Business Plan

By Tim Berry

1. What is a Business Plan?

Business planning is about results. You need to make the contents of your plan match your purpose. Don't accept a standard outline just because it's there.

What is a Business Plan?
A business plan is any plan that works for a business to look ahead, allocate resources, focus on key points, and prepare for problems and opportunities. Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But they are also vital for running a business, whether or not the business needs new loans or new investments. Businesses need plans to optimize growth and development according to priorities.

What's a Start-up Plan?
A simple start-up plan includes a summary, mission statement, keys to success, market analysis, and break-even analysis. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to run a business with.

Is There a Standard Business Plan?
A normal business plan (one that follows the advice of business experts) includes a standard set of elements. Plan formats and outlines vary, but generally a plan will include components such as descriptions of the company, product or service, market, forecasts, management team, and financial analysis.

Your plan will depend on your specific situation. For example, description of the management team is very important for investors while financial history is most important for banks. However, if you're developing a plan for internal use only, you may not need to include all the background details that you already know. Make your plan match its purpose.

What is Most Important in a Plan?
It depends on the case, but usually it's the cash flow analysis and specific implementation details.

• Cash flow is both vital to a company and hard to follow. Cash is usually misunderstood as profits, and they are different. Profits don't guarantee cash in the bank. Lots of profitable companies go under because of cash flow problems. It just isn't intuitive.
• Implementation details are what make things happen. Your brilliant strategies and beautifully formatted planning documents are just theory unless you assign responsibilities, with dates and budgets, follow up with those responsible, and track results. Business plans are really about getting results and improving your company.

2. Who Needs a Business Plan

You need a business plan if you’re running a business. A business plan is like a map and a compass for a business. Without it you’re traveling blind. With a plan you set objectives, establish priorities, and provide for cash flow.

You need a business plan if you’re applying for a business loan. Most banks require it, and even those that don’t strictly require it expect it. They expect it to be a summary of the business, with some predictable key points.

You need a business plan if you’re looking for business investment. The plan won’t get you the investment, but not having a plan will mean you won’t get investment. Investors require a business plan. They invest in the people, the idea, the track records, the market, the technology, and other factors; but they look to the business plan to define and explain the business. You need a business plan if you’re working with partners. The business plan defines agreements between partners about what’s going to happen.

You need a business plan to communicate with a management team. The day-to-day business routine is distracting, problems come up, opportunities appear, and commitments should be followed and tracked. How do you know where you are in business without establishing where you started and where you intended to go? How can people commit to a plan they can’t see? You need a business plan to sell a business, or to set a value on a business for tax or other purposes such as estate planning, or divorce.

Sadly, many of the people who need a plan don’t know they need it. They get trapped by the myths of business planning. They don’t realize that plans are not just for start-ups, loans, or investment. They don’t realize that business plans are easier to develop than most people think To succeed in business you simply must plan the steps, set priorities, allocate resources, and manage the cash. Sure, some people say they don’t plan, but if they’re successful then they’re actually always planning in their heads. And you can keep that plan in your head if your business is very simple, cash flow is always adequate, and you don’t work with other people, and you don’t need to communicate your business plan with other people either.

Don't accept disadvantages in business. Don't try to run without a plan. Doing a plan is probably much easier than you think, and much more valuable.

3. A Standard Business Plan Outline

There are predictable contents of a standard business plan. For example, a business plan normally starts with an Executive Summary, which should be concise and interesting. People almost always expect to see sections covering the Company, the Market, the Product, the Management Team, Strategy, Implementation and Financial Analysis.

If you have the main components, the order doesn’t matter that much, but here’s the order I suggest.

• Executive Summary: Write this last. It’s just a page or two of highlights.
• Company Description: Legal establishment, history, start-up plans, etc.
• Product or Service: Describe what you’re selling. Focus on customer benefits.
• Market Analysis: You need to know your market, customer needs, where they are, how to reach them, etc.
• Strategy and Implementation: Be specific. Include management responsibilities with dates and budgets. Make sure you can track results.
• Web Plan Summary: For e-commerce, include discussion of website, development costs, operations, sales and marketing strategies.
• Management Team: Describe the organization and the key management team members.
• Financial Analysis: Make sure to include at the very least your projected Profit and Loss and Cash Flow tables.

I don’t recommend developing the plan in the same order you present it as a finished document. For example, although the Executive Summary obviously comes as the first section of a business plan, I recommend writing it after everything else is done. It will appear first, but you write it last.

There are also some business tables and charts that are normally expected in a standard business plan.

