Business Planning - Part I

Business Planning for RICS APC Candidates – Part I

A guide to help you prepare for the business planning competency in the RICS APC assessment.

1        Introduction

Business planning is a cornerstone of success for professionals seeking chartered status in the Royal Institution of Chartered Surveyors (RICS). Whether you're embarking on the Assessment of Professional Competence (APC) journey or seeking to refine your business acumen, understanding the intricacies of business planning is essential. This blog post serves as a comprehensive guide for RICS APC candidates, exploring vital components such as legislation, types of business structures, strategic planning, market analysis, and more. By delving into real-life examples and referencing RICS guidance notes alongside UK laws, we aim to equip aspiring chartered surveyors with the knowledge and insights necessary to navigate the complexities of business planning effectively.

This blogpost covers the following titles:

• Legislation

• Types of business – Partnerships, Limited companies, Limited Liability Partnerships (LLP)

• Short/long term strategies

• Market Analysis

• Five Year Plans

• Objectives – markets, clients, turnover, staffing, acquisitions
  

2        Legislation

As a construction professional, you need to be aware of the legal framework that affects your business and your clients. This includes the laws and regulations that govern the formation, operation, and dissolution of different types of business entities, as well as the rights and obligations of the parties involved. You also need to understand the implications of taxation, employment, health and safety, environmental, and contractual issues on your business planning.

Some of the key legislation that you need to know for the RICS APC assessment are:

• The Companies Act 2006, which sets out the rules and procedures for forming, running, and closing a company in the UK.

• The Partnership Act 1890, which defines the general principles and duties of a partnership, a type of business where two or more people share the profits and liabilities.

• The Limited Liability Partnerships Act 2000, which creates a hybrid form of business that combines the features of a partnership and a company, allowing the partners to limit their personal liability.

• The Income Tax Act 2007, the Corporation Tax Act 2010, and the Value Added Tax Act 1994, which regulate the taxation of income, profits, and sales of goods and services for different types of business.

• The Employment Rights Act 1996, the Equality Act 2010, and the Health and Safety at Work etc. Act 1974, which protect the rights and welfare of employees and employers in the workplace.

• The Environmental Protection Act 1990, the Climate Change Act 2008, and the Planning Act 2008, which aim to prevent and reduce the environmental impact of business activities and development projects.

• The Contracts (Rights of Third Parties) Act 1999, the Unfair Contract Terms Act 1977, and the Consumer Rights Act 2015, which govern the formation, enforcement, and interpretation of contracts between businesses and their clients, suppliers, and contractors. [1], [2]
  

3        Types of business

Another important aspect of business planning is choosing the most suitable type of business entity for your objectives and circumstances. There are various types of business entities in the UK, each with its own advantages and disadvantages in terms of legal status, liability, ownership, control, taxation, and administration. You need to consider the pros and cons of each type of business and how they align with your vision, mission, values, and goals.

Some of the common types of business entities that you need to know for the RICS APC assessment are:

• Partnerships, where two or more people agree to share the profits and liabilities of a business. There are different types of partnerships, such as general partnerships, limited partnerships, and limited liability partnerships (LLP). Partnerships are easy to set up and run, but the partners are personally liable for the debts and obligations of the business, unless they are limited partners or members of an LLP.

• Limited companies, where the business is a separate legal entity from its owners, who are called shareholders. There are different types of limited companies, such as private limited companies (LTD) and public limited companies (PLC). Limited companies have limited liability, meaning that the shareholders are only liable for the amount they invested in the company. However, limited companies are more complex and costly to form and operate, and they have to comply with more rules and regulations.

