1.1 The purpose of this Operating Procedure
is to describe the guidelines and method of preparing a Business Plan for the
Ownership of Your Company.
1.2 Until committed to paper, intentions are
seeds without soil, sails without wind, mere wishes which render communication
within an organization inefficient, understanding uncertain, feedback
inaccurate, and execution haphazard and sporadic.
1.3 The process of committing plans to paper
is easy to postpone under the press of day-to-day events, but remember that in
the absence of a document, the fully coordinated usage of the resources of the
business is highly unlikely. Without a
document, managers travel along different routes towards destinations of their
own choosing. Decisions are made
independent of directions. Time is lost
energy and resources squandered.
1.4 To many people, strategic business
planning (called in this Operating
Procedure, Business Planning) is something meant only for big businesses,
but it is equally applicable to small and medium businesses.
1.5 Business planning is matching the
strengths of your business to available opportunities. To do this effectively, you need to collect,
screen and analyze information about the business environment. You also need to have a clear understanding
of your business - its strengths and weaknesses - and develop a clear mission,
goals and objectives.
1.6 Acquiring this understanding often
involves more work than expected. You
must realistically assess the business you are convinced you know well.
2.1
Business
planning focuses largely on managing interaction with environmental forces,
which include competitors, government, suppliers, customers, various interest
groups and other factors that affect your business and its prospects.
2.2 Your ability as a small business
owner/manager to deal with these groups will vary widely depending on the group
and on the timing. For example, you may
enjoy greater influence with your local government than with the federal
government. Also, you may be able to get
more of what you want from a supplier than from a competitor (although size,
distance, the percentage of the supplier’s business you represent and your
record of dependability as a customer can affect this relationship). How
you manage these and other relationships is one of the decisions you will make
during the business planning process.
2.3 Because of major changes in the business
environment, your familiarity with business planning and your ability to
implement it is critical.
2.4 At one time, business owners/managers
assessed the environment on a scale that ran between very stable and very
unstable. Businesses, such as the
producers of automobiles, furniture and other consumer goods, operated in a
relatively stable and predictable world.
This also was true of many service firms, such as banks and savings and
loans. Typically, the environment
included competition that was limited to a stable group of competitors, loyal
customers and a relatively slow transfer of information. Many small businesses could thrive in this
environment.
2.5 Other small investors entered fields such
as xerography, computers and computer component production, software design and
chemical research. Some of these grew
rapidly, becoming names with which we all are familiar: Xerox, IBM, Apple and
Microsoft. But many more failed. Today,
experts agree that more businesses face an unstable business environment. Improvements in information processing and
telecommunications have made major changes in most industries. Along with this, improvements in
transportation and the growth of foreign economies (specifically in
2.6
Competitors
also can change rapidly, with new ones appearing from out of nowhere (often
this means the other side of the globe).
With the instability of the global market, it is important that you make
business-planning part of your overall business strategy.
2.7
2.7
A
few years ago, you could establish and maintain a business by reacting to and
meeting changes in tastes, costs and prices.
This reactive style of management was often enough to keep the business
going. However,
today changes happen fast and come from
many directions. By the time a reactive manager can make the necessary adjustments, he
or she may lose many customers — possibly for good.
2.8 Proactive planning is the anticipation of
future events. Decisions are based on
predictions of future states of the environment as opposed to reactions to
various crises as they occur. Proactive
planning in an unstable, technology-driven business environment is critical to
continuing success in almost any endeavor.
Rather than reacting to the situation as it changes, proactive planning
requires that you analyze environmental forces and make resource-allocation
decisions. By doing this you will take
your business where it needs to be in the next month, year and decade.
2.9 It seems that today’s entrepreneur is
more of a business architect than almost anything else is. The fundamental reason supporting this notion
is that anything to be built in the business environment we have today must
have a blueprint or a plan to how to achieve success.
2.10 The blueprint for today’s business owner is
a business plan.
3.1 Planning plays an important role in any
business venture. It can make the
difference between the success or failure of your business.
3.2 You should plan carefully before
investing your time and, especially, your money in any business venture.
3.3 A business enterprise is far too complex
to assume that failure to develop a sound business plan will be the cause for
all problems. Nevertheless, this failure
often counts among the factors contributing to business difficulties.
