2.3.1 - Planning a business AS and raising finance

A business plan is a documented plan for developing a business. It turns an idea into connected assumptions about what the business will offer, how it will operate and whether it may be financially workable.

The sections should agree. A sales forecast affects staffing, inventory, cash needs and finance; inconsistent assumptions reveal a decision that needs more evidence.

A business plan is relevant when it helps owners or finance providers judge whether a proposal is credible. Its value comes from the reasoning and evidence behind it, not from the document alone.

The plan can later compare actual performance with forecasts and be revised when costs, demand or circumstances change. Relevance therefore depends on current, realistic evidence and the decision being made.

Owner capital is money supplied by the owner; for a start-up this commonly means personal savings accumulated before the business begins. It is an internal source because the funding comes from the owner rather than an outside finance provider.

Personal savings often suit a sole trader or partnership needing a manageable start-up sum. Suitability depends on the amount required, how much of the owner's savings would remain, and the consequences if the business failed.

Retained profit is profit kept in the business after tax and any distribution to owners, so that it can finance future activity. It is internal finance and is available only when the business has traded profitably and chosen not to distribute all the profit.

It can suit equipment, expansion or a new outlet when sufficient profit has accumulated and cash is available. An established business may compare its speed and cost with selling assets or arranging external finance.

Sale of assets raises internal finance by converting resources owned by the business into cash. Suitable candidates are assets no longer required for efficient operation, such as spare equipment, vehicles, premises or usable inventory.

An established business replacing equipment may sell the old asset and put the proceeds towards the new one. This avoids interest and new ownership, but the opportunity cost is the asset's next-best use.

A source of finance is the person or organisation from which funding comes. This differs from the method: a business angel is a source, while the funding supplied might take the method of venture capital or share capital.

Suitability depends on amount, purpose, time period, risk, business stage, legal form and how much control the owner will share. A blend may fit better than one source.

A method of finance describes the arrangement by which funds or assets are provided. The strongest choice matches how long the asset or need will last, when cash returns, the legal form and the owner's tolerance for repayment or shared control.

A long-lived asset may justify a loan or lease; short-lived inventory may suit trade credit or an overdraft. Amount, security, cash-flow reliability and total cost then refine the choice. Several methods can be combined.

Sole traders, partnerships and private limited companies organise ownership differently. The best form depends on the number of owners, desired control, risk, continuity and finance needs.

A business may change form as its market, scale, profitability and finance needs grow. More owners can bring capital and expertise, but decision rights and returns must be shared.

Franchising, social enterprise, lifestyle business and online business describe different ways to organise or operate enterprise. They are not four mutually exclusive legal ownership forms: an online or social business can also be a company or sole trader.

For a franchisor, expansion can use franchisees' capital and local effort; quality control and support are essential because one outlet can affect the shared brand.

Growth to public limited company status allows shares to be offered to and traded by the public. Stock market flotation is the process of bringing shares to a stock exchange, enabling a private company to raise public share capital.

Suitability depends on the scale of finance needed, growth opportunity, existing borrowing options and whether owners value control or established objectives more than rapid expansion.

Unlimited liability means the owner may be personally responsible for business debts, so personal assets can be at risk. Limited liability means shareholders normally risk only the amount invested in shares because the company has a legal identity separate from its owners.

Reduced personal exposure can make shares more attractive and help a company raise finance. It can also alter incentives, but directors still need responsible decisions because the company can fail and creditors can lose money.

Choosing finance begins by removing methods the business cannot legally or practically access, then matching the remaining choices to purpose, duration, cash flow, cost, security and control.

For a short cash gap, compare overdraft or trade credit; for equipment, compare loan, lease, retained profit or a suitable mix. A lender may still require evidence, security or a personal guarantee, so limited liability alone never guarantees access.