Writing a strategic business plan - Part 2

 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.