Cash flow is the single most important numerical analysis in a plan, and should never be missing. Most plans will also have Sales Forecast and Profit and Loss statements. I believe they should also have separate Personnel listings, projected Balance sheet, projected Business Ratios, and Market Analysis tables.

I also believe that every plan should include bar charts and pie charts to illustrate the numbers.

Expanded Plan Outline

4. Milestones Table

Milestones
The Milestones table is one of the most important in your business plan. It sets the plan into practical, concrete terms, with real budgets, deadlines, and management responsibilities. It helps you focus as you are writing your business plan, and then, the Milestones table and plan-vs.-actual management analysis helps you implement your plan as you grow your business.

Put some bite into your plan and management by listing specific actions to be taken. Each action becomes a milestone. This is where a business plan becomes a real plan, with specific and measurable activities, instead of just a document.

Set as many milestones as you can think of to make it more complete. Give each milestone:

· a name

· a start date

· an end date

· a budget

· a person responsible

· and a department.

Then make sure that all your people know that you will be following the plan, tracking the milestones, and analysing the plan-vs-actual results. If you don't follow up, your plan will not be implemented.

Sort the Milestones
You can sort the Milestones table on Start Date, End Date, Budget, Manager, etc. This sorting is intended to facilitate real management. For example, before a meeting with all managers, sort the Milestones table by date to get all the relevant milestones for that time period. Are you on budget? Are you on time? Do you need to make any corrections?

Sort the Milestones on Manager to highlight the activities of each manager. This can help you identify problem areas---who is on target, who needs support, extra resources, or assertive encouragement.

The value of a plan is measured in its implementation.

The Milestones should be the most important section of the entire business plan. Each marketing and sales-related program you plan should be listed in the table and explained in the accompanying text, along with relevant details. You want to cement your sales strategy with programs that make it real.

·How is this strategy to be implemented?

·Do you have concrete and specific plans?

·How will implementation and success be measured?

In the illustration you see columns for evaluating the actual results and the difference between plan and actual results, for each program.

5. How to Perform SWOT Analysis

A valuable step in your situational analysis is assessing your firm's strengths, weaknesses, market opportunities, and threats through a SWOT analysis. This is a very simple process that can offer powerful insight into the potential and critical issues affecting a venture.

The SWOT analysis begins by conducting an inventory of internal strengths and weaknesses in your organization. You will then note the external opportunities and threats that may affect the organization, based on your market and the overall environment. Don't be concerned about elaborating on these topics at this stage; bullet points may be the best way to begin. Capture the factors you believe are relevant in each of the four areas. You will want to review what you have noted here as you work through your marketing plan. The primary purpose of the SWOT analysis is to identify and assign each significant factor, positive and negative, to one of the four categories, allowing you to take an objective look at your business. The SWOT analysis will be a useful tool in developing and confirming your goals and your marketing strategy.

Some experts suggest that you first consider outlining the external opportunities and threats before the strengths and weaknesses. Marketing Plan Pro's EasyPlan Wizard will allow you to complete your SWOT analysis in whatever order works best for you. In either situation, you will want to review all four areas in detail.

Strengths

Strengths describe the positive attributes, tangible and intangible attributes, internal to your organization. They are within your control. What do you do well? What resources do you have? What advantages do you have over your competition?

You may want to evaluate your strengths by area, such as marketing, finance, manufacturing, and organizational structure. Strengths include the positive attributes of the people involved in the business, including their knowledge, backgrounds, education, credentials, contacts, reputations, or the skills they bring. Strengths also include tangible assets such as available capital, equipment, credit, established customers, existing channels of distribution, copyrighted materials, patents, information and processing systems, and other valuable resources within the business.

Strengths capture the positive aspects internal to your business that add value or offer you a competitive advantage. This is your opportunity to remind yourself of the value existing within your business.

Weaknesses

Note the weaknesses within your business. Weaknesses are factors that are within your control that detract from your ability to obtain or maintain a competitive edge. Which areas might you improve?

Weaknesses might include lack of expertise, limited resources, lack of access to skills or technology, inferior service offerings, or the poor location of your business. These are factors that are under your control, but for a variety of reasons, are in need of improvement to effectively accomplish your marketing objectives.

Weaknesses capture the negative aspects internal to your business that detract from the value you offer, or place you at a competitive disadvantage. These are areas you need to enhance in order to compete with your best competitor. The more accurately you identify your weaknesses, the more valuable the SWOT will be for your assessment.

Opportunities

Opportunities assess the external attractive factors that represent the reason for your business to exist and prosper. These are external to your business. What opportunities exist in your market, or in the environment, from which you hope to benefit?

