What Is A Business Plan?

Let's start by describing what we will deliver as a "Business Plan".

In simple terms, a business plan is a document that describes a business idea; the strategies and plans to turn that idea into a profitable business; and the financial results that are expected.

In more general terms, the business plan is a communications tool that will identify and confirm a business opportunity, define the proposed concept and approach to respond to that opportunity and support the strategies, operating plans and financial projections with solid logic and analysis.

It is not exactly a sales document, but it will be used to attract financing and convince strategic partners to participate in your plan.

An acceptable Business Plan will include a detailed and comprehensive description of the planned project or new venture with extensive relevant financial analysis and projections, plus supporting material that might include executive profiles, product brochures, facilities plans and market research studies.

The three key components in a Business Plan therefore, are:

1. A clear, persuasive description of the business opportunity and the strategies and action plans to respond to it;

2. A complete, detailed set of financial projections confirming the investment required and the expected future profitability; and

3. Appendices with additional objective reference material that supports all the assumptions and forecasts shown in the plan.

This Guide will explain how to prepare all the elements of a complete business plan package, how to get the most out of the process, and how to get the results you want from your plan.

Why Do You Need a Business Plan?

"It's the process, not the product."

Keep that phrase in mind as a reminder that the value of doing a Business Plan lies in the planning process, not in the final product, which is simply an elaborate document. A useful and important document, of course, but less valuable than the analysis, decisions and strategic plans that come out of the process.

Every business needs one.

It's not just for start-ups or new product launches.

Documenting a Business Plan is an extremely useful process to focus the owners and the management team on their business model, strategies, and operating plans. The process will force consensus and decision making that might otherwise be neglected. It requires issues to be resolved and documented after testing alternative solutions and their financial consequences.

A well-documented business plan will help you communicate the most important elements of your strategy and plans to the people who need to know them most. Including you.

Maybe you've been successful in business for many years and never had a business plan. It's still a good idea for all the same reasons. And now is a good time.

Maybe you're ready to exit your business. Even better. A solid business plan will be the most important document you have to support the value of your business.

The most common reason for preparing a business plan, from my experience, is "because the bank asked for one."

That is probably why most readers of this Guide are here. And that is obviously a legitimate reason for doing one. (We'll discuss later why the bank is asking for one and what they want to see in it.)

The greatest value of a business plan, however, is always in the process – involving your management team in a thorough examination of your business; its purpose, its strategies and its plans to ensure success. When completed, all the key players will be more knowledgeable of the issues, the opportunities, the risks and the alternative paths considered; before committing to the final plan.

For a small business start-up, that management team may only be you. It's still a valuable exercise. It forces you to answer all the questions that you should ask yourself and that will certainly be asked by the next people to get involved.

With a well documented business plan you will be prepared.

Real Life Story: "Don't take that to the bank"

It started with "Hi Del, we found you on the Internet". A week later, I was sitting down with Peter, Paul and Mary to work with them on their start-up business plan.

Peter and Paul were two experienced executives in the computer hardware service business and Mary was Paul's wife. They wanted to quit their current jobs and start their own computer services business that would succeed where their current employers were failing. They had the necessary knowledge, experience and contacts to quickly get up to speed and win business from competitors.

But there were two major flaws in their initial plan. First, they had an unnamed additional partner who was currently the Purchasing Agent with a customer of their current employer and who was promising to switch a large contract from their employer to their new business. Oops!

Probably a firing offense as a conflict of interest for the partner and a breach of employment or non-compete agreements for Peter and Paul. We agreed to leave the third partner out of the deal, at least until he also had left his current job.

The second major flaw was their plan to attract both suppliers and customers with very generous payment terms. The exact opposite of the often recommended cash management policy of "collect fast and pay slow", they intended to let their customers pay slow and have their suppliers paid fast. Certainly attractive for customers and suppliers, but a disaster for financing and profitability.

