Tallying up the benefits of a business plan

Some of the benefits you can gain from business planning include

• An opportunity to test your business idea to see whether it holds real promise of success (see Chapter 2 in Book 1)
• Clarity about your business mission, vision, and the values that can help you steer your business through times of growth or difficulty
• A description of your business model, or how you plan to make money and stay in business (see Chapter 3 in Book 1), along with a road map and timetable for achieving your goals and objectives
• A portrait of your potential customers and their buying behaviors (see Chapter 4 in Book 1)
• A rundown of your major competitors and your strategies for facing them
• A clear-eyed analysis of your industry, including opportunities and threats, along with an honest assessment of your company’s strengths and weaknesses
• Benchmarks you can use to track your performance and make midcourse corrections
• An explanation of your marketing strategies (head to Book 5 for more on marketing and publicity)
• An analysis of your revenues, costs, and projected profits, along with cash flow projections that help you anticipate your funding needs until the time when revenues flow in to cover expenses (see Book 3 for more about finances)
• An assessment of risks and the forces of change that can threaten your success or present opportunities to capitalize upon
• A résumé you can use to introduce your business to employees, suppliers, vendors, lenders, and others

Knowing what can go wrong without a plan

The many benefits of having a business plan should be enough to convince you. But in case you’re still wavering, consider what can go wrong if you don’t take time to plan. You risk

• Running out of cash because you haven’t projected start-up or expansion costs and the amount of funding you’ll need before sufficient revenue rolls in
• Missing sales projections because you don’t really know who your customers are, what they want, or how they shop and buy
• Becoming overwhelmed or sidetracked by too many options because you never took the time to focus on a mission and vision for your company
• Going bankrupt because you don’t have a rational business model or a plan for how to make money

Time spent putting together a solid business plan is time well spent. Don’t be overwhelmed by the task you’re launching. The basic components of a business plan are fairly simple and the benefits are many.

Business plan contents from beginning to end

Although business plans come in all sizes and formats, they typically share a similar framework. The following components, presented in the order they generally appear, are the elements you’ll choose from as you build your plan:

• Table of contents: This guide to key sections in your business plan is especially useful if your plan exceeds ten pages.
• Executive summary: This summary of key points in your business plan is important if your plan runs more than ten pages, and you want to convey the major points up-front. You want to keep it clear, captivating, and brief — in fact, aim to keep it to no more than two pages.
• Business overview: This section describes your company and the nature of your business. It may include your company’s mission and vision statements as well as descriptions of your values, your products or services, ways your company is unique, and what business opportunities you plan to seize.
• Business environment: This section includes an analysis of your industry and the forces at work in your market; a description of your direct and potential competitors; and a close look at your customers, including who they are, what they want, and how they buy products or services. It describes forces beyond your control that affect your business success.
• Business description: In this section, include information about your management team, organizational structure, new or proprietary technology, products and services, business operations, and marketing potential.
• Business strategy: This section is your road map to success. It brings together information about your business environment, business model, goals and objectives, and resources, and then lays out your strategy for start-up, growth, or turnaround.
• Marketing plan: This section is where you describe your brand, value proposition, and how you plan to reach prospects, make sales, and develop a loyal clientele. (See Book 5 for more about marketing.)
• Financial review: This section includes a detailed review of the state of your current finances and what you expect your financial picture to look like in the future. It typically contains financial statements, including an income statement, your balance sheet, and a cash-flow statement. (Book 3 has more about finances.)
• Action plan: Here you detail the steps involved in implementing your business plan, including the sequence of actions and how they align with your goals and objectives.
• Appendices: This section includes detailed information that supports your business plan. It may include analyses, reports, surveys, legal documents, product specifications, and spreadsheets that deliver information that supports your business plan but which is of interest to only a small number of your readers.

Business plan FAQs

If you’re like most people who are launching the business-planning process, the following questions are on your mind:

• Do you really need to include all these sections? Nope. Your business plan should include only what’s important to you and your company. If your plan is short — or written mostly for your own purposes — you can skip the executive summary and table of contents, for example. Or if it’s a one-person business, you may not need to describe its organization (unless you need a little help in getting organized!).

  For most businesses, however, all the other sections are important. By putting your mission, vision, values, product offering, goals, and competitive advantages into words, you clarify and strengthen ideas about what you really plan to do with your business. That exercise can be extremely valuable for any company, no matter how big or small.

• Do you really need to write it all down? The one-word answer is yes. Creating a written plan forces you to think through issues that you may otherwise ignore. For example, when you write your business plan, you commit to how you’re going to make money; you define your customers and your strategy for reaching them; you analyze your competition and how your offerings compare to theirs; you list opportunities to seize and threats to protect against; and you establish a set of goals and objectives — along with your action plan for achieving success. And when you’re done, you have it all in writing for quick, easy, and frequent reference.
• How long should your plan be? As long as it needs to be — and not a single word longer. A business plan as thick as a good novel doesn’t impress anyone. In fact, a plan that size is likely to scare people off. What really impresses investors, clients, employees, and anyone else who may read your plan is clear, straightforward, and to-the-point thinking. Don’t go overboard in the cutting room or leave anything important out of your plan purely for the sake of keeping it brief, but do condense every section down to its most important points. Even comprehensive plans usually fit on 20 to 30 pages, plus appendices. Most 100-page business plans are about 75 pages too long.

