carry out a survey to identify your
customers? needs. Group your customers according to their
needs. These groups are your main market segments.

Don't treat all of your market segments the same. You need
to customise your product/service offering and your
communication to be appropriate to each segments needs.
The results will be worth the effort because there is
substantial evidence to show that businesses that take
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account of their market segments in this way are more likely

to be successful. Focus on a manageable number of segments
to avoid overstretching your resources.

You can use a 'rolling' promotional cycle, where, for

example, you concentrate your promotional activity on a
different segment every three or six months. Choose a time
period for the 'cycle' appropriate to your business. In this
way you can still cover several market segments but you will
achieve a greater return on effort by focusing on one
segment at a time.
Focus your marketing attention on those customer segments
where your main strengths have the best fit.

ii. Focus on a niche

Focusing on a market niche is a particularly appropriate
competitive marketing strategy for small businesses.
If you face heavy competition in a mass market, particularly from
larger businesses, it takes a lot of resources to compete, and for
smaller businesses, your size can also make you less credible.

Take a look at your market and identify whether there are

any market segments that are not being adequately served.
Look at ways in which you can make an offering to fit their
particular needs. Of course it has to make business sense
before you pursue this path, and it is not without risks
itself. There is no guarantee that larger business won't
"muscle in" on your niche if it looks profitable, or that your
niche becomes less attractive. You always need to monitor
the market and be prepared to move to another niche or a
non-niche strategy if necessary.

iii. Focus on a particular offering

If you are a smaller business, you may find it beneficial to
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consider focusing even further within a niche or market segment

to become a specialist. Small businesses have greater credibility
as specialists and there is the advantage that you will develop a
very deep knowledge and expertise within your market as you
pursue this route.
The disadvantage to this strategy is the risk associated with
total reliance on a small market sub-segment. You will need to
monitor the market regularly so that you can be ready to target
an alternative market if necessary.
C. Adopt lower risk strategies
When you are operating with limited resources, it makes sense to
look at lower risk strategies first.

i. Avoid moving into new markets too rapidly

Far too many small businesses get carried away with the
excitement of new horizons and forget to fully exploit their
existing markets before moving on. You may have a very good
reason for looking at new markets if your existing market has
dried up or has undergone a down-turn, but remember, the
further you move away from your existing market, the risk and
cost of marketing increases. This is because you know far more
about your existing market and have far more information upon
which to base your decisions. Your production, systems and
procedures are also geared up to your existing market.
This is illustrated by these simple growth strategies that
increase in risk as you go down the list:

Selling more of your existing products to existing markets

Selling modifications of your existing products/services to
existing markets
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Selling new products to existing markets (totally new

products or associated with existing products)
Selling your existing products/services to new markets
Moving into completely different markets with different
products

ii. Check your need to increase your customer base

In many cases, micro and some small businesses are operating
with a customer base that is far too small. This imposes undue
risk, because the sales from one customer can account for a
substantial proportion of total revenue. Consequently, the loss of
a customer could have a major impact on your business, and in
some cases result in its demise.

Ask yourself whether you are in a high-risk situation. Take a

common sense view by calculating the percentage of your
total revenue accounted for by each customer, and for each,
ask yourself what the impact on your business would be if
you lost that customer and whether you would survive. If
the answer is no to any of them, then you need to take steps
to increase your customer base.
Make an estimate of how many customers you need in order
to reduce to an acceptable level the percentage of your
total revenue accounted for by each customer.
Set this number of customers as your target. Then identify
how you are going to obtain these extra customers and over
what time period. Draw up a mini plan for this. You are
unlikely to be able to develop new customers overnight, and
so the sooner you start planning to do this the better, but
remember not to neglect your existing customers while you
do this. (See also section D)

iii. Stimulate referrals

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Recommendations and referrals from existing customers form a

substantial source of new customers for many small businesses.
This has the advantage of being cost-free, but the downside is
that over-reliance on a passive phenomenon that is uncontrollable
is risky.
You can reduce this risk and take control by actively stimulating
referrals. Here are some tips for doing this:

Not all of your customers will know everything about your

products/services. Regularly provide them with information
sheets summarising your offerings. This is a good thing to
do anyway, because it is likely to generate more sales from
the customers themselves. Ask them if they can identify
anyone who could use your products/services and encourage
them to pass on the information to others. Make a
judgement as to whether you need to provide an incentive
for them to do this; in some cases it may not be appropriate.
Personally thank your customers for their custom, and make
a point of asking them to pass on your name to others. At
the same time find out how satisfied they are with your
offering and take corrective action where necessary.
Dissatisfied customers will not make recommendations.

"If you like what we do tell others; if you don' t like it, then tell
us."

Take the opportunity to enclose a referral slip with any

communications or delivery documents.

D. Retaining and developing existing customers

Once you have achieved a reasonable number of customers,
beware of only focusing on developing new customers as a means
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of growing sales. This runs the risk of neglecting your existing

customers. Clearly you need to look for opportunities to develop
new customers, but a balanced approach is needed.
Retaining and developing more sales from existing customers
should be the first priority, because this strategy has distinct
advantages:

It is the least risky growth strategy (also see next section)

Developing more sales from existing customers is less costly
than obtaining new customers.
Existing customers:
Are the foundations of your business.
Is generally less price sensitive.
Are likely to offer more opportunity for repeat business.
Offer the potential for recommendations and referrals.
Are generally more loyal.

In order to develop a strategy for retaining customers and

developing more sales from them you need to carry out some
analyses:

i. Analyse your customer base

80:20 customer ratio:

It is likely that 80% of your revenue is accounted for by only 20%

of your customers. The 80% of your customers with small sales
probably fall into two categories. Either they will never have the
potential for increased sales, or, given some work, they could be
developed. Identify which are which and take steps to sell more
to those with sales potential.
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Customer profitability:

Analyse the profitability of each of your main customers, i.e. the

top 20%. You may be surprised to find how unprofitable some of
them are. Look at ways of increasing the profitability of these or
consider 'losing' them. Focus on the more profitable ones; check
their needs and identify ways to sell more to each of them.

ii. Make your database work for you

Many small businesses operate with inadequate inefficient
customer databases because it is not considered to be a priority
to invest in them. If you don't have the means of storing and
manipulating data on your customers you can't hope to fully
exploit this gold mine of an asset.
Many of the strategies discussed in this article require the
ability to analyse your customer/contacts database in order to
obtain the information needed.
Ask yourself these questions:
1. Is your database just a list of customers and contacts?
2. Can your database be manipulated with ease to group
customers according to:

Sales
Profitability
Needs
Main product/services purchased
Location
Frequency of purchase
Average size of purchase, etc

3. Is your database fully integrated with your other software

programmes e.g. financial?
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4. Was your database design based on an audit of your business

needs?
5. Does your database allow you to keep additional information on
your customers other than contact details etc?
If the answer is yes to 1 and no to 2-5 then you need to take an
urgent look at upgrading your database, but take expert advice on
this.

iii. Satisfaction through innovation

In order to retain and develop existing customers you will clearly
need to ensure their total satisfaction. This process can
stimulate innovation, because you may need to modify existing
products and services or develop new ones in order to continue to
satisfy their needs.

Find out from your customers what their needs are now and
in the future in order to achieve this.
Will you need to modify products/services or develop new
ones to fulfil these needs?

E. Retaining employees
There is a distinct cost advantage to retaining employees because
it costs a lot to recruit and train a new employee, and in the early
days they are less productive. As with customers, you need to
make sure that your employees are satisfied in order to retain
them. You are also unlikely to have satisfied customers if your
employees aren't satisfied.
These are two good reasons for making sure that you keep your
employees, but how good are you at this?

Do you have an employee satisfaction programme?

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Do you know what your employees' needs are in order to

ensure that they are satisfied? Have you taken steps to
find out what motivates each of them?
Is your selection process and training programme adequate
for each employee role?

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