An entrepreneur is someone who accepts challenge and takes action to pursue an opportunity. When we talk about Business Plans for the entrepreneur we must also mention that an entrepreneur is a person willing to risk failure in order to achieve success. Business Planning is hard work. It requires a lot of research. Taking a business to market is 80% planning and 20% action.
For those of you who have dealt with Business Plans in the corporate environment, you undoubtedly worked on a component of the corporation’s overall Business Plan, with those with expertise in their areas also inputting information. It is easy to feel that the budgeting process didn’t really create any value.
The entrepreneur’s Business Plan, however, is an entirely different animal. It is going to expose the very heart of your business, and has to be as detailed in all of its elements as you can make it. You need to explore and analyze everything that is a part of, or can affect your business. It is a lot of work, but is one of the distinguishing factors in the realm of who makes it and who doesn’t make it. In fact, the Small Business Administration statistics prove that 90% of the businesses that succeed take six to ten months to research their business idea.
Business Plans scare most people looking at entrepreneurship for the first time. Often times it is a person who has been in the corporate environment for a long time, is now in transition, and yearns for an improved quality of life. Oh, yes, did I mention that this person is usually out of work? There’s no steady stream of income each month to take care of the household expenses. So, how can a person afford to take six to ten months to research a business!? The answer, of course, is that people who write goals succeed over those who don’t, and businesses that determine their goals, and problems, succeed over those who don’t. So, Business Planning is essential to the long-term wellbeing of your business venture. Statistically, those who fail to plan, plan to fail. Profitability is no accident. It takes a plan.
There are lots of reasons for preparing Business Plans, and lots of uses for Business Plans. One of the main purposes of a Business Plan is for the raising of debt or equity funding to finance your business. In order to get funding, either from a lender or investor, you will have to research a number of components of the Business Plan, and detail the assumptions you have made based on the research.
When you are a startup, it’s essential that your data is factual and your presumptions about the future are realistic. You don’t have past performance figures for your business and you can’t predict what may happen in the future because market dynamics change so quickly. Because of this, you will have to make assumptions for your business based on what you can learn about the performance of the industry you are entering, and industry projections for the future.
You will find that you are trying to estimate sales and prospective revenues, profit and loss, and cash flow when you develop your Business Plan. New businesses are very prone to having cash flow problems. In fact, this is the most common case of business failure in the first two years of business. Even if you are not a cash intensive business, cash flow is an area where you can run into problems.
There are a lot of expenses in the first two years of your business you won’t run into as frequently after your startup phase. Launching your business is a great example. What is it going to cost to get your venture operational? Lease and equipment costs, marketing research, initial advertising and marketing costs. All kinds of variables will be one-time expenses that you may not incur again for quite a long time, if ever.
Your business, seemingly, is always longer getting started than you initially believed. Customers are slower paying than you had anticipated. It’s also common to find that vendors will demand payment up front because your business has no credit history. These things may seem a little obvious, but they are the types of problems you may not think about if you don’t go through the Business Planning process.
There are three primary Business Plan styles: the Summary Business Plan, the Full Business Plan, and the Operational Business Plan. All Business Plans should provide information on how the business is going to run, marketing plan, financing plans, what type of legal entity it will be, risk assessment, and a Pro forma.
Summary Business Plan
The Summary Business Plan is a 10-15 page overview of how your business will be structured, and how it will compete in the market place. You might think of this plan as being your business’ calling card. It is a great tool for business networking, and letting the business community know about your startup business, even before you get it started.
The plan will include condensed information in several component areas:
1. Marketing Plan
2. Financing Plan
3. Pro forma
4. Legal Structure
5. Risk Assessment
Keep in mind that this Summary Plan is similar to a resume. Its purpose is to acquaint the reader with the new business, not to solicit funding. Nor should it give any details that you consider privileged or confidential. What you want to achieve is awareness in the business community that you are going to be providing a service. It is a great tool, for example, to hand out to other business people attending a Chamber of Commerce meeting.
The Summary Plan is an excellent tool to use in business networking. Think for a moment about the number of commercial bankers in your market area. Now think about small business attorneys, accounts, and commercial insurance agents. As I mentioned in the article on Business Networking, you need to connect with these people early on in your research stage, because they are often the mostly tightly and broadly networked people in your community.
This plan is an overview. You are using it to introduce your business. You want the reader to understand who you are, what you’re planning to do, when you are starting, and your Business Plans for the future. You will have some Pro Forma numbers but they will be extremely condensed. You don’t need to reveal details. You always need to have half a dozen copies of this plan in your briefcase in order to take advantage of every networking opportunity.
This is the document you give to bankers before you need a loan. The first time you meet with commercial lenders in your area should not be when you need money. Banks deal with your potential clients, and when they know about your Business Plans they can often give you assistance. Just as you would with your resume in a networking meeting, ask the recipient to critique your Summary Plan and give you any suggestions they might have to improve it. Also be sure to ask whom else you might want to contact to research it further.
Your summary Business Plan is similar to a resume in a couple of other significant ways. Like your resume, it will should contain carefully structured high impact statements, crafted to engage the reader. Additionally, when going to a business-networking meeting, you want to target the recipient by revising your Business Plan as necessary to and encourage them to read on and, when appropriate, request your complete Business Plan
The Full Business Plan
The full Business Plan is going to be a lot more detailed, containing detailed information, and may run 50-70 pages in length. It is going to address projected sales and expenses in a much more detailed fashion projected over time. You will detail Cost of Sales broken down into material, labor &overhead. Financial information typically makes up one third to one half of the pages in a full business plan.
This is the Business Plan that is going to force you to understand what is going to cost you money, where you are going to get your revenue, and market projections. It is the one that is going to make you find out how much your liability insurance is going to cost every month, how much your advertising expense is going to be, and how often you will need to order office supplies.
This is the document you will absolutely need to be thorough and accurate when you need to acquire financing or when you solicit someone to invest in your business. Because this document has a lot of detailed information about your business, you have a right to expect confidentiality from those to whom you submit it. Include a “Non-Disclosure Agreement” or “Confidentiality Agreement” as the cover page for this plan, and if you have any reservation about giving it to someone, you probably don’t want to do business with him or her anyway.
Operational Business Plan
The Operational Business Plan in not intended for external audiences. It is a planning device for the operation of your business, and may be 100 pages or more. If you are going to have a business with just yourself involved, don’t have any plans to franchise, go public or open multiple offices, you may not have this form of a Business Plan.
This plan details operational issues, production processes, sample charts, how you prepare proposals for customers, pricing data strategies, flow diagrams, work charts, maybe how the telephone is supposed to be answered. If you ever want to go public or franchise the business or prepare an ISO report, this is your training guide. If you have to replicate your business, you will have already done the homework.
You may look at the Operational Business Plan as a road map, or training manual to run your business day to day. You can use it as an evaluation and planning tool, forcing you to continually critique your effectiveness. A regular periodic review of the Operational Plan helps you discover how you may be able to tweak your effectiveness and efficiency to further your goals.
In preparing your Business Plans you are going to be required make a number of assumptions based on research. Make certain that you detail where you got the data for the assumptions, and append them to your document for quick reference. Pricing models, exchange rate, interest rates, projected customer benefits, interviews and focus groups are all extremely important tools to helping you make your assumptions. Be sure you can find this research data when you need to refresh your memory or justify your assumptions to a potential lender or investor.
There are a large number of excellent resources on the web to gather information. Association websites are excellent tools for researching an industry, as are sites like Small business Administration. Be sure to check these resources to start your research into each component of your Business Plans.