All About Business Plans

WHAT IS A BUSINESS PLAN?

A business plan is any plan that works for a business to look ahead, allocate resources,
focus on key points, and prepare for problems and opportunities. Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But they are also vital for running a business, whether or not the business needs new loans or new investments. Businesses need plans to optimize growth and development according to priorities.

WHO NEEDS A BUSINESS PLAN?

(A) You need a business plan if you’re running a business. A business plan is like a map and a compass for a business. Without it you’re traveling blind. With a plan you set objectives, establish priorities, and provide for cash flow.

(B) You need a business plan to establish your intent of making a profit and establishing the legitimacy of your business under the Tax Code.

(C) You need a business plan if you’re applying for a business loan. Most banks require it, and even those that don’t strictly require it expect it. They expect it to be a summary of the business, with some predictable key points.

(D) You need a business plan if you’re looking for business investment. The plan won’t get you the investment, but not having a plan will mean you won’t get investment. Investors require a business plan. They invest in the people, the idea, the track records, the market, the technology, and other factors; but they look to the business plan to define and explain the business.

(E) You need a business plan if you’re working with partners. The business plan
defines agreements between partners about what’s going to happen.

(F) You need a business plan to communicate with a management team. The day-to-day business routine is distracting, problems come up, opportunities appear, and commitments should be followed and tracked. How do you know where you are in business without establishing where you started and where you intended to go? How can people commit to a plan they can’t see?

(G) You need a business plan to sell a business, or to set a value on a business for tax or other purposes such as estate planning, or divorce.

Sadly, many of the people who need a plan don’t know they need it. They get trapped by the myths of business planning. They don’t realize that plans are not just for start-ups, loans, or investment. They don’t realize that business plans are easier to develop than most people think To succeed in business you simply must plan the steps, set priorities, allocate resources, and manage the cash. Sure, some people say they don’t plan, but if they’re successful then they’re actually always planning in their heads. And you can keep that plan in your head if your business is very simple, cash flow is always adequate, and you don’t work with other people, and you don’t need to communicate your business plan with other people either.

Don't accept disadvantages in business. Don't try to run without a plan. Doing a plan is
probably much easier than you think, and much more valuable.

WHAT SHOULD A BUSINESS PLAN CONTAIN?

Basic Company Information

A standard business plan outline includes a chapter topic on your company. You may not need to include this chapter if you are writing an internal plan. However, any outsiders reading your plan will want to know about your company before they read about products, markets, and the rest of the story.

Summary Paragraph

Start the chapter with a good summary paragraph that you can use as part of a summary memo or a loan application support document. Include the essential details, such as the name of the company, its legal establishment, how long it's been in existence, and what it sells to what markets.

Legal Entity and Ownership

In this paragraph, describe the ownership and legal establishment of the company. This is mainly specifying whether your company is a corporation, partnership, sole proprietorship, or some other kind of legal entity, such as a limited liability partnership. You should also explain who owns the company, and, if there is more than one owner, in what proportion.

If your business is a corporation, specify whether it is a C (the more standard type) or an S (more suitable for small business without many different owners) corporation. Also, of course, specify whether it is privately owned or publicly traded.

Many smaller businesses, especially service businesses, are sole proprietor businesses. Some are legal partnerships. The protection of incorporating is important, but sometimes the extra legal costs and hassles of turning in corporate tax forms with double-entry bookkeeping are not worth it. Professional service businesses, such as accounting or legal or consulting firms, may be partnerships, although that mode of establishment is less common these days. If you're in doubt about how to establish a start-up company, consult a business attorney.

Locations and Facilities

Briefly describe offices and locations of your company, the nature and function of each, square footage, lease arrangements, etc.

If you are a service business, you probably don't have manufacturing plants anywhere, but you might have Internet services, office facilities, and telephone systems that are relevant to providing service. It is conceivable that your Internet connection, as one hypothetical case, might be critical to your business.

If you're a retail store, then your location is probably a critical factor, so explain the
location, traffic patterns, parking facilities, and possibly customer demographics as they relate to the specific location (your Market Analysis goes elsewhere, but if your shopping center location draws a particular kind of customer, note that here).

If you are manufacturing, then you may have different facilities for production, assembly, and various offices. You may have manufacturing and assembly equipment, packing equipment, docks, and other facilities.

Depending on the nature of your plan, its function and purpose, you may want to include more detail about facilities as appendices attached to your plan.

For example, if your business plan is intended to help sell your company to new owners, and you feel that part of the value is the facilities and locations, then you should include all the detail you can. If you are describing a manufacturing business for bankers or investors, or anybody else trying to value your business, make sure you provide a complete list and all necessary detail about capital equipment, land, and building facilities. This kind of information can make a major difference to the value of your business.

What's a Start-up Plan?

A simple start-up plan includes a summary, mission statement, keys to success, market
analysis, and break-even analysis. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to run a business with.

Is There a Standard Business Plan?

A normal business plan (one that follows the advice of business experts) includes a standard set of elements. Plan formats and outlines vary, but generally a plan will include component s such as descriptions of the company, product or service, market, forecasts, management team, and financial analysis.

Is There A Standard Outline?

If you have the main components, the order doesn't matter that much, but here's an outline:

1. Company Description: Legal establishment, history, start-up plans, etc.
2. Product or Service: Describe what you're selling. Focus on customer benefits.
3. Market Analysis: You need to know your market, customer needs, where they are, how to reach them, etc.
4. Strategy and Implementation: Be specific. Include management responsibilities with
dates and budget.
5. Management Team: Include backgrounds of key members of the team, personnel strategy, and details.
6. Financial Plan: Include profit and loss, cash flow, balance sheet, break-even
analysis, assumptions etc.
7. Executive Summary: Write this last. It's just a page or two of highlights.