Not something to take to the bank to demonstrate good management capabilities and a plan to succeed. So we reverted to normal industry payment terms in the plan and focused on leveraging their strengths of market knowledge and technical expertise to attract customers and suppliers. That not only made the plan more presentable, but also reduced the start-up financing requirement from over $100,000 to less than $40,000.

These were valuable changes to their business plan resulting from the process of testing strategies and plans to see the real impact on operations and financial results.

They did succeed in getting financed and two years later were growing fast.

(Note: In all these Real life Stories, the actual names and business details have been changed to protect the innocent subjects involved in each story. Their stories are told here only for the purpose of helping other entrepreneurs get better results from their Business Plans.)

What is the Process?

Continuous recycling: rethinking, reviewing and rewriting.

Recently, while revising my lecture material for another course on business planning at Concordia University in Montreal, I spent some time reviewing other resources available from a wide variety of sources.

It was all very uninspiring: Unconvincing in the reasons for doing a good business plan and entirely discouraging in describing the elaborate process for preparing one. Not likely to persuade busy, results-oriented, document-challenged entrepreneurs that it's a good idea and that they can do it for themselves.

My mission became clearer.

And I started to describe my own approach as "Recycling your Business Plan". That best describes the process I recommend: Start with a very simple document, then continuously review, revise and expand the plan to deal with more issues and answer more questions.

In that approach I'm reminded of the "million dollar napkin" that one entrepreneur boasts he used to start his business simply by responding to the challenge to put it all on a restaurant napkin.

And there are the thousands of successful businesses that were launched "on the back of an envelope". It's a good way to start your business plan – describe it in a few words on one page.

Here are the steps that I recommend to "recycle" your business plan.

Each step is a version of your Business Plan that becomes more solid and detailed at each "recycling":

1. Describe the market opportunity, your concept, business strategy, company name and marketing slogan and reasons it will succeed – on one page (or napkin, or envelope).

2. Confirm that your personal objectives are consistent with your business objectives and that you have the skills, personality, experience, contacts and knowledge required (or explain how you will acquire them).

3. Collect and analyse data on your market, customers and competitors that confirm both the business opportunity and your ability to meet customer needs against competitive alternatives.

4. Do a business feasibility test at your estimated sales volumes, pricing and operating costs to determine profitability. Calculate the break-even sales level and compare it to your forecast sales.

5. Document in more detail your business concept and strategy and all the operating plans for facilities, organisation, operations, marketing and sales. Add a section on the risks considered and your planned response to anything that may not go according to plan.

6. Expand the financial analysis to include start-up costs, working capital required and the cash flow consequences to determine the financing required. How much, required when, and how will it be recovered? Test alternative scenarios to ensure that potential variations in sales forecasts and cost estimates still lead to profitability and that financing will be adequate.

7. Complete the business plan document and a full set of financial projections against a checklist of the requirements for your intended audience - management team, lenders, investors, or strategic partners. Add relevant supporting appendices.

8. Then recycle the essential elements to capture your Business Plan in a two-to-three page Executive Summary, in a 1-minute elevator pitch, and in a 10-20 slide PowerPoint presentation for alternate forms of brief introduction to your plan.

9. The final recycling step for your Business Plan is to continuously refer to it against your future operating results. After review, check whether the plan and objectives are still valid and then revise either your plans or your performance to achieve the objectives.

That's it.

These few simple steps will take you from a good idea to a well developed and fully documented Business Plan that will serve as a guide to management and will persuade others to invest in your plan.

Remember the objective is to arrive at that communications document that confirms the business opportunity, describes your strategy and operating plans, and presents the supporting research and financial projections to prove that it will be a profitable and successful business.

Recycling is good.

The following sections describe each of these steps in more detail.

Check Your Personal Objectives

Are you sure you want to be your own boss? Do you have what it takes?

Before you make the leap into starting your own business, ask yourself these four questions:

• Is it really a good personal career choice?

• What do I need to know to decide?

• How can I prepare myself?

• How do I get started?

In this section, I will help you find the answers to those key questions.

Who will succeed and who will not? Why and why not?

