Have you ever considered the reason why almost all large businesses prepare a formal business plan and most small businesses do not?
The small business owner is generally aware of the main benefits of a business plan but does not feel a need to prepare one because no one has asked for it! Also, they may not have thought of all the advantages of a business plan and assume that they are already doing everything they can to build their business. Sometimes, a business plan focuses on the needs of the bank manager, or other potential lenders: to forecast where the business is going financially, rather than focusing on the opportunities to build the business to the next level. The financial model should be a by-product of the process, not the focus.
Do not confuse a business plan with a budget. A budget is 90% about the numbers, while a business or strategic plan is 90% about what you are going to do and 10% about the numbers. If your goal is to affect change that will increase your likelihood of success, then you need both to manage your business,
The real emphasis in preparing an effective business plan is in systematically reviewing the myriad of factors that affect your business to determine how you can work to influence those factors in your favour. Many businesses spend their major effort on those issues and opportunities that are closest to them, or most pressing (“fighting fires”). While this is important, it is not necessarily where they should focus in order to achieve the largest impact. It is very easy to be distracted by the urgent and to neglect the important, i.e. the strategies and tactics that will affect the changes necessary to promote success. A careful evaluation of the factors involved in building your business can reveal new strategies that require greater attention. Also, focusing on the top priorities, at the right time, can create dramatically improved results.
In fact, without a business plan to set out your objectives, it is more than possible that you are focusing on the wrong priorities. Have you considered whether there is a difference between your short-term and long-term priorities? Almost all businesses have a long-term goal of maximizing shareholder value. However, this can best be achieved in different ways in the short-term. Short-term priorities could be one of: profit, market share, or cash flow and these can change from time to time. Good examples of this are times where short-term cash flow may be more critical than profit, or the initial phase of market development where market share may be a bigger short-term priority than profitability.
In other words, a business plan should help the management of a business determine the key issues to be addressed over the term of the plan, the priorities and the strategies necessary to implement the business mission.
Certainly another, often enormous benefit is to ensure that the entire management team, and key staff, are all aware of the agreed priorities. It is very common in medium sized businesses for management to operate in silos and to not have a good grasp of the strategic imperatives of the business. How often in your business have you heard someone say “…well if I had known that…” This is often an indicator of weak communication and a business or strategic plan is a key tool for ensuring that all members of the team are on the “same page.”
Content of a Business Plan
The content of a document for a business plan is dependent entirely on how you wish to portray it. The more common formats are a narrative with a financial model or a slide presentation. The key factor to consider is who your target audience is. There is no guideline as to the appropriate length of the business plan document. The issue is whether you have conveyed to a reader the necessary information. There is a fine line between being too concise or too comprehensive. Often, history or technical specifications should be in appendices, where they do not clutter the basic document, but are available for the interested reader.
Let us examine some of the areas that should be considered in developing your business plan. I find that this is best achieved by asking your staff and yourself a few questions and writing down the answers:
What is your mission?
What are the key strategies that you use to achieve that mission?
What are your strengths and weaknesses?
How can you best exploit the opportunities available to you?
What resources do you require?
How and when will you go about securing these resources?
Who are your competitors, what can you ascertain about them and about how they conduct their business?
What are the major threats that confront your business and what can you do to manage those threats?
Who are the target audiences for the business plan document?
What is the history of the business and how relevant is that to the business plan?
How are you going to operate the business? – Consider especially (changes in) manufacturing, sourcing, marketing, financing, selling, logistics, technology, etc.
When you have written down the answers to these questions, review the answers and some clear issues will almost always emerge. The format of the questions and answers document is not critical at this stage. The answers to some of the questions may require some research, e.g. the information regarding your competitors. A formal business plan will use this information but should not be dependent on the way that the raw data is captured.
Next, you should examine the issues that you have identified and determine how you can best address each one of those issues. This will often suggest some changes necessary to the way that you have dealt with these elements in the past. Try to determine the objective that you have for making each of these changes and then the action steps that you need to take in order to make them a reality. Do not neglect to list each step in the process along with a deadline for completion and who is responsible for it. This is the most important part of the business plan and yet many plan documents do not detail this information.
Most strategies that are not written down with detailed action steps and deadlines, are usually not implemented, or are implemented much later than originally planned. This list of action steps is your tool to assist you in keeping your plan on track.
If you are concerned about your ability to write a good narrative, there are professional editors who will, for a reasonable fee, massage your draft while maintaining your style and yet producing a polished document.
Do not forget that a budget or plan must also have a balance sheet budget and a cash flow budget and that a sign of a well-crafted financial model is one that integrates the changes to the statement of operations into the cash flow model and the balance sheet. The final part of the financial model is to document the assumptions that were used in preparing it.
Finally, the exercise is not as difficult as you would think. Often the most difficult part of the business plan is getting started. Start by addressing the questions that are listed above. You may well be surprised at the ideas that will flow when you have it all organized and start writing it down. There is no business small and simple enough that the entire business plan can be retained in someone’s mind. So start now!
About the Author James Phillipson is a Chartered Accountant and a Principal of Mastermind Solutions Inc. with over twenty years experience in large and small businesses. He has provided financial counselling to his clients since 1996, often in the role of a Controller or Chief Financial Officer. James has experience in financial roles in a wide variety of businesses and industries.
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