We really get tired of seeing the same old tired ads for business planning. It appears that what is being sold is “business in a box.” The suggestion that once completed, you will have a full business plan that any banker will fund, is false and misleading. Here are the facts: If you are writing a business plan just to get a loan, STOP, rethink your business. Getting a loan should be your last reason for writing a plan.
The Value of Planning
Anyone who has been in business, or part of a corporate management team, knows the value of planning. However, we understand the problem. For those who are new to the process and overwhelmed by the sear magnitude of a business plan, let’s clear the air. Writing a business plan is simple – provided you build the plan in logical stages. The first thing you have to do however is to relax; you will never have all the right answers, and the variables are infinite. Unless you can see into the future, you will never know everything that is going to happen.
Breathing Life into Your Ideas
A business plan – properly done, is a “living” study of how a business entrepreneur intends to organize an entrepreneurial endeavor. A business plan formulates the activities necessary and sufficient for the venture to succeed, or as my associate says – “a business plan puts you’re scattered – napkin and scrap paper ideas into a format that others will understand.”
Business plans are best used internally for the management of the operation. The operational plan sets the tone of the business for the employees and advisors who will be working to make the business successful. The operational plan starts everyone out on the same page.
One common belief within business and venture capital circles is that the actual plan itself has little value, but it’s the act of planning that has the real merit. A fact that most people ignore, is that if a business idea is good, a business plan makes it workable – but if the idea is garbage – no amount of planning can make it good or fundable.
We said that the process of building a business plan is made simpler if you build it in logical stages. By logical we mean build the plan as you thought of it. For example, the first thought someone usually has is “I have an idea.” The next question then becomes – is your idea feasible? You prove it by developing the feasibility study.
Overview of the Feasibility Study.
Just like in building, the most important part of any plan is the foundation. The feasibility study is that foundation. When consulting with a business plan client regarding a new business, the feasibility study is generally the first document I write, as it is less formal, and cost the client less to build.
A feasibility study is the process of testing ideas against known factors. A feasibility study asks – is the business idea sound? Is the product or services wanted by others? Who wants it? What other company is currently selling the same product? For what price? And, how do they sell them? We test our answers – not just say yes or no to them. The test is general research to prove the hypothesis – stopping just short of a full blow research study.
A feasibility study may only be one to 15 pages in length depending on the business idea, and includes cursory attention to such key matters as business concept (above), preliminary financing needs and a brief marketing section. It serves as the base plan, and later – as a valuable prelude to a full-length plan if the idea takes off.
If all the answers in the feasibility study are good and the decision is made to go forth, the ways and means of selling the product or service are required. You have done the preliminary ideas in the feasibility study; now flesh them out in the Marketing Plan.
Overview of the Marketing Plan.
Once you have the feasibility studies completed and have concluded that you want to go forth with the business you will need to know a little more detail for the cost of marketing and selling the product or service. We fully flesh out the preliminary marketing plan we did in the feasibility study.
The marketing plan sections points out the Who, What, When, Where, and How of marketing the product or service. From this marketing plan, you can determine your budgeting requirements. The marketing plan also discusses the web requirements of your business, and how the internet will be used. Get expert advice here and work with a full service internet developer to help you determine the direction you need to go. In other words, don’t get sucked into the hype surrounding pay-per-click, or ad-words until you know if you can afford these and your business model warrants these methods.
From the answers derived in the planning, you will be able to develop a cost of marketing estimate. The next step is the Working or Operational Plan.
Overview of the Operational Plan.
The third stage of the logical planning solution answers the question of “what will it take to run the business.” If you have never been self-employed, then the operational knowledge will come from advice received from consultants, business advisors and prospective managers you will be hiring to help run the business.
As with the feasibility study, you can afford a somewhat higher degree of candor and informality when preparing a working plan. The working plan is an operational plan that conveys your requirements and sets the tone for future employee policies.
Once you know how you are gong to run the business, the next question is “how are you going to fund it?” Stage two of the operational plan sets the funding requirements. The funding portion is based on the knowledge you have gained in the previous stages.
We know what we are going to sell, we know to whom we are going to sell it to and we know the resources we will need to operate the business. We can project assumed costs and thus the expected profits out of this information. Pretty simple huh? The question we want to solve at this stage is – can we sell our product or service for the price needed to make a profit and stay in business?
In addition, the drafting of the funding plan allows us to map out the exit strategy, a part of planning often never discussed. (Right alone with contingency plans and business life insurance) Look for my up coming article on Contingency Planning. The simple explanation for an exit strategy is how you plan to terminate your ownership of the company, or some part of the company. You and your investors pre-plan ways of recouping the capital that will be invested in the company.
Once the answers are determined in the strategy meeting with your advisors, the final decision is – will you self-fund, use private investors, or do you need venture capital? If the outside capital route is the answer, then say hello to the Presentation Plan.
Overview of the Presentation Plan.
The Presentation Plan is a compilation of the Feasibility Study, the Marketing Plan and the Operation plan with projected profit and loss analysis. The formalized version is the one suitable for showing to bankers, investors and others outside the company. It should be in both printed and electronic format for ease of use, e.g. presentation over a web broadcast to a remote lender.
A Word of Caution Regarding Planning Software
The use of computer software to develop you business plan is a good alternative for people who are more serious about their business then they are in learning how to write. But planning software has its drawbacks – the biggest is that is makes you lazy. Good planning software offers you advice for strategic aspect of the plan, but this advice should in no way be the only advice you seek when planning your business. It simply mimics what is written in often-copied planning manuals.
I will stop short of recommending software for I have seen and used both good and bad software over the 20 plus years I have been helping people write their business plans. I also want to caution you in using the sample plans. I can tell you this. Every serious investor knows the difference, has seen the sample in countless other plans, and the minute they see the same old hackneyed answers; the plan goes in the garbage. Save yourself the time and the embarrassment. The bottom line is that if you cannot plan out your own business, using your own words, then you probably should consider staying an employee.
Business planning is easy once you decide to build your business plan on paper and in stages. Actually, it is more enjoyable then running the business. When you see your ideas come to life on paper and you prove each question or solve each problem as they come up, you are setting yourself up for future management decisions. If you get half way through and don’t go any farther then the operational portion, you are still better off then if you had just jumped into business without a plan.
Staged Business Planning is the solution to the question of “How do you eat an elephant?” The answer of course is “one bite at a time.”