In the first part of this article, Writing a strategic business plan - Part 1 , I covered a bit on starting the business plan writing and how you should not over think it took much. The business plan itself can be very complex, or as simple as you like. As long as you start and have one to build on is the key. It's a great tool to have as a business showcase for investors and/or customers. You can use it as a sales and promotional tool as well.
Wanna save a little time? Limit your planning to 2 years, beyond that is not necessary if you are just trying to get it done. Do not write any of the long term goals for you company. You have to remember that this is usually geared towards immediate goals and planning, especially for investors. They usually do not care what is going to happen 5 years from now, they want to know what they will get a return on their investment within a year. So keep it simple, keep it short and keep it current. Business owners, business investors and financial institutions do know how the market works and understand that businesses change over time. What you might plan for now in a 5 or 10 year plan may never see the light of day and these lenders know that. However, if you have a solid plan to cover the next 2 years, you show that you are focused on your business and have a plan to succeed. This does not mean that you should ignore the long term goals in any business. You should include something long term, but make it vague, yet still in line with your short term business planning. You will want to demonstrate that you see a long term future with your company and that you have expectations for it. Just keep it focused on the short term planning.
Business planning needs to be un-biased. What I mean by this is that you cannot be the most optimistic, supper achievement planner and expect everything to be perfect.... that never happens in the business world. Lets say that you own a Dry cleaner business and you work away at your business everyday cleaning clothing. In a dry cleaning business, you are concerned with turn around time, keeping your fees low to keep your customer base and relying on your dry cleaning equipment and machines. Now, lets pretend that some new machine comes out. Not that this has actually happened, but lets just pretend. This new machine can clean the clothes in 1/5th the time, use 1/5th of the power, water and chemicals... and this new dry cleaning machine spits out all the items ready to go. The dresses are pressed, packaged and tagged and ready for the customer to pick it up. If it weren't for you, the customer could feed their clothes in one end and pick them up on the other end. This is a machine that does not exist, but what if it did. How can you possibly plan for something like this in a business plan for an industry that moves along at a static pace. Well, you can't plan for it.... but can you change your plan when it does happen, yes.
Changing your business plans to follow a market change is essential for survival and is often the reason for many business failures. Lets continue with our hypothetical example. You have an industry that for the most part operates at the same level, some operations are bigger then others, but generally all do the same thing. This magic gry cleaner machine ( that is what I am going to call it ) just revolutionized the industry and several companies are converting over... at a high cost I might ad.
So, what do you do? You should update your business plan and plan to buy the damn thing. Adjust your plan to include the cost, change over, profit margins, change to marketing plans, update pricing, etc, etc. You can then use the updated business plan to solicit new investors and/or get a bigger bank loan. Great, your off and running, you converted to the magic dry cleaner machine and your customer base is increasing and you are seeing higher profit and gross income.
Ok, now what would happen if you continued on your traditional path, old machines and old way of doing things. Over time, you will loose market share, loose business, loose profit and ultimately close down. All this because you failed to plan for the changes to the industry and incorporate them into your own business planning. Continuing to run a business the same way, over and over again in a shrinking market means a very slow and painful death.
Let me come back to optimism in the business plan again. Often, people believe that their business ideas are so great, new and fresh that there is no way for them to fail and there is no risk involved with the business development. Again, this is setting yourself up for disaster. It's almost like saying, if it's too good to be true, it almost always is. Over and over again I see these over the top presentations and so full of optimistic goals that it does not seem possible. Most of the time, this makes you wonder if they are even part of the same world as you. What you need to do is be grounded in your projections. Demonstrate how you can change strategies based on changes to what lenders come on board, what advertisers you acquire, etc.
Get back to conservatism and when you are predicting your companies profits, goals and future, be very conservative. With any estimates, always estimate on the low end of the scale. This not only shows that you have a sense of reality, but when your sales exceed predictions people tend to get really excited and it looks really good too. This means your analysis will show you will need more money than you believe it will. Banks, lenders and venture capitalists all know that very few people going into business for the first time plan correctly anticipate exactly how much time and capital will be required.