Planning for a new business

Every new business — whether a tech start-up or new business in a long-standing arena — begins with a new idea and high hopes. A business plan helps you evaluate your new idea, potential market, and competition, addressing these critical questions:

• Does this new venture have a good chance of getting off the ground?
• How much money will the business need to get up and running?
• Who are your customers, and what’s the best way to reach them?
• Who are your competitors, and what’s the best way to outrun them?
• Why will people choose this product or service over other options?

Planning for a solo business

Millions of people work for themselves in businesses called sole proprietorships. They range from accountants and attorneys to app developers, artists, and musicians. Many never consider drafting a business plan, which is too bad. A business plan helps zero in on key questions:

• Are you prepared for running a company of one?
• How can you turn what you love doing into a profitable business?
• What resources do you need to get your business off the ground?
• What should you charge for your product or service?
• What affiliations could you explore to strengthen the business?

Chapter 2 in Book 1 includes a section on turning a side gig into a business.

Planning to address changing conditions

No business today is immune to change. New technologies, disruptive innovations, and global, economic, and political turbulence prompt many established businesses to plan how to retool themselves. The critical questions a business plan must address are as follows:

• What are the drivers of change that present your business with internal or external threats or opportunities?
• How can you reshape your business, its technology, its products or services, and its customer interactions to better compete in its transformed environment?
• What steps do you need to take to achieve your goals for change?

Planning for growth

Successful companies can’t rest on their laurels. To remain successful, they have to maintain their competitive edge. And to grow, they need to seize new opportunities, whether by introducing products, expanding into new locations or market segments, improving efficiencies and profitability, or embracing new innovations. For companies charting a strategy to grow, a business plan must address several key questions:

• How are you planning to deepen customer loyalty?
• Where do the best opportunities for growth lie?
• If you’re aiming to reach new market areas or new consumer segments, who are your competitors in these new markets?
• Can you take advantage of technological innovations?
• How can you revise operations and processes to scale into a larger business or to improve profitability?
• How can you best compete to grab new market share?

Your audience

All the people who have an interest in or who can help you succeed in your business venture — from investors and lenders to employees, customers, and suppliers — represent audiences for your business plan. Depending on the situation you face and what you want your company to achieve through its plan, certain audiences will be more important than others:

• If your company seeks investment capital, your all-important target audience is likely to be filled with potential investors.
• If your plan includes the introduction of stock options (possibly in lieu of higher salaries), your current and prospective employees and stakeholders are a primary target audience.
• If you’re launching a business that needs clients to get up and running — the sooner the better — major customers may comprise one of your plan’s primary audiences.
• If you’re self-employed in a one-person business, your plan may be to focus on you and you alone as you chart your course and anticipate problems before they arise.

The following is a checklist of the most common audiences for a business plan:

• Yourself and those individuals in your close circle: To focus and gain support for your efforts, establish your goals, chart your course, anticipate problems, reduce distractions, build on strengths, and stay on track to success.
• Your board of directors or advisors: To share growth plans and how you can achieve them.
• Investors and lenders: To provide proof of good long-term financial prospects, positive and growing revenue and profit projections, and strong strategies and financial management. For investors, also to convince that your business is postured for strong and rapid growth.
• Senior management team: To present growth plans and how each manager’s area contributes to success.
• Current employees: To present a business overview with emphasis on growth plans and how team members can participate and benefit from business changes, growth, and profitability.
• New hires: To present a business overview with emphasis on brand and business culture, growth plans, and how team members can participate and benefit from business changes, growth, and profitability.
• Independent contractors: To present a business overview with emphasis on brand and business culture, quality, growth plans, and how remote team members collaborate and contribute.
• Vendors and suppliers: To present a business overview that describes what your company is and does, its distinctions and value proposition, and how its capabilities, operations, and finances posture it as a strong business partner in business alliances.
• Customers or clients: To present a business overview that describes what your company is and does, its distinctions and value proposition, and how its capabilities, operations, and finances posture it for long-term strength.
• Donors (for nonprofits): To present the organization’s goals, operations, the importance of its work, the extent of its volunteer and client network, and how it uses funds and ensures financial accountability.
• Distributors: To present a business overview with emphasis on brand strength, product lines, competitive advantage, market area, growth plans, and financial strength.
• Regulators: To present a business overview with emphasis on operational, financial, and legal issues.
• Advocacy groups: To share key strategies for addressing the interests or requirements of each group and how your business has the operational and financial strength to succeed.