These opportunities reflect the potential you can realize through implementing your marketing strategies. Opportunities may be the result of market growth, lifestyle changes, resolution of problems associated with current situations, positive market perceptions about your business, or the ability to offer greater value that will create a demand for your services. If it is relevant, place time frames around the opportunities. Does it represent an ongoing opportunity, or is it a window of opportunity? How critical is your timing?

Opportunities are external to your business. If you have identified "opportunities" that are internal to the organization and within your control, you will want to classify them as strengths.

Threats

What factors are potential threats to your business? Threats include factors beyond your control that could place your marketing strategy, or the business itself, at risk. These are also external – you have no control over them, but you may benefit by having contingency plans to address them if they should occur.

A threat is a challenge created by an unfavorable trend or development that may lead to deteriorating revenues or profits. Competition – existing or potential – is always a threat. Other threats may include intolerable price increases by suppliers, governmental regulation, economic downturns, devastating media or press coverage, a shift in consumer behavior that reduces your sales, or the introduction of a "leap-frog" technology that may make your products, equipment, or services obsolete. What situations might threaten your marketing efforts? Get your worst fears on the table. Part of this list may be speculative in nature, and still add value to your SWOT analysis.

It may be valuable to classify your threats according to their "seriousness" and "probability of occurrence."

The better you are at identifying potential threats, the more likely you can position yourself to proactively plan for and respond to them. You will be looking back at these threats when you consider your contingency plans.

The Implications

The internal strengths and weaknesses, compared to the external opportunities and threats, can offer additional insight into the condition and potential of the business. How can you use the strengths to better take advantage of the opportunities ahead and minimize the harm that threats may introduce if they become a reality? How can weaknesses be minimized or eliminated? The true value of the SWOT analysis is in bringing this information together, to assess the most promising opportunities, and the most crucial issues.

An Example

AMT is a computer store in a medium-sized market in the United States. Lately it has suffered through a steady business decline, caused mainly by increasing competition from larger office products stores with national brand names. The following is the SWOT analysis included in its marketing plan.

Strengths

• Knowledge. Our competitors are retailers, pushing boxes. We know systems, networks, connectivity, programming, all the Value Added Resellers (VARs), and data management.
• Relationship selling. We get to know our customers, one by one. Our direct sales force maintains a relationship.
• History. We've been in our town forever. We have the loyalty of customers and vendors. We are local.

Weaknesses

• Costs. The chain stores have better economics. Their per-unit costs of selling are quite low. They aren't offering what we offer in terms of knowledgeable selling, but their cost per square foot and per dollar of sales are much lower.
• Price and volume. The major stores pushing boxes can afford to sell for less. Their component costs are less and they benefit from volume buying with the main vendors.
• Brand power. Take one look at their full-page advertising, in color, in the Sunday paper. We can't match that. We don't have the national name that flows into national advertising.

Opportunities

• Local area networks. LANs are becoming commonplace in small businesses, and even in home offices. Businesses today assume LANs are part of normal office work. This is an opportunity for us because LANs are much more knowledge and service intensive than the standard off-the-shelf PC.
• The Internet. The increasing opportunities of the Internet offer us another area of strength in comparison to the box-on-the-shelf major chain stores. Our customers want more help with the Internet and we are in a better position to give it to them.
• Training. The major stores don't provide training, but as systems become more complicated with LAN and Internet usage, training is more in demand. This is particularly true of our main target markets.
• Service. As our target market needs more service, our competitors are less likely than ever to provide it. Their business model doesn't include service, just selling the boxes.

Threats

• The computer as appliance. Volume buying and selling of computers as products in boxes, supposedly not needing support, training, connectivity services, etc. As people think of the computer in those terms, they think they need our service orientation less.
• The larger price-oriented store. When they have huge advertisements of low prices in the newspaper, our customers think we are not giving them good value.

6. Keys to Better Business Plans

• Use a business plan to set concrete goals, responsibilities, and deadlines to guide your business.
• A good business plan assigns tasks to people or departments and sets milestones and deadlines for tracking implementation.
• A practical business plan includes 10 parts implementation for every one part strategy.
• As part of the implementation of a business plan, it should provide a forum for regular review and course corrections.
• Good business plans are practical.

Business Plan "Don'ts"

• Don't use a business plan to show how much you know about your business.
• Nobody reads a long-winded business plan: not bankers, bosses, nor venture capitalists. Years ago, people were favorably impressed by long plans. Today, nobody is interested in a business plan more than 50 pages long.