Once you have secured your partners, lenders and investors, it makes it a lot easier to show your profits are exceeding expectations rather then showing the later. Underestimating capital costs can be a disastrous blow to your future investments too. If you fail to correctly estimate your required capital, or way underestimate it, then you are only left with asking for more money. Now, on the other hand, if you over estimated, have the funds and then show you didn't need it. You could provide a return to the investors immediately. Investors like to see money coming back rather then being asked to invest even more with a business owner who failed to properly plan in the first place.
Remember to always portray a business plan and view that is realistic in today's market. Factor in as many scenarios as possible, good and bad, and show how you can over come each possible obstacle. The best way to successfully plan any business is to under promise and over deliver. This is especially important for any first time franchise or business owner as well.
Tuesday, November 24, 2009
Monday, November 23, 2009
Writing a strategic business plan - Part 1
Business owners should know that a business plan is not written in stone and does not lock you into a set way of doing things. A business plan is simple a guideline. A business process or procedure on the other hand is way to do something specific and should be followed, this is often associated with more complex business process development exercises that deal with specific tasks. A strategic business plan revolves around high level goals and focus of the company or business. The primary purpose of a business plan is to outline and evaluate of all areas of your business and goals. Having a well written plan for your business venture will help determine the viability and profitability of your project.
A strategic business plan can be written in many different ways, from very specific to very broad. They can be 1/2 a page long or a book. It all depends on the type of business, business style and management style you want to portray. There is no perfect way to write a plan, it's your plan, write it how you want.
Writing down a plan is something every person going into business for themselves should do. It doesn't matter if you are thinking about opening a small part time business, small business franchise or if you are considering opening something as complex as a manufacturing plant. A solid business plan will help you maintain consistency in the business development as a guide to a common goal. This is especially useful for a first time owner.
One of the biggest misconceptions is that a business plan is unchangeable. If you are the business owner or in a partnership, the only thing that remains constant is change. Everything in business in a constant flux and continues to change. As part of that change, your plans must change along with it. When you go into business for yourself there are lots of things that will go better or worse than you expect. You should periodically review and make changes to the plan as market conditions change. A regular review will help keep you on track regardless of varying market conditions.
Do not be afraid to put it all down on paper, many people are afraid that writing it down will lock them into a plan and it doesn't. Many business owners try to avoid this and don't have a valid reason. I do not know of a valid reason not to have some sort of plan in place for any business. The important of a strategic business plan far outweighs the laziness of not writing one down.
The most common excuse is that people do not want to be held responsible their actions. Again, this is lazy. Writing down projections, numbers, expectations gives businesses something to fail against. Many people don't want to see something fail against a projection, this is the wrong way to think. You must use the plan as a road map and understand that it is a journey and not a final destination of the business. A well written business plan will take into account the changes that can and will occur. Use the strategy of a road map from one city to another. There are always alternate paths to get to the same location, some are harder then others and some are more profitable then others. This plan should be able to take that all into consideration and show you the way to success. There are advantages and disadvantages to any path taken, but knowing what they might be ahead of time and how certain paths can lead to different outcomes will help you guide your new small business in the right direction.
A strategic business plan is a great way of showcasing your small business ideas to investors and finance officers. Venture capitalists, lending institutions and banks normally require some sort of written plan before they will even see you through the door. When you are meeting with potential investors you can present a well thought out plan of action. You can demonstrate how the business can develop and how it will get there. This is a great sales tool and will help you sell your idea to any investor or lender. Without a plan, you won't have anything to show them and will also look unprofessional.
A business plan is a tool you can use yourself as well. It will help keep you focused on the end game. By clarifying and defining your goals, methods, strategies and marketing ideas, you will be able to stay on a set course. Throughout the course of your business plan development you will learn new ways and be able to adjust them as you see fit along the way.