3.4
Remember
that, in today’s world, to be an entrepreneur, an owner or a manager takes
constant vigilance in order to be able to control and manage the current
enterprise and to be prepared to take advantage of new opportunities and the
availability of new information and technology as they come into being.
3.5 The first step in doing this is to have a
plan.
3.5.1 It encourages realism instead of
over-optimism.
3.5.2
It
helps you identify your customers, your market area, your pricing strategy and
the competitive conditions under which you must operate to succeed. This process often leads to the discovery of
a competitive advantage or new opportunity as well as deficiencies in your
plan.
3.5.3 By
committing your plans to paper, your overall ability to manage the
business will improve. You will be
able to concentrate your efforts on deviations from the plan before
conditions become critical. You will
also have time to look ahead and avoid problems before they arise.
3.5.4 The Business Plan establishes the amount of
financing or outside investment required and when it is needed.
3.5.5 There is powerful evidence that the act of
committing an idea to paper is a vital step in its development and
accomplishment. This notion is nowhere
more true that when dealing with ideas about the growth of a company. By nature, ideas are fuzzy combinations of
needs, interests, capabilities, frustration, optimism, ambition and a dozen
more ingredients. Few individuals wake
up one morning with an “ah ha” imprinted undeniably on their brains on “how” to
grow a business. Instant photography, fail-safe
computers, PC’s, and a thousand other products or services were not conceived
with the help of lightning bolts.
4.1
The
business plan is a succinct document that specifies the components of a strategy
with regard to the business mission, external and internal environments and
problems identified in earlier analyses.
A business plan is not written each time a modification to a strategy is
made. It should be written when you
develop a new venture or launch a major new initiative.
The
business plan serves several important purposes:
4.1.1 It helps determine the viability of the
venture in a designated market.
4.1.2 It provides guidance to the entrepreneur in
organizing his or her planning activities.
4.1.3 It serves as an important tool in helping to obtain financing.
4.1.4 A well-written business plan also will
provide broad parameters upon which progress toward goals can be assessed and
control decisions made at a later time.
4.2 A typical business plan begins with a
brief introduction followed by an executive summary. The executive summary is prepared after the
total plan has been written. Its purpose
is to communicate the plan in a convincing way to important audiences, such as
potential investors, so they will read further.
4.3 An industry analysis usually follows the
executive summary. This section
communicates key information — the collection of which was discussed earlier —
that puts the venture or plan into the proper context.
4.4 The marketing plan is the first step in
developing any new strategy. It is
developed within the context of the company’s goals and should be based on a
realistic assessment of the external environment.
4.4.1 The marketing plan is written first because marketing decisions typically determine
resource needs in other areas.
Obviously, a decision to seek a large share of a market will require a
significant commitment of resources of various kinds.
4.4.2 How you choose to promote and distribute
your product or service will have clear ramifications for your organizational,
production, human resource and financial plans.
4.5
The
organizational plan details how your
business is to be configured to most effectively support the marketing
objectives. What kinds of skills are
needed to carry out your plan? What
sorts of skills do you have among managers and employees? What tasks which employees will do? What tasks will be contracted out? Many businesses, for example, hire the
services of an advertising firm to
improve their product promotions but handle their customer relations
internally. Roles and responsibilities
of
each employee needs to be clearly
specified.
4.6 Develop the production plan and human
resources plan along with the organizational plan.
4.6.1 Again, you must decide whether or not you
will handle all production internally or contract all or part of it to other
firms. What equipment will you need to
meet the marketing plan? What will be
the costs of manufacturing the product?
What will be the future capital needs of the enterprise?
4.6.2 Human resource needs are clearly affected by
decisions made in production planning.
What human resources do you have?
Will they be adequate to handle new or changed plans? What additional skills are needed? Will you seek employees who are already
trained, or will you hire less skilled individuals and train them? If the latter, what resources will be needed
for training, and how long will it take to obtain the desired levels of
productivity?
4.7 The financial plan underpins this entire
system of plans. Three financial areas
are generally discussed.
4.7.1 First, forecasted sales and related expenses
need to be summarized. Monthly figures
generally need to be estimated for a period exceeding one year; the appropriate
period will vary depending on the nature of the product and the stability of
the market.
4.7.2 Second, cash flow figures need to be
estimated over the same period. A
business needs to pay its bills in a timely fashion; many successful ventures
end when suppliers refuse to extend additional credit to a business that hasn’t
paid its bills.
