How to write a business plan for building and construction companies
Business planning is an important management tool for either a start-up or an existing business in any industry. A sound business plan is often required by external parties such as financiers and investors, insurers and government organisations, but is equally important for the internal analysis and planning purposes. Both business owners and managers, and the external stakeholders want to see a profitable business run for a long-term success.
Business plan is a dynamic document and ideally should be reviewed every time a significant event happens in either the business internal or external environment. A good approach would be to set a structured plan and then review and update it at least annually. The financial projections part of your business plan can be used as your annual budget.
Business planning is a part of a continuous strategic management process most successful companies employ. It involves the following key stages:
Business plan structure is similar for any company, big or small. Australian Department of Industry provides a lot of valuable business planning resources on its website, business.gov.au, and recommends structuring the information around four major sections: the business, the market, the future and the finances.
Generally, a business plan should answer four questions about your business: What? Why? How? Who?
What are your products and services? Describe your business concept, pricing strategy, and how you want your customers to perceive your product or service.
For example, a construction business may position itself as a regional or national individual house builder who caters for the first home buyer.
Why would customers want to buy your products and services? What value proposition do you have for your customers? How it is better than the exiting market offer or, in other words, what is your competitive advantage?
Most companies in the construction industry use product differentiation business strategy to gain a competitive advantage. A construction product can be differentiated based on unique design, superior quality and customer service, and timeliness. House and land packages and special inclusions are other possible product differentiation strategies, predominantly used by larger-scale builders.
Price differentiation is an important source of competitive advantage, provided the builder has a strong reputation and still competes on the basis of quality and timeliness.
How do you do it? Describe your operating model, functional strategies, what resources, competencies and capabilities you have. Explain how you create value and achieve the superior quality, customer service, timelines and efficiency which drive your competitive advantage.
A successful construction business should have established operational systems and procedures in place. Both primary and secondary activities should be covered, for example:
Policies and procedure can be devised as standalone documents and included as addendums to the business plan. Your business plan should set directions for each business process documented in a policy or procedure.
Who runs the business? This in an important question for the external stakeholders such as investors and insurers, and they often read it first. Experience, skills and personalities of the management team have a huge effect on long-standing success of any company. According to IBISWorld, up to 60% of Australian building businesses are non employing establishments comprising sole proprietors and partners, thus the owners’ professional background is of a paramount importance.
Outline your vision and mission. What are your highest hopes and brightest dreams and what does your business do to achieve it?
How do you see your business in 1, 5, 15 year time? Set short and long-term goals and support each goal with several more specific and measurable objectives to track your progress. Most commonly set business goal “To be profitable” may be matched with objectives such as “To generate gross profit of 20% in Year 1 and 30% in Year 2”.
Business planning process should start with market research. It is essential to base your business strategy, goals and objectives on what you’ve learnt about the market. Market research should cover the following major components influencing your business: the industry conditions, competitors and customers.
Use the information gathered about the external environment to analyse your company’s Strengths and Weakness and your industry’s Opportunities and Threats, the so called SWOT analysis. This is the basis for developing and sustaining a competitive advantage for your company.
The financial plan is a business plan component which you always prepare very last. The financial projections translate strategies and goals into numbers, and help efficient capital requirement planning and performance tracking.
An achievable profit target depends largely on the business efficiency, but would most probably not exceed the industry’s profitability. Industry profitability is driven by various market forces and fluctuates in accordance with changes in the competitive conditions, customers and suppliers behaviour.
It is good practice to establish various financial performance metrics, or financial key performance indicators (KPI), and compare them with the industry’s standard and best practice. This benchmarking process will help you to analyse your business processes further and to improve it if required.
Julia Podgorbunskaya, CPA, is Head Planner at Professional Business Plans. She writes start-up and strategic business plans, provides business and management accounting advice and financial modelling. Julia has had 15 years of international business and finance experience within leading multi-national businesses and small private companies including over five years in the Australian development and construction industry.
as published in the Master Builders Association of NSW Magazine, Sept/Oct 2014 edition
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