Not all business plans and ideas are developed by a single person either, you can use your business plans to get ideas and suggestions from friends, relatives and others. Using the your contacts, or other people contacts, such as a business consultant, you can share your ideas with them and by providing a draft or starting point will make it a lot easier to convey your plans with them. You do not always have to take other peoples advice, but the simple idea that one person may have can shed new light on an existing idea and from there you can use that to go in new directions and streamline your process. Listen to all ideas from everyone, use them or not, it is up to you. Listen with an open mind and do not to get emotionally attached to an idea just because it happens to be your idea. Some of the biggest failure in small business start-ups is from people who refuse to accept or even consider the advice of others. They get caught up in the way they want to do things without seeing a bigger picture. You might miss a great idea that can double you profits. You need to be aware of great ideas and suggestions and find a way to incorporate them into your own plan.
In part 2 of writing a strategic business plan, I will go into a little more detail on how you can speed up the process and save a little time and money creating one.
A strategic business plan can be written in many different ways, from very specific to very broad. They can be 1/2 a page long or a book. It all depends on the type of business, business style and management style you want to portray. There is no perfect way to write a plan, it's your plan, write it how you want.
Writing down a plan is something every person going into business for themselves should do. It doesn't matter if you are thinking about opening a small part time business, small business franchise or if you are considering opening something as complex as a manufacturing plant. A solid business plan will help you maintain consistency in the business development as a guide to a common goal. This is especially useful for a first time owner.
One of the biggest misconceptions is that a business plan is unchangeable. If you are the business owner or in a partnership, the only thing that remains constant is change. Everything in business in a constant flux and continues to change. As part of that change, your plans must change along with it. When you go into business for yourself there are lots of things that will go better or worse than you expect. You should periodically review and make changes to the plan as market conditions change. A regular review will help keep you on track regardless of varying market conditions.
Do not be afraid to put it all down on paper, many people are afraid that writing it down will lock them into a plan and it doesn't. Many business owners try to avoid this and don't have a valid reason. I do not know of a valid reason not to have some sort of plan in place for any business. The important of a strategic business plan far outweighs the laziness of not writing one down.
The most common excuse is that people do not want to be held responsible their actions. Again, this is lazy. Writing down projections, numbers, expectations gives businesses something to fail against. Many people don't want to see something fail against a projection, this is the wrong way to think. You must use the plan as a road map and understand that it is a journey and not a final destination of the business. A well written business plan will take into account the changes that can and will occur. Use the strategy of a road map from one city to another. There are always alternate paths to get to the same location, some are harder then others and some are more profitable then others. This plan should be able to take that all into consideration and show you the way to success. There are advantages and disadvantages to any path taken, but knowing what they might be ahead of time and how certain paths can lead to different outcomes will help you guide your new small business in the right direction.
A strategic business plan is a great way of showcasing your small business ideas to investors and finance officers. Venture capitalists, lending institutions and banks normally require some sort of written plan before they will even see you through the door. When you are meeting with potential investors you can present a well thought out plan of action. You can demonstrate how the business can develop and how it will get there. This is a great sales tool and will help you sell your idea to any investor or lender. Without a plan, you won't have anything to show them and will also look unprofessional.
A business plan is a tool you can use yourself as well. It will help keep you focused on the end game. By clarifying and defining your goals, methods, strategies and marketing ideas, you will be able to stay on a set course. Throughout the course of your business plan development you will learn new ways and be able to adjust them as you see fit along the way.
Not all business plans and ideas are developed by a single person either, you can use your business plans to get ideas and suggestions from friends, relatives and others. Using the your contacts, or other people contacts, such as a business consultant, you can share your ideas with them and by providing a draft or starting point will make it a lot easier to convey your plans with them. You do not always have to take other peoples advice, but the simple idea that one person may have can shed new light on an existing idea and from there you can use that to go in new directions and streamline your process. Listen to all ideas from everyone, use them or not, it is up to you. Listen with an open mind and do not to get emotionally attached to an idea just because it happens to be your idea. Some of the biggest failure in small business start-ups is from people who refuse to accept or even consider the advice of others. They get caught up in the way they want to do things without seeing a bigger picture. You might miss a great idea that can double you profits. You need to be aware of great ideas and suggestions and find a way to incorporate them into your own plan.
In part 2 of writing a strategic business plan, I will go into a little more detail on how you can speed up the process and save a little time and money creating one.
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