Did you plan your entry into business?
Many of you here will have started your business with at least a set of particular expectations relating to how you thought the business could improve your standard of living and the general quality of your life. Often these are the main drivers in pushing a person to start a business.
But it is possible you also did some homework. You may have done some market research to get an idea of the feasibility of starting up the sort of business you were interested in. You almost certainly looked at your financial resources and made some estimates of how much you were going to need to invest before you started to break even. You may have thought about who you’d be in competition with and how you might capture their clients.
But how many of these ideas and plans, even if you did consider them, did you write down? Many entrepreneurs use back-of-an-envelope calculations and work based on personal goals that are not clearly articulated. They haven’t formulated firm criteria or timeframes to measure business outcomes.
Now, if I asked you “Why did you go into business?” I’d expect a lot of the answers to revolve around just a few key issues. The most common answers have to do with:
- Independence - being your own boss,
- Higher-income prospects,
- A better lifestyle with more free time,
- The personal satisfaction of taking on a challenge, and,
- Building a future for the family.
Have you achieved your goals?
But in reality, how often do we find that the lot of the business person is more likely to involve:
- Working long hours and having less time for family,
- Stressing out about having full responsibility for everything along with the financial and personal risks involved,
- Dealing with day-to-day problems such as difficult customers and employees, or chasing bad debts.
If I asked you, I bet you could add a lot of your own!
Is the business running you?
Now, no question that running a business requires a lot of stamina, energy and commitment. But if the list of negatives sounds all too familiar, and they form a major and constant feature of your business life, then it may mean that your business has gotten out of control. The way I put it is that you are working too much IN your business and not devoting enough time to working ON it.
One strategy for getting your business back under control, getting into a situation where you can step outside the day-to-day crises and actually work on the business, is through business planning. Do that effectively and you get your life back; you can start to enjoy more of the business positives and suffer fewer of the negatives.
Today we are going to discuss how you can take a major step up in developing yourself as a business manager - by developing a Business Plan. A business plan is an excellent tool for defining your personal assets and liabilities, describing the competitive conditions in your market, your financial needs, ways to promote your products and services and assessing the skill sets your team needs to be most productive.
Let’s first go over what is actually in a business plan, and how to go about putting one together, and then look at some of the ways you can use it to take control of where your business is going.
Starting to plan – your vision of the future
The first step is to imagine where you want to be in 2-5 years. You can’t plan to get somewhere if you don’t know where it is you want to be. Business planning means, first of all, taking a step back, looking at the long-term picture, and asking yourself some basic questions about how you see the business in the next 2- 5 years.
For instance, you might ask:
- What role do I see for myself? Do I still want to be involved on a day-to-day basis, or do I hope to have replaced myself with a manager? Do I plan to sell the business or pass it on to one of my family members?
- And what about my financial situation? What level of personal income and lifestyle would I like to achieve through my business? What does the business need to do to provide that? How would it need to be performing in terms such as turnover, profits, employee numbers, resources, debt levels and location?
Your ‘vision’ is your destination. When you know where you want to be, you can start planning the trip, that is, developing a business plan.
Having established the broad goals, you then establish what you need to do to get the business into the right shape to achieve them. You work out activities and strategies that will provide a business roadmap for the next few years. This means that you write a business plan. A business plan is a kind of map - a map of how to get from where you are now, to where you want to be.
Now, a business plan is put together according to rigorous criteria. It will detail specific activities in every area of your business. It will assign roles and responsibilities and set benchmarks and timelines for the achievement of the goals you set up.
What’s in a business plan?
Preparing a business plan involves doing some very hard thinking about your business and making sure that your assumptions and plans stand up to tough scrutiny. But it’s worth it. A comprehensive plan will provide a degree of clarity about your future and give you a head start over competitors who act on impulse or plan on the back of an envelope.
A business plan will include assessments of all parts of your business. It will cover your business profile, the nature of your products and services, an analysis of the market you are operating in, the mechanics of your day-to-day operations, your management structure, the qualities of your workforce, your financial history, and any possible threats or legal issues facing your business. It will also contain your advertising and promotion plans, campaign budgets, and the timing of special events.
Writing a business plan
There is no one right way to write a business plan. The plan needs to reflect the nature of your particular business. A retailer and a service company will each emphasise a whole different range of issues. However, business plans have broad structural similarities and the financial parts of the plan will conform to generally accepted accounting practices.
I’m going to run through, briefly, the parts of a business plan showing where each of the major areas of your operations would be covered in it, and then come back to some particular uses of the plan once you’ve put the work into creating it.
Cover and preliminaries section of the plan
Now the first part of your plan will consist of a cover, a cover sheet, and a contents page. These pages are important insofar as they identify who you are. Design and branding issues are important, as you’d like to make an impact on the reader, who as we will see later, might not be only you, but could be your accountant, your banker, or even a potential partner. First impressions count. These pages should also enable readers to go directly to sections that interest them, as not everyone will want to read the whole document.