You can view a standard business plan format that can be copied here.

WHAT ARE THE DIFFERENT TYPES OF BUSINESS PLANS?

Business plans are also called strategic plans, investment plans, expansion plans, operational plans, annual plans, internal plans, growth plans, product plans, feasibility plans, and many other names. These are all business plans.

In all these different varieties of business plan, the plan matches your specific situation. For example, if you're developing a plan for internal use only, not for sending out to banks or investors, you may not need to include all the background details that you already know. Description of the management team is very important for investors, while financial history is most important for banks.

Some of these specific case differences lead to different types of plans:

(A) The most standard business plan is a start-up plan, which defines the steps for a new business. It covers standard topics including the company, product or service, market, forecasts, strategy, implementation milestones, management team, and financial analysis. The financial analysis includes projected sales, profit and loss, balance sheet, cash flow, and probably a few other tables. The plan starts with an executive summary and ends with appendices showing monthly projections for the first year.

(B) Internal plans are not intended for outside investors, banks, or other third parties. They might not include detailed description of company or management team. They may or may not include detailed financial projections that become forecasts and budgets. They may cover main points as bullet points in slides (such as PowerPoint slides) rather than detailed texts.

(C) An operations plan is normally an internal plan, and it might also be called an internal plan or an annual plan.
It would normally be more detailed on specific implementation milestones, dates, deadlines, and responsibilities of teams and managers.

(D) A strategic plan is usually also an internal plan, but it focuses more on high-level options and setting main priorities than on the detailed dates and specific responsibilities. Like most internal plans, it wouldn’t include descriptions of the company or the management team. It might also leave out some of the detailed financial projections. It might be more bullet points and slides than text.

(E) A growth plan or expansion plan or new product plan will sometimes focus on a specific area of business, or a subset of the business. These plans could be internal plans or not, depending on whether or not they are being linked to loan applications or new investment. For example, an expansion plan requiring new investment would include full company descriptions and background on the management team, as much as a start-up plan for investors. Loan applications will require this much detail as well. However, an internal plan, used to set the steps for growth or expansion funded
internally, might skip these descriptions. It might not include detailed financial projections for the whole company, but it should at least include detailed forecasts of sales and expenses for the company.

(F) A feasibility plan is a very simple start-up plan that includes a summary, mission statement, keys to success, basic market analysis, and preliminary analysis of costs, pricing, and probable expenses. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing.

WHAT MAKES A GOOD PLAN?

Is it the length of the plan? The information it covers? How well it's written, or the brilliance of its strategy. No.

The following illustration shows a business plan as part of a process. You can think about the good or bad of a plan as the plan itself, measuring its value by its contents. There are some qualities in a plan that make it more likely to create results, and these are important. However, it is even better to see the plan as part of the whole process of results, because even a great plan is wasted if nobody follows it.

Planning is a Process, Not Just a Plan

A business plan will be hard to implement unless it is simple, specific, realistic and complete. Even if it is all these things, a good plan will need someone to follow up and check on it. The plan depends on the human elements around it, particularly the process of commitment and involvement, and the tracking and follow-up that comes afterward.

Successful implementation starts with a good plan. There are elements that will make a plan more likely to be successfully implemented. Some of the clues to implementation include:

1. Is the plan simple? Is it easy to understand and to act on? Does it communicate its contents easily and practically?
2. Is the plan specific? Are its objectives concrete and measurable? Does it include specific actions and activities, each with specific dates of completion, specific persons responsible and specific budgets?
3. Is the plan realistic? Are the sales goals, expense budgets, and milestone dates realistic? Nothing stifles implementation like unrealistic goals.
4. Is the plan complete? Does it include all the necessary elements? Requirements of a business plan vary, depending on the context. There is no guarantee, however, that the plan will work if it doesn't cover the main bases.

Use of Business Plans

Too many people think of business plans as something you do to start a company, apply for a loan, or find investors. Yes, they are vital for those purposes, but there's a lot more to it.

Preparing a business plan is an organized, logical way to look at all of the important aspects of a business. First, decide what you will use the plan for, such as to:

* Define and fix objectives, and programs to achieve those objectives.
* Create regular business review and course correction.
* Define a new business.
* Support a loan application.
* Define agreements between partners.
* Set a value on a business for sale or legal purposes.
* Evaluate a new product line, promotion, or expansion.

No Time to Plan? A Common Misconception

"Not enough time for a plan," business people say. "I can't plan. I'm too busy getting things done." A business plan now can save time and stress later.

Too many businesses make business plans only when they have to. Unless a bank or investors want to look at a business plan, there isn't likely to be a plan written. The busier you are, the more you need to plan. If you are always putting out fires, you should build fire breaks or a sprinkler system. You can lose the whole forest for too much attention to the individual trees.

Keys to Better Business Plans

* Use a business plan to set concrete goals, responsibilities, and deadlines to guide your business.
* A good business plan assigns tasks to people or departments and sets milestones and deadlines for tracking implementation.
* A practical business plan includes 10 parts implementation for every one part strategy.
* As part of the implementation of a business plan, it should provide a forum for regular review and course corrections.
* Good business plans are practical.

Business Plan "Don'ts"

* Don't use a business plan to show how much you know about your business.
* Nobody reads a long-winded business plan: not bankers, bosses, nor venture capitalists. Years ago, people were favorably impressed by long plans. Today, nobody is interested in a business plan more than 50 pages long.