7. Common Business Plan Mistakes

While including the necessary items in a business plan is important, you also want to make sure you don’t commit any of the following common business plan mistakes:

Putting it off.

Too many businesses make business plans only when they have no choice in the matter. Unless the bank or the investors want a plan, there is no plan.

Don't wait to write your plan until you think you’ll have enough time. "I can't plan. I'm too busy getting things done," business people say. The busier you are, the more you need to plan. If you are always putting out fires, you should build firebreaks or a sprinkler system. You can lose the whole forest for paying too much attention to the individual burning trees.

Cash flow casualness.

Most people think in terms of profits instead of cash. When you imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which equal profits. Unfortunately, we don’t spend the profits in a business. We spend cash. So understanding cash flow is critical. If you have only one table in your business plan, make it the cash flow table.

Idea inflation.

Don't overestimate the importance of the idea. You don't need a great idea to start a business; you need time, money, perseverance, and common sense. Few successful businesses are based entirely on new ideas. A new idea is harder to sell than an existing one, because people don't understand a new idea and they are often unsure if it will work.

Plans don't sell new business ideas to investors. People do. Investors invest in people, not ideas. The plan, though necessary, is only a way to present information.

Fear and dread.

Doing a business plan isn't as hard as you might think. You don't have to write a doctoral thesis or a novel. There are good books to help, many advisors among the Small Business Development Centers (SBDCs), business schools, and there is software available to help you (such as Business Plan Pro, and others).

Spongy, vague goals.

Leave out the vague and the meaningless babble of business phrases (such as “being the best”) because they are simply hype. Remember that the objective of a plan is its results, and for results, you need tracking and follow up. You need specific dates, management responsibilities, budgets, and milestones. Then you can follow up. No matter how well thought out or brilliantly presented, it means nothing unless it produces results.

One size fits all.

Tailor your plan to its real business purpose. Business plans can be different things: they are often just sales documents to sell an idea for a new business. They can also be detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or just run a business better.

Diluted priorities.

Remember, strategy is focus. A priority list with 3-4 items is focus. A priority list with 20 items is certainly not strategic, and rarely if ever effective. The more items on the list, the less the importance of each.

Hockey-stick shaped growth projections.

Sales grow slowly at first, but then shoot up boldly with huge growth rates, as soon as 'something' happens. Have projections that are conservative so you can defend them. When in doubt, be less optimistic.

8. The Different Types of Business Plans

Business plans are also called strategic plans, investment plans, expansion plans, operational plans, annual plans, internal plans, growth plans, product plans, feasibility plans, and many other names. These are all business plans.

In all these different varieties of business plan, the plan matches your specific situation. For example, if you're developing a plan for internal use only, not for sending out to banks or investors, you may not need to include all the background details that you already know. Description of the management team is very important for investors, while financial history is most important for banks.

Some of these specific case differences lead to different types of plans:

• The most standard business plan is a start-up plan, which defines the steps for a new business. It covers standard topics including the company, product or service, market, forecasts, strategy, implementation milestones, management team, and financial analysis. The financial analysis includes projected sales, profit and loss, balance sheet, cash flow, and probably a few other tables. The plan starts with an executive summary and ends with appendices showing monthly projections for the first year.
• Internal plans are not intended for outside investors, banks, or other third parties. They might not include detailed description of company or management team. They may or may not include detailed financial projections that become forecasts and budgets. They may cover main points as bullet points in slides (such as PowerPoint slides) rather than detailed texts.
• An operations plan is normally an internal plan, and it might also be called an internal plan or an annual plan.

It would normally be more detailed on specific implementation milestones, dates, deadlines, and responsibilities of teams and managers.

• A strategic plan is usually also an internal plan, but it focuses more on high-level options and setting main priorities than on the detailed dates and specific responsibilities. Like most internal plans, it wouldn’t include descriptions of the company or the management team. It might also leave out some of the detailed financial projections. It might be more bullet points and slides than text.
• A growth plan or expansion plan or new product plan will sometimes focus on a specific area of business, or a subset of the business. These plans could be internal plans or not, depending on whether or not they are being linked to loan applications or new investment. For example, an expansion plan requiring new investment would include full company descriptions and background on the management team, as much as a start-up plan for investors. Loan applications will require this much detail as well. However, an internal plan, used to set the steps for growth or expansion funded internally, might skip these descriptions. It might not include detailed financial projections for the whole company, but it should at least include detailed forecasts of sales and expenses for the company.
• A feasibility plan is a very simple start-up plan that includes a summary, mission statement, keys to success, basic market analysis, and preliminary analysis of costs, pricing, and probable expenses. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing.