How to write a business plan is among the very first decisions you, as a future business owner must make. Do you write it yourself, or give in to the temptation to take an easier path? By taking ownership of this first, most important step in building your business, you will gain far more than a crisp document to be read by others. You will develop a deep understanding of what it will take for your business to succeed. For this reason, it is essential that the business owner be the primary thought leader or sole author of the business plan. Outside help should be reserved for fine tuning, validation and in some cases to prepare financial projections.

Let it be YOUR Business Plan

As the founder and business owner you will be charting the course for the business. It will be important that the business plan be an extension of your personal vision for the company. For most entrepreneurs, the opportunity to call the shots and lead the way was an important part of why they wanted to get into business. Now is the time to start being a leader. Leaders develop their own plans and call the plays along the way. When it’s not your plan, you relegate yourself to performing as an operator. You will find yourself going back to the business plan someone else wrote to occasionally re-read the directions, or ignoring it altogether. Either way, the value of having a plan has been greatly diminished.

The Value is in the Process

The act of writing a business plan is one of forced discipline, problem solving and reconciling the results. When approached and completed in this manner the end product and the process itself will increase your self-confidence and assuredness about where your business is headed.

Starting with a simple business plan template, and there are lots of them available, force yourself to think through all the critical aspects of the business. This will be an iterative process that you repeat, fine tune and re-write. As you develop each section of your business plan, your thoughts about the other sections will evolve-even those that you’ve already written. You go back, edit and in the end, you make it all work together. That’s the idea. You are developing an understanding of the relationships between every aspect of your business.

To underscore the importance of writing your own business plan, take this little exercise. Read the paragraph below as quickly as you can. Then stop, take a breath and move on to the next one.

Who will my customers be? What problem will I solve for them? How much are they willing to pay to have this problem solved? What are my costs associated with each sale? Why will customers choose to buy from my business? How will I find customers? Who will sell, produce, and deliver? Which markets will I go after first? Why? How much will it cost to operate the business each month? What will my break even point be? How fast can I get there? How much startup capital will I need? How will I succeed?

Okay, slow down now and consider this: The most important question isn’t listed. The most important question is, “How are these factors interrelated?”

Imagine that today someone handed you the answers to all of the questions from our fast-read drill above. It would certainly save you a lot of time. Better still, these wouldn’t be just any answers, but they would be the right answers from a solid business plan for a business that had already been proven to be successful, a business just like the one you’re planning to start. You could read and re-read the answers many times over, practically memorizing them. You would know that they were the right answers. Yet, doing so will not help you develop an understanding of how the answers are interconnected.

If you change the way you plan to find customers, how will that impact your monthly operating costs? If customers are only willing to pay 80% of your planned price, what will that do to your break even point? How will the answers to these two questions impact how much capital you need to start the business? This example looks at just two questions. Realistically, the answer to each question is highly dependent on the answers to several of the other questions. In the end they must all work together and you must understand how they all work together.

If you develop your own business plan, section by section, thinking through all of the answers to the critical questions, you will also develop an intuitive sense of how they work together. It will require a lot of thinking and rethinking of your ideas and it will take time. This is not meant to be a fast drill. In the end, it will be the difference between memorizing the lines and actually being the character. Small business ownership is not the place to be reciting someone else’s lines. You are the character. Write your own lines. Be the leader.

When to Bend the Guidelines

There are some times to reach outside for help. For example, perhaps you would say, “I’m not a numbers person; I don’t think I can do the financial projections.”

First, plan to become more of a numbers person because business ownership is about numbers. Sales, expenses and profits are the three that are most important. Even so, many business operators who have a good feel for the numbers need assistance with spreadsheets and financial statements. It is okay to get outside help preparing your financials, just be sure that you understand them when they are complete. If you are going to pay someone to prepare them, be sure that they also save time to go over them with you from top to bottom. Ultimately they are your numbers.

Others might say, “I have great ideas, but I’m not a great writer.” It’s understood that there can be a lot riding on someone else reading the final product of your business plan-such as a loan or an investment decision. For that reason, if you are not a strong writer you should start by going through the process of organizing, writing and rewriting your own business plan as best you can. Force yourself to go through all of the steps of writing, rethinking and rewriting as your ideas evolve. Then, have someone else take your finished draft and craft the final polished document. What is important is that the final document must accurately reflect your concepts, ideas and thought process, not the editors.

What if I Just Can’t Do It?

Finally, some would say, “I want to start my own business. I am a strong operator, but honestly, I don’t think I could write a business plan myself. What do you suggest?” Simple: Buy a franchise! They are perfect for people who are strong operators where someone else provides the strategic plan, the systems and some guidance. This might be the best ownership model for you. That’s a topic for another day.

Pick up almost any document on starting a business and you’ll be advised that you should promptly undertake the creation of a business plan. I am a big fan of business planning but here I’ll disagree. A better idea is to complete a feasibility study. A feasibility study and a business plan share a lot in common but the feasibility study is much shorter and can be completed in less time than a full business plan.

The whole point of the feasibility study is to determine if the business concept is feasible. There is no need to go to all of the detail required by a business plan if a general testing of market numbers indicates the idea will not work.

It is alright to use educated guesses for the numbers. You can increase accuracy and detail in the business plan to follow if your initial study indicates it is warranted. A good feasibility study should answer at least the following questions:

• What is the size of the market (units sold)?
• What market share can we expect to gain (% of market)?
• How many will we sell?
• At what price?
• What expenses will we incur?

