“If you don’t know where you’re going . . . any road will take you there. . . “
These lyrics from a George Harrison song should hold special meaning for any one who wants to start a business. According to Frank Feather a business futurist, trend forecaster, author and consultant, there are three kinds of people:
• those who make the future happen;
• those who watch the future happen;
• those who wonder what happened.
Would you build a house without a blueprint? Would you take a trip without a map? Of course, you wouldn’t do either one. So, why would a budding entrepreneur start a business without a plan, more specifically, without a Business Plan? And, why in the world would you allow your brilliant business idea to fail, because you didn’t take the time to plan? Ok, ok, they’re rhetorical questions, but many small business owners ignored creating a business plan; and the result was “Closed for Business” before they were “Open for Business.”
For entrepreneurs, the business plan helps describe your business:
• Who you are;
• What you do;
• Where you’re headed;
• How and when you expect to get there;
• Why you’ll be successful.
A business plan is also an operating tool, which, if properly used, will help you manage your business and work effectively. It provides benchmarks and milestones for you to use as measures of your success. Consider it as your company’s résumé.
For investors, the business plan tells them:
• When you’ll need the money;
• How it will be used;
• What the potential return on investment (ROI) will be;
• How and when will it be repaid;
• Who will manage the business?
Business Plan in Action.
Kathy Ellis, president of The Business Lab, a marketing and graphic design company headquartered in Houston, TX, developed her business plan when she started her business in 1997. Kathy explains, “When we first started our company, we developed a business plan to focus our objectives. It helped us to determine what we need to do ‘today” to be here for ‘tomorrow” – it reflected our objectives and the future of our business.” Many entrepreneurs develop a business plan to satisfy the first question they’re asked by someone, “Do you have a business plan?” And most of them answer yes, but never take if off the shelf. They argue that their marketplace changes too fast for a business plan to be useful or that they just don’t have enough time. I say pooh-pooh to them. However, Benjamin Franklin said it in a nicer way, “By failing to prepare, you are preparing to fail.” He’s somebody to listen to, don’t you agree?
Stained and torn.
You can spot a business plan that is consistently referenced, because it has coffee-stains and torn pages with post-it notes attached to numerous pages. Now that’s a business plan at its finest!
Here’s another one for you. “If you run a business by the seat of your pants, you end up with torn pants.” I’m not saying that your business plan needs to be perfect, but there are a few common mistakes that you will definitely want to avoid. I dub them the “Five Too’s.”
1. Too vague. Although it requires you to provide details about a business that doesn’t exist, it’s important to be as detailed as possible in describing the current business environment, realistic financial projections, market share, etc.
2. Too futuristic. Naturally you want your reader to focus on what your business might look like three, five or even ten years down the road. However, your investors are usually more concerned about what your business will look like six months from now. In order to give your readers an accurate portrayal of where your company is headed, it’s important to balance long-term and short-term financial and market projections.
3. Too soft. “Hard numbers talk; soft numbers walk.” Make sure that you can back up your financials with solid facts and business logic. Say for example, your gross revenue numbers are based on what you need to cover your expenses and a 15% profit rather than what the market will bear, your investors will see through it and your plan is in BIG trouble.
4. Too optimistic. By nature, entrepreneurs are optimistic. There’s absolutely nothing wrong with that, but you can’t let your optimism cloud your judgment. If you believe that you must include an overly optimistic financial forecast in your plan, consider a using a matrix with a side by side analysis of best case, worst case, and probable case scenarios.
5. Too unrealistic. Including unrealistic statements and projections is the worst mistake you can make in creating your business plan. Instead of inspiring readers to believe in your vision, unrealistic elements usually send them running. Your business plan appears to be flawed, if not unattainable.
Outsourcing Your Business Plan.
Delegation is a key business skill, but can you outsource writing your business plan? Lack of experience and poor writing skills have prompted many entrepreneurs to solicit professional assistance in preparing their business plan. According to Dave Taylor, a recognized expert on both technical and business issues, “When you share your business plan with an investor or venture capital firm, they want to see something coherent and learn about a smart business, but just as importantly, they want to know that your team can sit in a room and hammer out a single, unified vision of your company, one that covers all the major bases, from marketing to defending your intellectual property, cost of sales analysis to partnership ideas. . . . About the only part of business plan creation you can safely outsource is unbiased analysis.” High five to Dave; I absolutely agree that an entrepreneur should develop his/her own plan.
Business Plan in the hands of a young entrepreneur.
Jason O’Neill, thirteen year old entrepreneur and creator of Pencil Bugs shares his entrepreneurial insight, “You can’t get anywhere by sitting on your ideas. If you don’t at least try, you’ll never know what you might accomplish. Once you start, don’t give up even if it gets hard sometimes. No one can do it alone so get someone to help. Not only can they encourage you but they can save you a lot of time by learning from their mistakes. Do your homework and make sure your business plan is solid.” You can see why this young man was honored by Forbes.com as the 2007 Entrepreneur of the Year in the under-16 category. (Previously, the competition was reserved for high school students, but his idea was so impressive the new category was created just for him.)
So, what does a business plan look like? Here’s a basic outline:
1. Cover Page
2. Table of Contents
3. Executive Summary
4. Statement of Purpose or Mission Statement
5. Business Description (products or services) or Overview with objectives
6. Marketing Plan (SWOT; industry, market, competitor analysis; sales, strategies, 4 P’s
7. Organization and Management (operating procedures. legal structure; key personnel)
8. Financial Data (projected income, cash flow, balance sheet, break-even analysis – years 1 - 3; assumptions.)
9. Growth Strategy
10. Appendices or Supporting Documents (tax returns; lease or purchase agreement; licenses; legal; letters of intent; franchise – contract and all supporting documents.)
Here's your call to action.
Kathy Ellis, The Business Lab, “Our business plan helps us to concentrate our efforts on our business objectives. After our initial start-up plan, we still review it every six months. We don’t go back and redo the whole thing. But, if there’s a significant change in our market, we identify those changes and adjust our plan. My overall advice to start-up entrepreneurs is to be passionate about your business; make sure it’s fun; and when necessary, ask for help.”
And finally . . .
There is a plethora of resources, books and software available to assist you in developing your business plan. Here’s a partial list of resources. I’ll continue to them at the end of my future articles.
Sample Business Plans
1. Center for Business Planning (free)
2. Entrepreneur.com sample business plans A - Z (free)
3. The Small Business Institute - six sample business plans (free)
Business Plan Software
1. Nova Development
2. Palo Alto Software
3. Business Plan Pro
4. Plan Ware (free)
5. Soft 82 “The Business Plan Workbook 1.1” (free)
6. Template Zone (free)
7. Giveaway of the Day – Freeware Library “Exl-Plan Free (free US-C edition)
Business Plan Books
1. Business Plans for Dummies by Paul Tiffany, Ph.D., and Steven D. Peterson, Ph.D.
2. How to Start a Business in Texas, 2nd Edition
3. Creating a Successful Business Plan from Entrepreneur Press
4. The Successful Business Plan: Secrets and Strategies by Rhonda Abrams
5. Writing a Convincing Business Plan by Arthur L DeThomas, Ph.D., and Lin Grensing Pophal
1. The E-Myth by Michael E. Gerber
2. Made in America: My Story by Sam Walton
3. The Great Game of Business by Jack Stack
4. The Illusions of Entrepreneurship by Scott A. Shane
5. E-Myth Mastery: The Seven Essential Disciplines for Building a World Class Company by Michael E. Gerber
Next Article: “Choosing a business name and a location, location, location.”