The cover sheet includes the name of the business and the names of all principals in the business. This page also provides full contact details of your business such as address, telephone number, web URL and so on.
Executive summary
The body of the business plan begins with an executive summary. This section gives an overview of the business. It will hopefully show your business in a good light, based on some figures and other hard data from the market you operate in. It can give a snapshot of spending and revenue numbers, for instance. If your business is having problems, the executive summary should instil confidence that you know how to work your way out of them.
Although the executive summary appears as the first piece of content in the document, it is usually written last, as it draws together all the threads in your business plan and shows that you have a cohesive sense of what your business is about and where it is going.
The executive summary is very important because a good introduction can grab the attention of venture capitalists or investors straight off; you want it to stand out and make people want to read through the rest of the document.
Business profile
You then need to give a business profile. This will include a description of your business, the industry it operates in, information on any developments in the industry that are likely to have an impact on the market, whether the business is new or established and the background of the business and the owners.
You will also describe your products and services and how they appeal to your customers and give an account of their relative strengths and weaknesses. You can include information on your facilities, your plant, and your production capacity. If you are running a services business you will naturally focus, not on plant, but on the people who work for you and their experience and qualifications.
Marketing plan
You also need to include a marketing plan, containing a full review of your current marketing strategies. The marketing plan will provide a review of your customer demographic and feature a competitive analysis of how you rate against your competition. It should also identify your chief competitive advantage, clarify your pricing strategy, include sales forecasts, and give information on your selling and distribution methods, packaging, pricing, and so on.
The marketing plan will not only review market conditions but also set out your strategies and schedules for marketing. You can also give information on the marketing media you’ll use - whether you’ll lean toward newspaper, Internet, or radio advertising, for example.
Action plans
The business plan will also include some action plans. The action plans will outline the strategies you intend to implement to meet your larger business goals. They’ll cover areas such as operational and management issues and cover how you run your back office. Your hiring strategy can also be outlined. They can be grouped into three broad operational areas:
- Operations planning,
- Management planning, and
- Contingency plans.
The operations plan
Among the action plans, you should have an operations plan. Even if you have a service-based business, there’s still a production process. At the end of the day, you produce something in exchange for purchase. As such, there must be a process. This section will include strategies to improve the way you do things, introducing efficiencies and cutting costs.
You will need to cover your strategies for dealing with suppliers and managing your supply chain and inventory. Your strategies for production planning will feed into a general strategy on how you plan to manage risks and interruptions to supplies and to meet orders in a timely and reliable way.
The management and personnel plan
You’ll also need a separate section on management and personnel planning. Naturally, this will tie in with the operations plan to some extent. But it will focus on your management style. It can lay out the management expectations held by the owners of your business. It can give information on supporting business advisors (such as an advisory board). It will also include employee details and information on their skills and training.
Contingency plans
You may also have a separate action plan to cover risk. This is essentially ‘Plan B’, dealing with your recovery strategies for things that go wrong. For example, your financial plans might be based on certain assumptions about a range of interest rates. How do you plan to cope if interest rates exceed the range you have planned for? What will you do if your marketing campaign wins far fewer customers than you had planned? What strategies do you have for increasing revenues and cutting costs if things take a turn for the worse?
But this doesn’t deal only with negatives. You could include strategies for taking advantage of unexpected strokes of good fortune, such as a fall in interest rates or a surge in customer demand.
You could also include any measures you’ve taken to protect yourself from industrial relations challenges or false marketing practices. You would also discuss initiatives you’ve taken to comply with workplace health and safety requirements.
Financial plan
You then need to provide a section about your financial plan. Part of the plan will be historical, giving data on the last 2 to 3 years in terms of profit and loss. The historical data will be used, along with the marketing and sales forecasts, to map out a two-year financial plan for the business. Profit and loss, and cash flow budgets, need to be forecast for every month for the next two years. You may also include some financial ratios that give rule-of-thumb indicators of the health of your company. Much of this part of the plan will fall in line with standard accounting practice. It will be of great interest to lenders and investors.
Using the business plan
Once you’ve completed the plan, you don’t just file it away. It should be a useful reference tool. You can use it to keep yourself and your employees on track. It will remind you of what your broader vision is.
You can also use the plan as an analytical tool. A business plan is the result of a lot of intense thought and the numbers it contains should serve you as useful navigation points. The plan won’t be out of date when you fail to reach a particular target, such as sales for a particular month. If goals aren’t met in one month, it’s important to find out why and take action to address issues. When you do meet targets, it’ll be a good time to congratulate your team on a job well done.
The work you put into the plan will mean that you are better prepared to face business uncertainties. Stepping back and considering the big picture is an essential part of managing your business risks.
Using the plan to promote the business
You can also take the plan out at important moments, such as when a potential investor wants some serious information about your business. The strengths of your business will be there, well presented and convincing.