Try to make a list of the resources you’ll need to operate the business (land, buildings, equipment, training, employees, licenses, permits & fees, inventory, interest, marketing etc.). Do your expenses resemble within reason your consumption of these resources?

Next, Test your plan on a variety of inputs. Generate a worst case, probable and best case number for each input. This will provide you with a minimum threshold below which your idea is not feasible. This will prove immensely valuable if you move on to the business plan stage. When (if) you begin additional research, you’ll focus on the most critical number in the plan. For instance, if you determine you need a market size of at least 30,000 customers meeting a specific demographic to make the plan work and you find out that there are only 20,000 then either find a plan to make it work with 20,000 or stop working the plan.

Now have a knowledgeable third party evaluate your study. Incorporate their suggestions to make your plan more realistic.

After revision, ask yourself if the anticipated profits are worth the risks you will take? Does it make sense to invest your time and money in this manner? If so, move on to the full business plan with a clear insight into where to focus your research.

Introduction

Business Planning is normally done when a business plan is needed for financing purposes or to use as a guideline on running and growing a business (as a start-up or for the next time frame). Many crucial features of a business need to be addressed and balanced in this planning process. Various options, problems and risks relating to these features will be considered.

Entrepreneurs often assume that one variable has a linear relationship with another (e.g. $x spending on marketing will create $y income in sales). Business is, however, seldom that simple. Many multi-directional relationships tend to occur between the various features. Sales would for instance also be influenced by product quality, price, etc. Sales on the other hand will influence future expansions. To cater for this phenomenon an integrative business planning process is required.

Crucial Issues in Business Planning

Every business is different and the crucial issues in one does not necessary occur in another. What is, however, important is that the business planners ensure that they analyse and plan for all the relevant features for their specific business. This would normally include the issues that is highlighted below.

• The Business – It is essential to ensure that the opportunity, the business concept, its products, services and strategies and the industry that it operates in are sound.
• Marketing – Marketing strategy needs to be considered. This include aspects such as pricing and promotion.
• Market Research – This is a crucial issue that is often neglected. It is important to know and understand the customers, the market size and trends and who the competition is.
• Development – All issues regarding the development of new products, services, markets and facilities need to be planned for.
• Operations – All aspects regarding the what, where and how of operations must be considered.
• The Team – The management team need to match the requirements of a business. It would be preferable to establish what skills/jobs are needed and then to link the people to it. Where there are a lack of skills, training programmes can be implemented and new people can be hired. The whole organigram and composition of board of directors, management teams, etc. need to be planned for.
• Finances – Finances are the ultimate yardstick of the success of a business, but it can not stand on its own. Important financial issues would typically include investment-, financing- and dividend decisions and policies. It is also crucial to plan for turnover (sales), gross profit margins and cost control (of expenses). The relationships between these issues (financial ratios) need further planning to establish if the business will be profitable, liquid and solvent. Return on investment (ROI) and sustainable business growth would for instance be specific aspects to consider.
• Risk Management – The various risks that occur need to be determined, analysed and catered for. Fatal flaws need to be eliminated. Operational- and financial risks can often be hedged. This would incur certain costs and strategies such as manufacturing in various countries and buying and selling futures and options in different currencies.

The Complexity of Detailed Business Planning

A quick review of the brief summary of the crucial issues that need to be considered gives a glimpse of the complexity involved in business planning. If we just look at the financial issues we will see that the price will have an impact on the sales (turnover). The lower the price the more the physical volumes will normally be (except if image requires a high price). Turnover and total profits will, however, not necessary be higher. There is normally a fine balance that exist between the price, volume sales, turnover and profits.

To complicate this even further the turnover, costs and profits and there timings have a direct impact on the cashflow of the company (a very critical issue). This whole aspect is then further complicated by the investment- (capital expenditure), financing- (equity or debt?) and dividend decisions. By spending too much on a plant, having too much debt and paying out too much to shareholders will have a negative effect on the sustainable business growth of the company and this will reduce the targets that are achievable. This scenario shows only a portion of the various aspects that need to balance within the broader financial sphere.

Unfortunately the complication of the example does not stop with the finances. The finances influence many other crucial aspects of the business. On the other hand many of the other crucial aspects also have an effect on the finances as well as on each other.

The financial decisions would for instance have a direct bearing on the growth of the business (e.g. geographical expansions and new product development), marketing spending and people employment and development. All these issues would similar have an impact on the financial issues and on each other.

An Integrative Business Planning Approach

The general tendency in business planning would be to tackle each issue independently and then to just add the pieces together and re-plan if something is not making sense. Business planning often starts with some projected turnover and profit figures in mind. Everything is then worked backwards from there.

A much better option would be to have an integrative business planning approach. In order to do this the following steps are needed:

1. Determine all the salient features of the business.
2. Determine the relationships between these salient features.
3. Try and solve every feature by keeping the casualties and effects with other features in mind.
4. Use “what-if” questions to create better holistic solutions.

Summary

The idea in business planning is not to optimise the one aspect of the business and neglect or ignore some of the others. The various relationships (causes and effects) need to be catered for in an integrative way. One crucial salient feature or relationship that is ignored can put the existence of the whole business in jeopardy.

Copyright© 2008 by Wim Venter. ALL RIGHTS RESERVED.