Business Plans 101

A business plan acts as a road map or compass; without it you will get lost in your business.

The biggest mistake is simply putting it off.

A plan contains a description of your business, an evaluation of your main competitors and several financial calculations.

But why are so many people so afraid or intimidated to write these plans of actions?

Many new business owners are so over-enthusiastic about their business concept, that they are desperately eager to begin and do not have the patience to look at the economic realities involved in their business.

Filling out the many financial forms in your plan can be an overwhelming process for any new business owner. Many are so intimidated by the financial calculations that they want to skip this process. If you recognize either of these tendencies in yourself, it is even more important that you prepare your financial calculations carefully and pay attention to what they tell you. Do not try to get out of it by telling yourself that your financial estimates will be wildly off base and yield useless results.

To alleviate this type of intimidation many have with a plan, it is imperative that Certified Public Accountants, bookkeepers, business plan or financial consultants be a part of your business support team. If you do not have these experts to assist you with your plans, you can take a course in accounting and buy the latest accounting programs.

Other resources to help you write a business plan include books, colleges and universities that work with Small Business Development Centers and counselors and mentors at the Service Corps of Retired Executives (SCORE). They provide low-cost classes on how to write business plans from $40 to $60.

Remember you are the brains of your business; your accountant is the heart and your attorney is the lungs. An accountant helps you keep track of your money and an attorney helps you protect it.

Since over 90% of start-up businesses are funded by private sources such as retirement or pension plans, unemployment insurance payments, savings accounts, divorce settlements, child support payments, etc., many people skip the business plan stage.

Even if you do not need money to start your business, writing a plan will help you see if your idea will be strong from the start. Without a plan, you leave far too many things to chance.

If you started your business without writing a plan of action and now you are close to running out of funds, then chances are you need to write an expansion business plan to look for other financing options while you move your business to the next level.

When seeking out funding for your business you need to make yourself known to financing sources well in advance of asking for financial help; approach multiple sources of financing; educate yourself on the available financing options; know which options are available to your type of service or product; determine which options to pursue at various phases of your company’s growth and always be ready to prepare your business for financing.

You definitely will need a plan if you are going to apply for a business loan, need investors, have business partners, have a management team, or are selling the business.

You can use your plan as a tool to generate interest from financiers, prospective employees and strategic partners.

Before you even start to write your plan, get copies of loan applications used by banks, commercial finance companies, and government. These applications will give you a good idea of how much financial information you will need to include in the business plan.

The most standard plan is a start-up plan, which defines the steps for a new business and the expansion plan which will take the business to the next level or to a larger market.

The plan count is not a good way to estimate how good your plan will be. Instead, measure the plan by readability. A good plan should provide a reader with a general idea of what a business owner is trying to accomplish after skimming or browsing over it for 15 minutes. The more standard start-up and expansion plans developed for showing outsiders normally run 20-40 pages of text, easy to read, well-spaced text, formatted in bullets, illustrated by business charts and short financial tables, plus financial details in appendices. Never write a business plan 50 or more pages.

At a minimum, your plan should have the following sections: Executive Summary, Company Description, Product or Service, Market Analysis, Strategy and Implementation, Web Plan Summary, Management Team, and Financial Analysis.

The most important part of your plan is the Executive Summary. The Executive Summary is an outline of the entire business plan. If you do not have a good Executive Summary, chances are the SBA, bankers and potential investors will not read the entire business plan.

Just remember that the most important audience for a business plan is YOU! Only you are accountable to all of the statements, claims, stats and facts inside of your business plan.

Remember by skipping the business plan stage chances are your business will face many, many risks and you might find yourself out of business within 2 to 5 years.