4.7.3 Finally, a projected balance sheet that
shows the financial condition of your business at a specific time needs to be
prepared.
4.8
Usually
an appendix is included in a business plan.
This generally contains supporting information, documents and details
that would interfere with clear communication in the body of the plan. Examples of this type of information include
price lists, economic forecasts, demographic data and market analyses.
4.9
Serves
as the title page of your business plan.
It should contain the following:
Name
of the company
Company
address
Company
phone number (include area code)
Logo
(if you have one)
Name,
title, address, phone numbers (include area code)
Month
and year your plan was issued
Name
of person that prepared this document
This
is the thesis statement and includes business plan objectives. Use the key words (who, what, where, when,
why, how, and how much) to briefly tell about the following:
What
your company is (also who, what, where and when).
What
your objectives are.
If
you need a loan, why you need it.
How
much you need.
Why
you will be successful.
How
and when you plan to repay your loan.
A
page listing the major topics and references.
Covers
the details of your business. Include
information about your industry in general, and your business in
particular. Address the following:
1.
Legal
structure — Tell what legal structure you have chosen and state reasons for
your choice.
2.
2. Description of the business — Detail
your business. Tell about your history,
present status and future projections.
Outline your product or service in terms of marketability. Project a sense of what you expect to
accomplish in the next few [usually three] years.
3. Products or services — give a detailed
description of your products from raw materials to finished items. Tell about your process. If you provide a service, tell what it is,
how it is provided and why it is unique.
List future products or services you plan to provide.
4.
Location
— Describe site and why it was chosen.
(If location is important to your marketing plan, focus on this in the
marketing section below.)
5.
5. Management — Describe who is behind the
business. For each owner, tell about
responsibilities and abilities. Support
with resumes.
6. Personnel — Who will be doing the work,
why are they qualified, what is their wage, what are their responsibilities?
7. Methods of record keeping — What
accounting system will you use? Who will
do your record keeping? Do you have a
plan to help you use your records in analyzing your business?
8. Insurance — What kinds of insurance
will you need? What will these cost and
whom will you use for a carrier?
9. Security — Address security in terms of
inventory control and theft of company information.
Covers the details of your marketing
plan. Include information about the
total market with emphasis on your target market. Identify your customers and tell about the
means to make your product or service available to them.
1.
Target
market — Identify characteristics of your customers. Tell how you arrived at your results. Back up information with demographics,
questionnaires and surveys. Project the
size of your market.
2.
3.
Competition
— Evaluate indirect and direct competition.
Show how you can compete.
Evaluate competition in terms of location, market and business history.
4.
3. Methods of distribution — Tell about
the manner in which products and services will be made available to the
customer. Back up decisions with
statistical reports, rate sheets, etc.
4. Advertising — How will your advertising
be tailored to your target market?
Include rate sheets, promotional material and time lines for your
advertising campaign.
5. Pricing — Pricing will be determined as
a result of market research and costing your product or service. Tell how you arrived at your pricing
structure and back it up with materials from your research.
6. Product designs — Answer key questions
regarding product design and packaging.
Include graphics and proprietary rights information.
7. Timing of market entry — Tell when you
plan to enter the market and how you arrived at your decision.
8. Location — If your choice of location
is related to target market, cover it in this section of your business
plan. (See location in the business
section of this outline.)
9.
Industry
trends — give current trends; project how the market may change and what you
plan to do to keep up.
10.
These are the records used to show past,
current and projected finances. The
following are the major documents you will want to include in your business
plan. The work is easier if these are
done in the order presented.
1. Summary of financial needs —
This is an outline indicating why you are applying for a loan and how much you
need.
2.
Sources
and uses of funds statement
— It will be necessary for you to tell how you intend to disperse the loan
funds. Back up your statement with
supporting data.
3.
4.
Cash
flow statement (budget) –This
document projects what your business plan means in terms of dollars. It shows cash inflow and outflow over a
period of time and is used for internal planning. Cash flow statements show both how much and
when cash must flow in and out of
your
business.
4. Three-year income projection — A
pro forma income statement showing your projections for your company for the
next three years. Use the pro forma cash
flow statement for the first year’s figures and project the next according to
economic and industry trends.
5.
Break-Even
analysis — The
break-even point is when a company’s expenses exactly match the sales or
service volume. It can be expressed in
total dollars or revenue exactly offset by total expenses or total units of
production (cost of which exactly equals the income derived by their sales). This analysis can be done either
mathematically or graphically.
6.
NOTE: The following are actual
performance statements reflecting the activity of your business in the
past. If you are a new business owner,
your financial section will end here and you will add a personal financial
history. If you are an established
business, you will include the actual performance statements that follow.
1.
Balance
sheet — Shows the condition of the business as of a fixed date. It is a picture of your firm’s financial
condition at a particular moment and will show you whether your financial
position is strong or weak. It is
usually done at the close of an accounting period, and contains assets,
liabilities and net worth.
2.
2. Income (profit and loss) statement —
Shows your business financial activity over a period of time (monthly,
annually). It is a moving picture
showing what has happened in your business and is an excellent tool for
assessing your business. Your ledger is
closed and balanced and the revenue and expense totals transferred to this
statement.
3.
Business
financial history — This is a summary of financial information about your
company from its start to the present.
The business financial history and loan applications are usually the
same. If you have completed the rest of
the financial section, you should be able to transfer all the needed
information to this document.
4.
These are the records that back up the
statements and decisions made in the three main parts of your business
plan. Those most commonly included are
as follows:
1. Personal resumes — should be limited to
one page and include work history, educational background, professional
affiliations and honors and special skills.
2. Personal financial statement — A
statement of personal assets and liabilities.
For a new business owner, this will be part of your financial section.
3.
Credit
reports — Business and personal from suppliers, wholesalers, credit bureaus and
banks.
4.
4. Copies of leases — All agreements
currently in force between your company and a leasing agency.
5. Letters of reference — letters
recommending you as being a reputable and reliable businessperson worthy of
being considered a good risk. (Include
both business and personal references.)
6. Contracts — Include all business
contracts, both completed and currently in force.
7. Legal documents — All legal papers
pertaining to your legal structure, proprietary rights insurance, titles, etc.
8.
Miscellaneous
documents — All other documents that have been referred to, but are not
included in the main body of the plan (e.g., location plans, demographics,
advertising plan, etc.).
9.
When
you are finished: Your business plan should look professional, but the lender
needs to know that you did it. A
business plan will be the best indicator he or she has to judge your potential
for success. It should be no more than
30 to 40 pages long. Include only the
supporting documents that will be of immediate interest to your potential
lender. Keep the others in your own copy
where they will be available on short notice.
Have copies of your plan bound at your local print shop, or with a blue,
black or brown cover purchased from the stationery store. Make copies for yourself and each lender you
wish to approach.
Do
not give out too many copies at once, and keep track of each copy. If your loan is refused, be sure to retrieve
your business plan.
5.1 Business planning has become more
important to business managers because technology and competition have made the
business environment less stable and less predictable.
5.2 If you are to survive and prosper, you
should take the time to identify the niches in which you are most likely to
succeed and to identify the resource demands that must be met. In larger businesses the steps outlined in
this publication may be carried out by teams of experts or may involve the
interplay of ideas among hundreds, even thousands, of managers.
5.3
These
guidelines are equally applicable to the entrepreneur sitting down with several
key employees to discuss what can be achieved in the next two to three years,
and what it will cost. The amount of
time spent on each step and the resources devoted to this process will vary
greatly from business to business, but it is vital to understand and employ
these steps.
5.4
What
you do when you plan is to define the nature and perimeter of the business you
are planning to build or grow. Some
operating objectives will change from year to year, as circumstances change and
as certain milestones are passed and new subjects rise in importance. As these objectives change so must the
supporting business plan change.
5.5
Mark
and Carol, the most important element of the entire business planning process
is YOU TWO — you must prepare
and work from a written plan every year. In this way, you are conceiving of and
planning the growth of your business and working in a unified, reasonable,
coordinated manner.
While your Company will be running in a proactive mode, many of your competitors will still be just getting by [as you were], by being reactive. You will start to attract high quality people with expertise and have a professionalism that will cultivate efficiencies, an image, and customer satisfaction that will guarantee Your Company’s success for many years to come, and the bottom line profits to match.
Ken Roys, CEO
BTF Management Consultants Inc
866-385-1900 Toll Free 713-983-7904 Fax
Ken.Roys@btfmanagement.com
www.btfmanagement.com