How To Create Your Business Plan
A business plan is a launching point. It’s an idea of which direction to travel in. And it becomes obsolete almost as soon as it is completed.
Unforeseen events occur. Assumptions are proved wrong. Markets shift. Financing falls apart. Still, and for all the reasons that render a business plan irrelevant, it is the most important document a business will ever produce.
The Value Of The Planning Process
Business planning is a process, and it provides many invaluable things:
- Direction. Focus. Strategy. It’s easy to know where you are. To know where you’re going requires goal setting. When everyone knows which direction to go in, the effort to get there is unified. People don’t trip over each other trying to reach their own idea of the destination. The right decisions are known before situations are encountered. And when things are moving at a dizzying pace and your time is consumed by putting out fires, the only thing that can break that cycle and get you back on track is having a clear direction.
- Metrics. Actual progress towards various goals can be measured against the plan. A business plan is the guide that tells you sales are going well and costs are under control. If things don’t measure up it alerts you to take action before the business enters the danger zone where it runs out of capital before it can produce it’s own positive cash flow. The timelines and budgeting in a business plan not only tell you if something is wrong, but where it is going wrong, and who is responsible.
- Options. The planning process requires that you answer hard questions through brainstorming, problem-solving, and research. All these activities bring to light new information and new ideas. Ways to increase revenue and decrease costs. If the numbers don’t add up, planning allows you to explore other options before capital is committed to a doomed-to-fail idea.
- Credibility. Real credibility comes from previous successes and is renewed with every new success. But even the best business people make bad decisions and take the wrong action sometimes. A business plan shows that you’ve done the work to maximize success and minimize the risks. It proves that you’re not flying blind. You have the answers to the hard questions. You know how to bring value to your customers. You know how to bring value to potential investors.
Keep It Real
The planning table is a place for absolute truth.
The facts are arranged into a strategy and determine the figures, and in turn the figures determine profitability. If a plan looks bad, the first tendency is to tune the numbers until the bottom line is favorable, irregardless of what the facts say. And then the plan is doomed to fail. The proper way to rework a troublesome business plan is to explore the facts. Find new information. Find new ways to increase revenue. Find ways to lower capital requirements. Re-strategize the facts. Let the facts determine the numbers, and the numbers won’t lie.
Another danger during business planning is that reality can sometimes be discouraging. This is the time to search for options. Expand your research and explore different strategies. Think outside the box. If a workable plan still can not be formed then the people don’t fit the business. You need new people with the right skills and expertise or you need to pursue a different business idea.
Write A Plan That Can Be Executed
Every plan has an intended audience which is what defines its purpose. Whether it is an internal strategy document or a proposal to outside investors, a good plan is easy to understand, believable, logical and enlivening. Many people jump into a business venture without a comprehensive plan. They scribble some notes down. They make it up as they go along. At the very least, it costs them valuable time and capital. Most often it costs the failure of the business.
Plan your work. Work your plan.
~ Norman Vincent Peale
Learn Your Lessons The Easy Way
Going into business without a plan is costly in time and capital. When companies jump in with both feet, the lessons bring about realities. The business plan is the homework about what the industry is all about. Utilize trade organizations, trade shows, and market / industry reports which can cost hundreds or thousands of dollars but can give you a great “big picture” view of your industry and a starting point to continue your research with potential customers and suppliers in your area.
Organizing Your Business Plan
This is a list of the sections I like to put in a plan. You can think of each of these sections as questions. Answer them. Find the answers to them. Discuss the answers to them with your team and your network of connections. Get as much outside, independant and expert information as you can.
- Table of Contents
- Executive Summary
- Purpose of the Plan
- Summary of the Plan
- Company History
- Current Situation
- Overall Strategy/Philosophy
- Product Development Issues
- Manufacturing and Operations
- Quality Control and Ongoing Service
- Target Market(s)
- What Motivates Those Buyers
- Assessment of Competitors
- Obstacles and Opportunities
- Selling Methods
- Supporting the Sales Force
- Product Promotion
- Funding Request
- Past and Projected Financial Performance
Start Writing It
Write your Executive Summary last. Both components of the summary should fit on a single page. This is your “sell” page. The plan should be optimistic and go-forward, but completely realistic. If you’re an expert in the industry, you’ll want to budget a contingency fund of 8-10%. If you don’t have a lot of experience in the type of business you’re planning, you might need to budget as high as 15-20% for unforseen cost over-runs.
Just to say it one more time because I can’t stress this enough: Determine the facts and let the facts determine the numbers. Next to having the right people, this is the single most important aspect of business planning. You can tweak the numbers to work, and fool yourself on paper. But only on paper.