Top 10 Tips for Creating a Winning Business Plan: Improving The Odds

Creating a winning business plan demands a mixture of precise business thinking, art, timing and luck. You need business planning skills and these can be learned. Many excellent books and courses can help you develop a business plan. But creating a business plan that stands out from the crowd, a winning plan, takes more, and achieving this target takes experience- no way of getting around this. Many talented professionals have their business plan preferences and I have my own which I have fine-tuned working with scores of new ventures. Based on my experience, while there are never any guarantees, here are 10 tips to improve your chances for creating a winning new business plan:

1. Maintain a “market and opportunity” focus and view technology as an enabler. Don’t be seduced with what I call “gee-whiz” technology. Define a tight, focused opportunity with a well-defined target market- technology may be the enabler used to create the business. Suppose you develop a new wireless device and your plan proposes new wireless service for monitoring patient data- the business addresses a real, quantifiable market opportunity. Compare this to an opportunity for a new proprietary wireless data monitoring technology. In today’s highly competitive market, specific, well- defined, opportunity-driven ventures are preferable to pure technology plays.

2. Understand the Difference Between Feature, Function and Benefit Image transmission is a function. Moving high resolution images via telephone lines is a feature. The ability to send a high resolution image in 5 seconds via a telephone line using a $99 device is a benefit. Sell benefits and make this the cornerstone of your plan.

3. Use the “So-What” Tool To Define Your Target Opportunity A very important management tool and not used as often as it should be for new venture development. A simplified “so-what” analysis goes something like this. Our new service offers a unique encrypted data solution for e- commerce applications. So what? We can provide authentication using voice recognition. So what? Our voice authentication technology instantly identifies buyers’ interests and demographic profiles. So what? We can identify and route e- commerce customers based on voice response and past history. The results? Using the “so what” tool, we refocused our thinking to create a more unique, defensible business opportunity.

4. Reinforce Your Assumptions Using Sensitivity Analysis Tools You need to ‘exercise’ your financial model, examine “what-ifs” and boundary conditions. Reduce sales and/or increase costs by 10, 20, 50, 80 percent-what happens? Delay product launch plans, reduce competitors’ costs by the same amount-how do these impact ROI and total cash needs? Formal analysis tools exist to complete these analyses.Properly done, these analyses show that you understand your market, business, elasticities and sensitivities. This is a “must-do” in any business plan effort I am involved with and find this shows you understand your business.

5. Appoint An Advisory Board Develop a “hands-on” Advisory Board. Carve out roles and responsibilities. Provide incentives, typically options, vested based on time served and milestones achieved. Powerful, well-known names and impressive marquees may look great, but you need contributors who can help you move the business forward. Again another “must-do” in any business plan effort I am involved with- high upside with minimal investment. I also serve on these Boards where needed.

6. Develop Strategic Alliances Same points as for Advisory Boards. Developing marketing alliances with GE, IBM and others sound impressive, but make sure there is defensible substance here. Are there any revenue guarantees? What resources have your partners committed to the venture? Any joint promotion plans among their customer bases? Often, targeted alliances with smaller firms may provide more strategic or revenue benefit.

7. Don’t Believe In “The Sanctity of the Business Plan” Another important concept. The completed business plan looks impressive; bound, laser-printed, color charts, and maybe 200 to 300 hours to prepare- sure looks and feels like a finished product. The reality is this document is probably out-of-date before the ink is dry. The plan is only the starting point, a work-in- progress, showing what your team is thinking, assumptions, strategies and projected results. These will tested, attacked by investors and others, defended and changed as your business proceeds. A hard lesson sometimes for those investing more than 200 hours in developing a business plan, but that is reality. There is no sanctity of the Business Plan- as you progress, you will create a revised plan. Revising always adds value and is the norm.

8. Adapt to Change To Avoid the Icarus Paradox In strategic management courses, we relate the story of the fabled Icarus from Greek mythology. Icarus’ greatest asset were wings of feathers and wax that let him soar higher and higher closer to the sun. He kept going to the sun, ignored his father’s warnings about getting too close, the wax wings melted and he crashed and burned. This is often used to explain management failures such as pursuing a single-minded business strategy even in the face of disaster, management hubris, and also believing that achieving great past success ensures future success. (it doesn’t). Avoiding the Icarus Paradox means that new business “trajectories” must be examined, refocused and assumptions tested even when performance is strong.