Your message

After you target the audiences for your plan, the next step is to focus on the key messages you want each group to receive. For example:

• A person who owns shares in a company wants to know growth plans.
• A banker considering a loan request wants to see proof of strong revenue and profit prospects.
• Employee groups want to see how they’ll benefit from the company’s growth and profits.
• Regulators focus on operational and financial issues.

Take time to clarify the primary messages you need to convey to your key audiences. Refer to the preceding section for samples of messages that various audiences are likely to consider important. Then, identify the three most important audiences you intend to address with your business plan and the key points you want to convey to each.

Setting your schedule

How far out your planning horizon should span depends on the kind of business you’re in and the pace at which your industry is moving. Some ventures have only six months to prove themselves. At the other end of the spectrum, organizations with substantial endowments, such as nonprofits, are in for the long haul with business plans that look at five- or ten-year horizons. Typical business plans, however, tend to use one-year, three-year, or five-year benchmarks.

Business planning is an ongoing process. At least annually — and sometimes more often — most companies review, revise, and even completely overhaul their plans. As you establish your time frame, don’t cast it in cement. Instead, think of your schedule as something you commit to follow unless and until circumstances change and you make a conscious decision to revise it.

Defining milestones

Establishing goals and establishing measurable objectives is a critical part of business planning. But knowing your goals and objectives isn’t enough. You also need to establish and hold yourself accountable to a schedule that includes specific milestones to reach along the way to success.

Answer the following questions. Then use your responses to establish your business plan time frame, along with key milestones that take into account your business trends and cycles and the competitive and financial realities of your business.

• Identify three milestones that represent essential steps you need to take to get your business up and running or to reach your business turnaround or growth goals. Estimate a time frame for each.
• Is the success of your business tied to a major business trend or change? If so, what is the time frame?
• Is your business seasonal in nature? When do you need to have your product or service available to take advantage of the peak season?
• How soon do you need to make your product or service available to stay ahead of your competition?
• When do you absolutely need to start making a profit?

Locating informative resources

You’re certain to have plenty of questions as your business planning gets underway. Here’s a list of places you can check out:

• The Internet: You can find tons of information on markets, customers, competition — you name it. Just make sure the material is current and from reliable sources. Reputable industry, government, or university reports are among the best resources for tracking market shifts and trends.

  Also, spend time studying customer comments on review and rating sites. Look to see what customers like and don’t like about products and services already on the market. Study your own customer reviews, if you have them, and also study what people say about competing offerings. Every complaint you see represents a potential business opportunity.

• The library: The periodical section of most libraries has business journals and other useful publications, and the reference shelves contain books on demographics, industry trends, and other factual resources.
• Business schools: Colleges, universities, and organizations (including the Small Business Association [SBA]) offer courses that can develop your planning, financial, and management skills. Also, many business school professors are willing to discuss specific planning issues.
• Industry trade journals: Yes, the subscriptions can be pricey, but they’re often worth the investment and sometimes available at libraries.
• Newspapers: No matter your business, The New York Times, The Wall Street Journal, and local papers keep you on top of issues and trends.
• Trade shows and industry symposiums: These gatherings are usually great places to get news about products, services, customers, and competitors — all under one roof.
• U.S. Small Business Administration (SBA): This rich resource is for just about everything you want to know about starting and running a small business. Look at www.sba.gov.
• Search and research companies: Using these resources comes with a price, but sometimes a LEXIS/NEXIS search or a market-research study is the only way to access must-have data.
• Professional groups: Almost every profession has a guild or group, from the American Medical Writers Association to the Society of Wetland Scientists. Find the group that serves your business arena and check out the website and membership requirements.
• Business networking groups: These groups are comprised of members with experience, insights, and even business referrals to share.
• Local business organizations: Your local Chamber of Commerce and economic development organization are good vehicles for networking, staying abreast of local and state issues, and obtaining business and regional information.

Seeking expert advice

When you can’t find answers to specific questions, ask for advice. For example, if you’re thinking of starting a business, ask someone who runs a similar business to fill you in on what you need to know. If you want to break away from the corporate grind and go into business for yourself, schedule a lunch with someone who made a similar move to discover what it takes. You’re sure to get an earful of useful input to incorporate in your planning.

As you interview industry contacts — or people with experience in similar businesses — follow these steps:

• Prepare your questions in advance. With advance planning, you won’t waste time or forget to discuss something really important.
• Explain exactly why you’re asking for help. You can’t expect people to be open with you if you aren’t honest with them.
• Be prepared to listen. Even if you hear something you don’t want to know, listen anyway. Anybody who warns you about potential obstacles is doing you a big favor.
• Keep the conversation open-ended. Always ask whether you should be thinking about other issues or addressing other topics.
• Build your network of contacts. Ask for introductions to others who may be helpful or for suggestions for sources of useful information.