I often make the analogy that starting your own business is a lot like skydiving – it seems like an exciting idea, but you're not likely to do it until you're pushed out the door. So what's pushing you?

In my case, I had literally been pushed out the door of a company that was winding down and my number finally came up. (Not a surprise, since I had spent the previous nine months closing facilities and letting people go; but a painful experience nonetheless.) Two other corporate job offers were soon presented to me, but I decided that it was time to take care of my own career plan and not let someone else decide what I was doing next. (Sound familiar?)

Besides, with an MBA and lots of experience, I was ready to prove that I was at least as good a manager and businessman as the "idiots" I had been working for. That might sound a little arrogant or angry, but it did keep me motivated through the early setbacks.

How about you? Do you really want to own your own business? Be your own boss?

The advantages are attractive, but don't forget the disadvantages that are an inevitable part of the choice.

Advantages

• Unlimited opportunity

• Freedom, independence

• Continuous challenge, variety

• Your choice of management style

• Responsible for and involved in, the whole business

• If the business does well, you do well

Disadvantages

• There are still limits to what you can do or control

• New pressures of more people now dependent on you

• Requires skills and knowledge you do not have

• Cannot leave it at the office

• Higher risk and less secure financial future

• If the business fails, it's now tougher to find a "real" job

To keep it all in perspective, here are some comments by other entrepreneurs that will help you think about what it means to be your own boss:

• "I used to work for someone that I called boss. Now I work for thirty people who call me boss."

• "I wanted to be my own boss. But now I have many bosses – my customers, my employees, my suppliers, the bank, the landlord, the government and the city! It's hard to satisfy them all."

• "It's still better than working for somebody else."

• "I'm the best boss I ever had!"

Which will apply to you and your business? Is that what you want?

Are you likely to succeed?

The next step is to assess whether you are the "entrepreneurial type". It may be true that anyone can be an entrepreneur, but there are certain personal characteristics, preferences, attitudes and abilities that are essential to success.

You need to honestly assess each of these factors if you want to improve your chances to succeed as an entrepreneur:

• Personal expectations and preferences for variety and challenge in your life style, work environment; needs for recognition and compensation. Are they corporate or entrepreneurial?

• Personal strengths and weaknesses, will they help, or hurt, the business?

• Are your education, training, and contact network directly relevant to your business venture?

• Do you have the characteristics of successful entrepreneurs:

* Independent, confident, persistent, action-oriented, risk taking personality.

* Passionate, leader, achiever, communicator.

• Your foundation – family, physical, and financial. Are they solid or a distraction?

• Strategic relationships already in place – partners, suppliers, key customers, employees?

• Timing – now, or never? Too soon, too late?

Is entrepreneurship the right career choice for you?

The questions and approaches described above should help you decide and then to develop a plan to succeed with your chosen business venture.

Real Life Story: "Don't quit your day job, yet."

Many young daydreamers, and older ones that should know better, see entrepreneurship as their escape from a day job that is not meeting their needs.

"Surely, running my own business would be better than this!" Well, maybe not. The same reasons that you are not succeeding on the job may also be big obstacles to your success in business. And entrepreneurship will test skills and capacities that you have not tested before.

Consider the old IBM sales executive that retired early and ... bought a hot dog franchise. He probably used none of his skills and experience from IBM and then also discovered he did not have the patience or aptitude to manage low-budget customers and low-skill employees. Neither a good investment nor a good career decision.

Or consider the frustrated young computer technician that wanted to sell his skills directly to all those home office users that needed his expertise, instead of working so hard for a demanding network services manager and having to run around big corporate offices where nobody appreciated him. We chatted and he wanted to pay me to write a business plan that would get him started with a bank loan so that he could pay himself until he found some customers and signed some contracts.

Sounds simple, right? But no bank would ever finance that plan.

I had to persuade him to stop daydreaming; keep his money and keep his day job.

A better plan was to upgrade his technical skills and get some experience in management and sales with his current employer, so that he could then launch his own business in the same attractive corporate services environment. Too many unhappy computer technicians are already underemployed and under-paid in the difficult home office market.