• Limited liability partnerships (LLP), where the business is a separate legal entity from its members, who are similar to partners in a partnership. LLPs combine the benefits of limited liability and the flexibility of partnerships, allowing the members to manage the business and share the profits as they agree. However, LLPs are also more complex and costly to form and operate than partnerships, and they have to disclose more information to the public. [1], [3]
  

Examples:

• AECOM, a global engineering and consulting firm, is an example of a public limited company (PLC) in the UK. It has over 50,000 shareholders and its shares are traded on the New York Stock Exchange. It has to publish its annual reports and accounts, and it is subject to the rules and regulations of the UK Companies Act 2006 and the US Securities and Exchange Commission. [4]

• Buro Happold, a multidisciplinary engineering and design consultancy, is an example of a limited liability partnership (LLP) in the UK. It has over 1,500 members who are also employees of the firm. It has to register with Companies House and file its annual accounts and confirmation statement, but it does not have to disclose its profit and loss account or the names and remuneration of its members. [5]

• Davis Langdon, a quantity surveying and project management consultancy, was an example of a partnership in the UK until it merged with AECOM in 2010. It had over 200 partners who were jointly and severally liable for the debts and obligations of the firm. It did not have to register with Companies House or file any accounts, but it had to pay income tax and national insurance on its profits. [6]
  

4        Short/long term strategies

Another important aspect of business planning is developing and implementing short and long term strategies to achieve your objectives. Short term strategies are the actions and tactics that you take in the next 12 months to improve your performance and position in the market. Long term strategies are the plans and policies that you adopt in the next 3 to 5 years to grow your business and create a competitive advantage.

You need to consider the internal and external factors that affect your business, such as your strengths, weaknesses, opportunities, and threats (SWOT analysis), and your vision, mission, values, and goals (VMVG analysis). You also need to monitor and evaluate your progress and performance, and adjust your strategies accordingly.

Some of the key elements of short and long term strategies that you need to know for the RICS APC assessment are:

• Marketing strategy, which involves identifying and targeting your potential and existing customers, and communicating and delivering your value proposition to them. You need to consider the 4 Ps of marketing: product, price, place, and promotion.

• Financial strategy, which involves managing your income and expenditure, and ensuring your profitability and sustainability. You need to consider your sources of revenue, your costs and overheads, your cash flow and working capital, and your budget and forecast.

• Operational strategy, which involves organising and optimising your resources and processes, and ensuring your quality and efficiency. You need to consider your human resources, your physical assets, your technology and systems, and your standards and procedures.

• Growth strategy, which involves expanding and diversifying your products and services, and increasing your market share and penetration. You need to consider the options of market development, product development, market penetration, and diversification. [1], [7]

Examples:

• A marketing strategy for a small architectural practice in the UK could be to focus on a niche market of sustainable and low-energy design, and to promote its services through online platforms, such as websites, blogs, and social media. The practice could also network with potential clients and partners, and participate in industry events and awards.

• A financial strategy for a medium-sized civil engineering consultancy in the UK could be to diversify its income streams by offering a range of services, such as design, project management, and supervision. The consultancy could also reduce its costs and overheads by outsourcing some of its functions, such as accounting and IT. The consultancy could also improve its cash flow and working capital by negotiating favourable payment terms with its clients and suppliers.

• An operational strategy for a large construction contractor in the UK could be to invest in its human resources by providing training and development opportunities, and rewarding and retaining its staff. The contractor could also improve its physical assets by upgrading its equipment and vehicles, and implementing preventive maintenance. The contractor could also enhance its technology and systems by adopting digital tools, such as BIM, and automating some of its processes. The contractor could also maintain its standards and procedures by following the best practices and regulations of the industry.

• A growth strategy for a regional surveying firm in the UK could be to expand its market by entering new geographical areas, such as Scotland and Wales, and new sectors, such as infrastructure and energy. The firm could also develop its products by introducing new services, such as valuation and arbitration. The firm could also increase its market penetration by acquiring or merging with other firms, or forming strategic alliances and joint ventures. The firm could also diversify its products by offering complementary services, such as legal and financial advice.
  

5        Five Year Plans

A five year plan is a document that outlines your vision, mission, values, and objectives for the next five years, and how you intend to achieve them. It is a useful tool to communicate your direction and priorities to your clients, colleagues, and stakeholders, and to measure your progress and performance. A five year plan should be realistic, flexible, and adaptable to changing circumstances, and should align with the RICS standards and expectations.

According to the RICS guidance note on business planning (RICS, 2017), a five year plan should include the following elements:

• A vision statement that describes your desired future state and purpose

• A mission statement that defines your core activities and values

• A set of SMART (specific, measurable, achievable, relevant, and time-bound) objectives that support your vision and mission

• A strategy that outlines the actions, resources, and timelines required to achieve your objectives

• A risk register that identifies and assesses the potential threats and opportunities that may affect your plan, and the mitigation and contingency measures to deal with them

• A review and evaluation process that monitors and reports on your progress and performance, and allows you to adjust your plan as needed. [8], [9]
  

An example of a five year plan for a construction project manager could be:

• Vision: To be a leading provider of high-quality, sustainable, and innovative construction solutions in the UK and abroad

• Mission: To deliver projects that exceed client expectations, enhance the built environment, and create value for society

• Objectives:

  • To increase annual turnover by 10% each year

  • To expand into new markets and sectors, such as renewable energy and social housing

  • To achieve a 90% client satisfaction rate and repeat business

  • To reduce environmental impact and carbon footprint by 20% by 2025

  • To attract and retain the best talent and develop a diverse and inclusive workforce

  • To maintain the highest standards of health and safety, quality, and ethics
    

• Strategy:

  • To invest in research and development, and adopt new technologies and methods

  • To establish partnerships and collaborations with local and international stakeholders

  • To implement a customer feedback and improvement system

  • To conduct regular audits and assessments of environmental performance and compliance

  • To offer competitive remuneration and benefits, and provide training and career development opportunities

  • To follow the RICS rules of conduct and professional ethics, and adhere to the relevant laws and regulations

• Risk register:

  • Risk: Economic downturn or recession

    • Impact: Low demand, reduced income, increased costs

    • Likelihood: Medium

    • Mitigation: Diversify portfolio, seek alternative sources of funding, reduce overheads, negotiate contracts

    • Contingency: Seek financial assistance, restructure business, revise plan

  • Risk: Competition from other providers

    • Impact: Loss of market share, reduced reputation, lower margins

    • Likelihood: High

    • Mitigation: Differentiate services, enhance quality, increase value, build relationships

    • Contingency: Rebrand, merge, acquire, diversify

  • o   Risk: Project delays or failures

    • Impact: Dissatisfied clients, legal disputes, financial losses, reputational damage

    • Likelihood: Low

    • Mitigation: Plan and manage projects effectively, allocate sufficient resources, communicate clearly, manage expectations, resolve issues

    • Contingency: Apologise, compensate, learn, improve

  • o   Risk: Environmental or social issues

    • Impact: Negative environmental or social impacts, regulatory breaches, fines, sanctions, protests, boycotts

    • Likelihood: Low

    • Mitigation: Assess and minimise environmental and social risks, comply with environmental and social standards and laws, engage with stakeholders, report and disclose performance

    • Contingency: Remediate, mitigate, compensate, restore, enhance

  • Risk: Staff turnover or shortage

    • Impact: Loss of skills, knowledge, and experience, reduced productivity, quality, and morale, increased recruitment and training costs

    • §  Likelihood: Medium

    • §  Mitigation: Recruit and retain staff, offer competitive remuneration and benefits, provide training and career development opportunities, foster a positive and inclusive culture

    • §  Contingency: Hire temporary or contract staff, outsource, reassign, reskill

• Review and evaluation:

  • Set and track key performance indicators (KPIs) for each objective, such as turnover, market share, client satisfaction, environmental impact, staff retention, etc.

  • Conduct regular reviews and evaluations of progress and performance, using quantitative and qualitative data and feedback

  • Report and communicate results and achievements to stakeholders, such as clients, staff, investors, regulators, etc.

  • Identify and celebrate successes and best practices, and recognise and reward staff contributions

  • Identify and address gaps and challenges, and implement corrective and preventive actions

  • Review and update plan as needed, based on changing internal and external factors

6        Objectives – markets, clients, turnover, staffing, acquisitions

Objectives are the specific and measurable outcomes that you want to achieve with your business plan. They should be aligned with your vision and mission, and support your strategic goals. Objectives should also be SMART, meaning that they should be specific, measurable, achievable, relevant, and time-bound. SMART objectives help you to focus your efforts, monitor your progress, and evaluate your performance.

Some of the common objectives that construction professionals may have for their business plan are related to markets, clients, turnover, staffing, and acquisitions. These objectives can be defined as follows:

• Markets: The sectors, regions, or countries that you want to operate in or enter, such as residential, commercial, industrial, public, or international markets

• Clients: The types, numbers, or segments of customers that you want to serve or attract, such as private, public, or corporate clients, or niche or mass markets

• Turnover: The amount of money that you want to generate from your business activities, such as sales, fees, or contracts

• Staffing: The number, skills, or roles of employees that you want to have or hire for your business, such as managers, engineers, surveyors, or technicians

• Acquisitions: The assets, resources, or businesses that you want to buy or merge with, such as land, equipment, technology, or competitors [8]. [10]

An example of SMART objectives for each of these categories could be:

• Markets: To expand into the renewable energy sector in the UK by 2022, and to enter the European market by 2025

• Clients: To increase the number of public sector clients by 20% by 2021, and to achieve a 90% client satisfaction and retention rate by 2023

• Turnover: To increase annual turnover by 10% each year, and to reach £10 million by 2024

• Staffing: To recruit 10 new engineers and surveyors with relevant qualifications and experience by 2020, and to provide training and development opportunities for all staff annually

• Acquisitions: To acquire a small competitor in the social housing sector by 2021, and to invest in new technology and equipment by 2022

7        Conclusion

In conclusion, mastering the art of business planning is paramount for RICS APC candidates aspiring to excel in their careers. By adhering to legislative requirements, understanding various business structures, crafting robust short and long-term strategies, conducting thorough market analyses, and setting clear objectives, candidates can lay the groundwork for sustainable success. Real-life examples illustrate the practical application of these concepts, emphasizing the importance of integrating RICS guidance notes and UK laws into business planning endeavors. As future chartered surveyors, proficiency in areas such as resourcing, SWOT analysis, human resources management, data management, administration, health and safety, and equality will not only enhance professional competence but also contribute to the advancement of the profession as a whole. By embracing the principles outlined in this blog post, RICS APC candidates can confidently navigate the intricacies of business planning, setting themselves on a trajectory towards fulfilling and impactful careers in the field of surveying.

8        References

1. RICS (2019). Business planning. Guidance note, 1st edition. Available at: https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/construction/business-planning-1st-edition-rics.pdf

2. Legislation.gov.uk. Available at: https://www.legislation.gov.uk/

3. Gov.uk. Set up a business. Available at: https://www.gov.uk/set-up-business

4. AECOM. About us. Available at: https://aecom.com/about-us/

5. Buro Happold. About us. Available at: https://www.burohappold.com/about-us/

6. Davis Langdon. History. Available at: https://web.archive.org/web/20100707055738/http://www.davislangdon.com/Global/AboutUs/History/

7. Gov.uk. Write a business plan. Available at: https://www.gov.uk/write-business-plan

8. RICS (2017). Business planning. 1st edition. RICS guidance note. London: RICS.

9. UK Government (2020). Business and self-employed. Available at: https://www.gov.uk/browse/business (Accessed: 15 October 2020).

10. SMART (2020). SMART objectives. Available at: https://www.smart- objectives.co.uk/ (Accessed: 15 October 2020).