So a good plan will act as both your guide and your ambassador. Take the time to prepare a sound business plan and your future may turn out to be as good as you want it to be.
It is surprising the number of audiences a business plan can have some interest for and the uses to which it can be put within the business. I’ll just run over a few.
Using the plan to check progress
The financial part of the plan will help you maintain a good cash flow, as it will contain realistic projections of revenues and expenses. A look at the plan should alert you when targets are not being met and prompt you to take action or revise estimates. For example, you may find that you aren’t getting the results you expected from a marketing campaign and that you need to make modifications. If you aren’t meeting income targets, you may find that your creditors are too slow in paying and you need to pay attention to credit management, so that you avoid cash flow problems in the future.
On the other hand, you may find that you are making more sales than you expected and this may prompt you to set more demanding goals or to divert revenue to areas such as debt repayment or investment.
Using the plan to develop marketing strategies
If you have a sound business plan, you’ll be ready to fine-tune your business strategies. You will have carried out a thorough SWOT analysis—SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The SWOT analysis can be carried out about your market and the relative strengths you have against your competitors.
When you analyze your competition you try to anticipate some of their strategies (cutting prices, for example). You then think ahead and take steps to protect yourself (for example, by strengthening your hold on a particular market niche that is not price-sensitive). This means that when market changes occur you are more likely to have seen them coming and you will be in a position to react to them more quickly and effectively.
SWOT analysis will also entail looking at industry-wide threats that you may miss if you are busy with day-to-day operations. You may be so busy making a living that you fail to notice that new technology is being developed, technology that could make your business obsolete. From time to time, you need to ask yourself big-picture questions such as, ‘Will my products or services be superseded in five years, and how should I start repositioning myself?
Prepare for challenges
Threats don’t only come in the form of new technology. They may come from new market entrants. For example, say you operate in an area that is currently untroubled by big-business competitors. Preparing a business plan will make you step back and check out the horizon for any business behemoths that may have changed course and be headed your way. Say you are a small retailer; in the course of preparing your business plan, you’d assess the chance of retail chains opening new outlets or mimicking your operations in one of their departments.
Your business plan will not only prompt you to investigate these contingencies but also make sure you have some resources put aside to deal with them.
Your business plan will also help you to exploit business opportunities. For example, say you win a large new contract. That can look like a great opportunity, but if it comes as a surprise and your business finds itself scrambling to increase capacity, all kinds of inefficiencies can creep into your operation.
Using the plan for team management
A business plan should also provide benefits in the area of people management. It will provide a focus for both you and your team. It will provide a vision that covers everything from marketing and operations to management, personnel, and finance.
When your team has doubts about priorities or direction, they can refer to the plan. They’ll have a sense of something bigger than their daily tasks, and this will motivate them to contribute more. They’ll be aware of future business growth prospects and what these may offer in personal and career terms.
Using the plan to communicate your potential
A business plan can also provide an effective way to communicate your business potential to people such as investors, lenders, clients, suppliers, solicitors, new team members and creditors. For example, a business plan will contain a financial history that should convince suppliers that you are reliable. This could be useful when negotiating long-term contracts and discounts.
And when you seek investment or loans, your business plan will be an essential document. Venture capitalists will make an initial assessment based on your business plan. Likewise, bankers will want to see a solid financial history and evidence that you have properly considered risks and threats.
You might even want to show the plan to your family—particularly if you have a spouse who isn’t involved in the business. The plan may help them to understand the long hours you put in, and they may be more willing to support you when they have a clear picture of what you want to achieve.
Review the plan for each new initiative and periodically
Creating a business plan isn’t something you do just once either. Any time you undertake a new development you need to both incorporate it into your business plan and see how it affects all the other plans and projections you have been working on.
You should review your business plan if you're considering any of the following:
- Introducing a new product
- Entering a new market
- Acquiring a new business or a franchise
- Moving location
And even in the absence of major new initiatives the plan ought to be periodically reviewed; for example. when there is a new plant acquisition, or a new distribution or inventory management system introduced that may not have figured in the original plan – sometimes outside circumstances just require out-of-the-box thinking and a fast response.
But when you make decisions under those circumstances it's all the more reason to go back to the plan and work through the impact on other areas of the operation. The unexpected opportunity to buy a piece of machinery at a good price may fit in with the overall plan to grow the business, but purchasing at this time may mean rethinking your spending on marketing and income projections for instance.
Conclusion
Your business plan is a reality check on your vision and ideas; a tool for tracking your progress towards your vision; a marketing document to promote your firm to finance lenders, prospective partners, or buyers; and, importantly, a modelling tool to help you evaluate how changes in one part of the business, or the business environment in which you operate, are going to affect other sections of the business.
So, what justifies the additional time and energy you'll spend creating a written plan?
Quite simply, you have created a much-increased chance for success – that’s got to be a good thing.