Writing your property development business plan is an essential part of setting up a development company and will form the foundation of your company. A business plan is the document that sets out your entire strategy and is a document I would encourage all developers to write before even thinking of purchasing a development opportunity.
Before we get into the detail (and there is a lot of fantastic detail), I’ve made a business plan template in a word document which you can download for free..!
I mentioned in my starter guide the importance of writing a property development business plan, and the importance is not based solely on the final document itself. The actual process of writing the property development business plan is equally as important as the final plan.
By writing the property development business plan you will go through the process of analysing your entire development strategy and you will have to give thought to the entire development process.
If you are a beginner to property development, the process of writing the property development business plan will provide more questions than you can provide answers, which is a good thing. It means your final document will be a carefully thought out and complete plan which should provide you with a clear strategy and structured strategy for you to start your development career.
The final document will also be a live document. As you start buying sites and completing projects, your original business plan may require tweaking and changing as you gain more experience and find new ways of implementing your strategy.
The completed property development business plan will also act as a shop window for your company. It will be a document which can be used to source funding or investors. A polished and professional business plan will give third parties the confidence that you know what you are doing and that you have thought through the key issues related to the business.
The contents of your property development business plan will be specific to your company and circumstances, however, there are common themes which should be included and these will be discussed in this article.
I know that writing a business plan can be tedious, however, I can’t stress enough how important this document is and how valuable the process of writing the property development business plan is to you and your development career.
A goal without a plan is just a wishAntoine de Saint-Exupery
Property Development Business Plan Contents:
As mentioned, the business plan will be specific to your situation, however, as an investor or potential funding partner there are a few common areas which I would want to see.
In no particular order, the business plan as a minimum should include the following:
- Company structure
- Key personnel
- Funding strategy
- Development strategy
- Acquisition criteria
- Financial targets and returns
- Exit strategy
- Sales & marketing strategy
- Construction strategy
- Company admin
- SWOT analysis
- Market research
If you can cover all of the above in a clear and professional property development business plan, then you will have a great foundation to the company to implement.
Below, I’ll take all the headings and discuss them in further detail.
Understanding how your development business will be structured is critical and something which must be considered as part of the business plan and before any purchases have been made.
The implications of a poorly thought out company structure can be long lasting and will attract extra costs, whether its higher tax liabilities or professional fees further down the line.
There are a few options open to a developer in the UK and the most popular is to setup a limited company. There are many benefits to doing so, especially the lower rate 20% corporation tax compared to personal income.
It might be worthwhile to spend some money to get professional advice to help with the structuring and formation of your company. It will save money in the long run.
Understand what options are open to you and set out a clear structure for your property development business.
As a final note under this section, you will also want to work out (approximately) you company running costs and overhead projections. This should be included, even if it is only a budget.
Who is in charge? Who will run the business? Have you got a number 2?
Your property development business plan is the place to set out who is involved in the business, what their roles are and also how they are remunerated.
If there are more than two of you it may be sensible to include a hierarchy diagram which clearly shows the roles and the chain of command.
If you are a one-man-band with the intention of outsourcing large areas of the development process, you may want to include key consultants who you plan to use either on an on-going basis or on the first project.
In my business plan (I’m a lone wolf), I’ve included my lawyers and accountants who will remain constant throughout the short to medium term.
I consider money and financing to be 1 of the 3 pillars of property development. Without money, nothing can happen.
It is critical that your property development business plan includes your strategy for funding your development projects. You need to be clear about how much money you will be investing, how much debt will be used, whether any investors or JV partners will be sought.
The funding strategy is a huge topic to write about, but this is probably the most important section of your property development business plan.
Spend time understanding this area and develop a robust and deliverable strategy.
Your development strategy should detail everything you can about the projects you intend to purchase for development. The trouble with a property development business plan is that each development opportunity is different and its very difficult to be specific about the development strategy.
However, the development strategy could include:
- Target locations – both macro and micro
- Land or buildings
- With or without planning?
- Refurbishments, extensions, conversions and/or new builds?
