Most business owners know they should have a business plan. Yet writing one still is a practice that often gets put off and pushed by the wayside. Managers think, “I’m too busy,” or “I don’t really need a plan,” or even, “The market changes too quickly. How can I possibly plan?”
But business plans are essential. Not only do they help a company obtain financing, they are a successful businesses’ very keystone. When a business plan is carefully considered, crafted and communicated throughout the organization, it becomes a living document that helps managers and employees stay focused and profitable every day.
Business plans are not uniform across industries, nor are they always called by the same name. They can be used to convince banks to expand credit or secure financing, woo potential investors, attract new employees or weigh important business decisions against.
“[A business plan] is a written document that describes how the chief executive officer and management team plan to successfully exploit an opportunity,” says Dr. Joe Rousseau, J.D., chair of entrepreneurship and associate professor at Northwood University. “Already existing businesses usually call their total business plan for the next fiscal year ‘The Budget.’ If they plan to launch a new product or business expansion they might call the business plan supporting this opportunity a ‘Business Case.’ Entrepreneurs creating new ventures typically call their plans, the ‘Business Plan.'”
Regardless of name, a dependable plan should have some form or variation of the following components, according to the Small Business Administration (for more details, see sidebar: “All the Key Parts”):
- Executive Summary
- Business Description and Vision
- Market Definition
- Description of Products and Services
- Organization and Management Structure
- Marketing and Sales Strategy
- Financial Performance Data
- Appendices
If your company has been operating for years without a business plan, it’s not too late to make one. The business planning process is one of careful examination and assessment. It should be a rigorous, introspective process for the business’ management team. Yet a mistake business owners make routinely is not actively involving their staff when making or revisiting the plan.
“I like to get a lot of input from the management team when making a business plan,” says Dr. Albert Bates, chairman and president of the Profit Planning Group, a firm that works exclusively in corporate financial planning. “They’re the ones who are going to have to implement the plan once it’s made. If they don’t feel like they played a role in it, it is something we’re arbitrarily dropping on top of them. It becomes really dysfunctional.”
Bates also suggests seeking input from the sales team.
“They usually have a good feel for where the market’s going and what’s happening out there in the world,” he says.
Another pitfall to avoid is confusing a business plan with a promotional piece. A business plan should be a realistic assessment of where your business currently stands and where you think it can and should be. This is not the forum for touting grand and potentially unattainable theories and ideas.
“[Owners] tend to be overly optimistic. You often need to have more reality in the plan,” says Bates. “It’s really a problem if you overestimate revenue, which makes you not as tight on expense control as you ought to be.”
Especially in a soft market, a business plan gives a company a strong backbone and even becomes a tool critical for survival. It enables a business owner to act from a point of preparation and rationality rather than leaving him or her to make rash decisions in the middle of a crisis.
“For internal management and the small business owner, create a budget with a clear growth strategy, marketing plan, key financial and operational objectives and financial projections,” says Rousseau.
He also recommends making a projected budget for the coming year. “This means [creating] objectives for next year and measuring past performance against objectives. Without such a process, they are not managing their business. They are constantly reacting and managing by crisis.”
“This is a good time to re-examine every expense line. To me, that revolves around the business plan,” says Bates.
“When the market is soft, you have people saying, ‘I’m too busy trying to bail water here. I don’t have time to plan.’ That’s an excuse that they really can’t justify.”
All the Key Parts
Not every business plan looks alike, but they all should be carefully drafted, considered, edited and fine tuned. In order to create the strongest plan, the writer should avoid a canned approach and keep the potential reader’s concerns in mind.
For instance, if your company needs to appeal to a private investor or to a bank, cater the plan to address the potential financier’s concerns. If the plan is mostly for internal use as a tool to help managers make decisions in line with core values, be especially sure to seek managerial input and use a tone that reflects your business values.
The Small Business Administration recommends that most business plans contain the following sections, according to its web site, www.sba.gov, which also provides helpful templates and tutorials for those wishing to craft or refine their business plans:
- Executive Summary: This one to two page opening statement, written by the business owner, provides an engaging and enthusiastic summary of the business and its goals. A successful Executive Summary makes the reader want to learn more. It can be thought of as the cover letter for your business plan.
- Business Description and Vision: This section should contain your mission statement, a short history of the business and its future goals. It explains what your business stands for and represents, as well as its values.
- Market Definition: This is where an accurate picture is painted of your target market and customers. It’s also appropriate to contrast your current marketshare with your desired marketshare in this section.
- Description of Products and Services: Explain what you sell and how competitive your product is. What makes your repair garage or distribution center unique in the market?
- Organization and Management Structure: Provide organizational information about key management partners on your team, as well as a brief bio about each. A chart of responsibility and accountability also can be included here. This is where it’s appropriate to outline the legal structure of your business.
- Marketing and Sales Strategy: Give a clear picture of who your customers are and what the demand is for your products and services. Explain your pricing and sales strategies, as well as channels of distribution.
- Financial Performance Data: Provide all applicable balance sheets, income statements and cash flow statements. The reader should come away with a thorough understanding of your business’ financial state.
- Appendices: This section can include an equipment/assets list, brochures, press clippings, pictures of your business and all information relevant to the business’ potential growth and development.
