Practice matters - writing a business plan

Preparing a business plan for an existing business or for one starting up can be a creative and invaluable exercise. The business plan can also help to reassure bankers and other providers of finance. In addition to your professional knowledge and client skills you will need to demonstrate to them your ability to run and grow the business. More importantly a good business plan will identify areas on which to focus effort and money.

• Your plan should set out what sort of practice you want to have in three to five years and how this will be achieved.

• Goals should be detailed and measurable so that they can act as an early warning for where you are careering off-plan and allow you to take corrective action.

• There are non-financial elements (practice specialisms, culture, operational) to consider which should drive the financial planning. For example, what makes your firm and the services you provide unique and what resources do you need to deliver them?

• The business structure is an important part of any plan, i.e. whether you intend to operate as a sole trader, a partnership, an LLP, a limited company or some combination involving a corporate partner/member.

• In calculating your expected income, targets for chargeable hours must be realistic as must your hourly rate or alternative fee structure; you will also need to factor in the likely amount of time written off.

• It is important to be realistic in your estimates of how promptly work is billed and then debts recovered as this has obvious cash flow implications. You should be setting targets and reviewing regularly to identify under-performance.

• When looking at the financial aspect of the plan remember that certain costs can be significant - professional indemnity insurance, leasehold improvements, furniture and equipment.

• Predicting when tax payments will need to be made is essential.

Consider outsourcing some non-core functions (IT, accounting and payroll); the flexibility and low initial costs can be particularly attractive to new, start-up firms.

If you consider all the above you should be able to estimate your cash requirement and have a good idea of the amount of capital necessary on an ongoing basis. Then you will need to consider how much of this will be provided by partners/members and how much from external funding; the latter being particularly relevant to law firms once Alternative Business Structures come in.

We regularly work with established, growing firms and new start-ups to advise on business planning and to produce forecasts tailored to their business. If you require assistance with any aspect of your business plan please contact us for further details.