- Purchase price ranges
- Number of projects to target
- Optimum number of projects to run at once
- Exit values
- Buy to sell or buy to let
- Project timescales
There are a lot more areas which can be included, but the list give you an idea of the types of questions and strategy which needs to be discussed.
This slightly overlaps with the development strategy, however, the acquisition strategy should be clear about exactly the types of development opportunities you wish to target.
They should be as specific as possible, however, you may not really know exactly what you are targeting or may have a range of different targets. If that is the case, then you should include that in this section.
Includes things like purchase price ranges, planning status, type of construction, ideal sales values on exit and project timescales.
The acquisition strategy will be very personal to your company, and will also be an area which evolves with time.
Having a clear strategy will help you approach agents. Have a clear brief is always a benefit and it will allow you to find the right opportunities for you quicker and more efficiently.
Financial targets and returns:
Another critical section and one which I suggest careful thought is given to.
Remember why we are doing this… to make profit..!!
Something which I constantly see novice and amateur developers who do not understand their financial return requirements. It happens all the time on the TV development shows.
By not understanding this correctly, and by not setting return targets then there is nothing to benchmark the success of a project, you may be taking undue risk and this will be fundamental to any potential investor.
Your target return should never be a specific figure… it should always be a formula expressed as a percentage. The three most common measures of financial returns are:
- Profit on revenue
- Profit on cost
- Internal rate of return (IRR)
All the above are expressed as a percentage and I use all three to assess the profitability of my projects.
If these financial measures are new to you, that’s perfectly OK… just make sure you learn what they are and how to prepare a development appraisal and cash flow so you can calculate them.
You must have heard it… “I made £125,000 profit on my last project…easy money..!” Then everyone he is talking too offers congrats and says how good he has done…
Great… well done you…
That means nothing… if he had spent £1.5m all in costs to make that £125k then his return is only 8.3%..! Which is terrible. If he had only spent £500k to make the same profit then his return would have been 25%, much better..!
Make sure your property development business plan has a clear return target and you understand how to calculate your profits and what they mean.
Very simple… buy to let or buy to sell?
You may not think this is important, however, the tax man does. There will be tax differences between a property trader and a property investor, so make sure you know what you want to do from the outset and document this in your plan.
Sales & marketing strategy:
You may wish to include some content in your property development business plan about your method of selling and marketing.
Not the most important section as the traditional tried and tested route is always to use an agent to market the completed development.
However, you may wish to think about other methods, or certain parts of the process you wish to control. Will you be staging the completed development?
The construction strategy is an area which may be difficult to write about in the business plan, however, is something you may want to give some thought to, even if it is just high level content.
There are many ways to contract with a builder and you may have a view on how you would want to do this on your first or all projects. Having a clear picture on your procurement method is good, but not necessary given every project may require a different procurement route.
I have included this section as a point worth thinking about, but you may choose to address this area on a project by project basis.
SWOT analysis & market research:
Know you market..!
This will be more important if you intend to use your property development business plan to attract funding or investors. Showing that you have thought about all the potential threats and risks, plus how to mitigate them will give you and your investors confidence in your company.
Some form of market research will also provide you with the confidence that the area or market you are targeting is the correct one and that your development strategy is sound.
The market research and SWOT analysis should always be focused back to the other sections of your business plan. You can see this section as ‘proving’ your overall strategy and adding some research to your thinking.
There are an incredible amount of sources for market research, but make sure you are looking at both macro and micro market data. Research must back up your strategy and show that there is strength behind the strategy.
Writing a property development business plan may seem daunting and tedious, however, it is essential and will provide you with a lot of value. The process of writing the plan is as important as the final document itself.
Each business plan will be different and specific to your company, but the common themes shown above will give you somewhere to start and a lot of advice to start thinking about.
Start by preparing a skeleton of the main business plan, with bullet points and then spend time expanding each section. I’ve even done this for you if you download my skeleton template..!
There is tons of information online about general business plan writing, including advice from the government.
Good luck with your plan and remember to comment below if you have any questions…
All the best,