9. Emphasize Precision Don’t say you are addressing a large, growing market for ‘gizmos’. Instead say “… the market for ‘gizmos’ is $20 million in 2011, increasing to $35 million by 2013.” Specificity and quantitative precision shows clarity of thinking and understanding of your market and business. And also improves your ability to secure funding. In my recent book, I shared similar examples of what I call “fuzzy thinking” and how these can be improved. If you have the “fuzzy thinking” affliction, I recommend focus on tightening your thinking- this skill can be learned.

10. Conduct Business Operations Frugally Running out of cash and inability to secure new funding is most often cited as the reason new ventures fail. However, studies show that ventures funded with minimal capital have a higher probability of success, which I am sure will surprise many readers. The fact is a “frugal” investment structure demands tight management and strong financial controls at the outset. The message here is to tightly define cash needs, operate frugally, particularly in the early months, and demonstrate that you know how to manage cash and resources to win. Achieving this objective often smooths the path to secure new funding.

Entrepreneurs know there are plenty of minefields and absolutely no guarantees in the entrepreneurial world. Follow the above guidelines however and you may improve your probability of creating a winning business plan.

3 Business Plans Every Entrepreneuer Must Have

I am mentoring small businesses and I am amazed at the ideas I read from the entrepreneurs I have the pleasure of meeting.

Unfortunately, not many have well laid out business plans and most use the Internet for planning.

A big percentage of the documents they use from the Internet are impressive, but what they do not understand is that one cannot use a business plan tailored for another region of the world to fully execute his specific business.

Business concepts are similar universally, but execution and sustainability differ depending on one’s environment and market.

The business plans I have read display glorified projections and their market analysis clearly depicts great profit.

In short, one look at a business plan will tell you that some issues have yet to be thought out clearly. For example, competition, risk, challenges and so forth.

Before embarking on your venture, draft at least three business plans.

Individual

This plan is the truest of them all. I refer to it as the naked business plan. It covers almost everything including risk and possibility of failure. No business life lesson can be complete without a discussion on risks and risk management and no business can be started without embracing risk.

Risks are inherent in everything we do – business risk management is the key to ensuring risks are identified and a plan-B or C thought out. Some risks we can control while others we cannot.

This plan should cover who you are as an individual, what your honest strengths and weaknesses are and how you will handle stumbling blocks or closure.

It should address questions like; Can you persevere through tough times? Do you have a strong desire to be your own boss? Do the judgments you make in life regularly turn out well? Do you have an ability to conceptualise the whole of a business? Do you possess the high level of energy, sustainable over long hours, to make a business successful? Do you have specialised business experience?

Financial projections in the plan should cover, at the very least, five different modules. You should work on the plan yourself and get prepared for any outcome.

Investors

I like to call this the headlines business plan. You only have one shot at getting investors – make the best out of it.

This is a plan that shows what team you will be working with and how you plan to invest to make money for investors. Show a well laid out plan that includes short and long term financial gains.

The confidence, coupled with experience, shown in this document will determine whether you get the initial investment you seek.

Financial projections in this case can be three to five years. They are there to show sustained profit. You should not glorify the plan nor try to get a lot of money for the start-up.

You must mention what your competition is and how you plan to create your own niche market – having a business plan that does not have a thorough SWOT analysis could raise the red flag. You might end up not getting financial support.

Pick the right team, get professional advice, try to separate your product from the rest in order to achieve your own niche.

Do not spend too much money. Most people think that having a lot of money is fundamental in starting a business. That is a fallacy – you can make a lot out of very little.

Universal

This is the plan that you started out with – the ”sitting research” through which you came out with pros and cons of the venture. The plan that has been developed from different Internet searches to better understand what you will be dealing with.

This is the longest business plan. This plan has a lot of data, but you should sieve out information that is irrelevant for your business. Without this plan, it is difficulty to cover everything that needs to be covered in your proposed venture.

Starting a business is not for everyone, but great planning initiated through a solid business plan will always bring in the results.