Business Planning and Business Plans – What’s the Big Deal?

Whether you are a veteran business owner, have recently begun your own venture, or are still in the dreaming stages, you have invariably spent many hours thinking about and envisioning your organization. While it is always exciting to try to realize your dream in your mind and to project that image into your future, the realization that barriers, stumbling blocks, and necessary “to-do’s” exist. These subjects range from broad to very specific, and can include questions such as:

Who is my ideal client?
What would be a good name for my organization?
What is my unique selling proposition (USP)?
How will I balance my work life with my personal life?
How big do I want this business to be?
Do I have the necessary resources? If not, where can I get them? If so, how do I most effectively utilize them?

The list goes on for pages and pages; indeed, there are numerous resources that outline these very details, and putting some time into exploring these ideas is always a smart move. For some specific ideas, check out some of the free articles on offer by MEG Enterprises.

The reasoning behind developing a business plan for businesses of all sizes can vary, but business plans are most often created for two primary reasons: as a management & planning tool, and to acquire funding for operational business needs.

Management & Planning Tool

If you are like many other small business owners, you are not only the owner of the company, you are likely also actively involved in the day-to-day operations as the President/CEO, the marketing department, the IT department, the HR department…the list goes on and on! One of the most important things to remember in trying to bring all of this together into a cohesive and efficient package is that planning is vital!

Many small businesses take a “fly by the seat of your pants” approach to operating their businesses. For example, let’s say that an excellent business opportunity arose for you, an opportunity that would net your business $5,000 over the next 3 months. However, in order to take advantage of this opportunity, you need an initial cash outlay of $1,000. Do you have the resources necessary to take advantage of this opportunity? If your answer is no, you may have been able to easily accomplish this goal by planning for such expenses in advance through a business plan. Even if having cash at the ready is not a viable alternative for you, you may have planned to have a line of credit available for such opportunities, knowing that in your field these opportunities do arise from time to time.

In a more broad sense, business planning helps businesses of all sizes to deal with the day-to-day needs of the organization by forcing the owner to weed through the operations of a typical work day. Business planning will assist you in understanding how to effectively market your business, how to understand and plan for financial stability both now and in the future, how to carry out your daily operations with a necessary level of routine, and so forth. Moreover, while unpredictable issues will certainly always arise, effective business planning will not only help you to navigate the predictable operations, but will also take these unpredictable situations into account. This will help you to deal with these issues with a level of comfort and ease, knowing that you have thought through and planned for such events.

In essence, here is a great way to think of superior business planning. Imagine you are taking a road trip from California to New York. No planning (“flying by the seat of your pants”) would involve you getting in the car and driving “East” on every freeway you come across. Adequate planning would involve mapping out your course, planning where to stay overnight, where to eat, sights to see, and so forth. This is a much better plan indeed. However, a superior plan would take all of these ideas to the next level by planning for “what if”: what will I do if I get a flat tire, if I run out of gas, if someone gets sick, or if I lose my wallet? You can see how the superior plan is clearly the best in most situations in that it allows for flexibility, plans for the expected and the unexpected, and allows you to spend more time enjoying the trip, knowing that you have all of your bases covered.

HELP…I Need Cash! (AKA Creating a Business Plan to Acquire Funding)

Another reason to create a business plan is to acquire funding. In today’s struggling economy, having access to cash as a small business is vital. In developing plans for this reason, a much more specific approach is taken. Here, the plan is created with a specific reader in mind: the lender. Whether seeking funds from a bank, an angel investor, or so forth, knowing your audience is vital.

How do you create an effective business plan in this situation? Well, simply stated, place yourself in the shoes of the person lending the money. What would you as the lender want to read in a plan? First and foremost, these individuals want to see that you have demonstrated the ability to repay the loan with the required level of return on investment (ROI) and within the required time frame.

These areas require that you present a strong case for your proposed financial expectations, grounded firmly in the supporting information of your plan, including marketing, market analysis, business operations, and so forth. Having confidence in your business and in yourself will assist you in demonstrating the potential for your company and in being able to deliver what your investor is looking for. Doing your due diligence and knowing the facts surrounding your business and your market will prove to be of great benefit when selling your business case, both in writing and verbally, to the lender you are seeking funding from.

So, How Do I Create A Business Plan? What Does It All Come Down To?

Although the term “business plan” conjures many negative images in the eyes of some business owners, taking a step-by-step approach will prove that creating a business plan is much less daunting than one might imagine. Although no two plans are exactly the same (the necessary details of the plan can vary between companies), the contents of a typical business plan include the following topics:

Executive Summary – Sell your business to your reader!
Business Overview – Giving a general summary of the business.
Market & Competitive Analysis – What environment are you competing in?
Marketing & Sales Strategy – How will you “win” in your market?
Organization Plan – How is your organization structured?
Financial Projections – Current status and future outlook.
Funding Sought (if required)
Key Milestones – What are your specific & achievable goals?
Critical Risks – What keeps you awake at night?
Appendix/Attachments

Does this look like a lot to you? Well, believe me, as you truly delve into the details of the plan and your business, you will be wondering why there isn’t more room for details!

The most important aspect of business planning (the “What does it all come down to?” part), however, is spending the time to do your research (“due diligence”) and critically thinking about these various aspects of your business. Of course, it is impossible to anticipate every detail simply by spending time thinking and writing; it is for this reason that plans are referred to and viewed as “dynamic”. However, the more issues and scenarios you are able to come up with ahead of time, the more prepared you will be to handle these as they arise.

So, in the end, I encourage you to realign whatever preconceived notions you may have of the business planning process and view it not as a daunting task or a necessary evil of running a successful business. Instead, view it as yet another opportunity, the chance to help make your dreams into a reality by mapping out the needs of your business, your customers, your employees, your suppliers, your community…and yourself!

Why Business Plans Are Still Relevant in 2011

In the information age, the average person wants all material fed to them in a quick and concise way that doesn’t take up too much time. This can be said for e-mails for example, because unless the first line or two grabs your attention, you are going to be very reluctant to read the rest. Are business plans still relevant in a digital era when technology can help process some of life’s complex jobs, and is there a need for business plan writers?

It has been suggested by some venture capitalists that traditional business plans are no longer necessary as no-one takes the time to go through and read them. Anyone studying business will have been taught that business plans are a part of any new business; a fundamental step to its success. These are meant to give an organisation structure, clarity and goals, as well as help it to move everyone in the company in the same direction. It is a necessity to any business, whether you need it to assist you in raising funds or to aid in strategic business decisions. So why would anyone be opposing something that for many years has been so essential?

One thing that could be blamed is the technology that we are now exposed to. Keen web developers are always looking to make every online task as quick and easy as possible, and the businesses heavily involved in this arena have to be agile; regularly changing their strategy and goals to suit advancing technology and new trends.

The younger generation with a new attitude are looking at new ways to assess a business and its assets. Traditional measures are being disregarded, with new measures taking their place; measures which are seen as quicker, easier and more convenient.

If business plans are being disregarded then what are the new measures for measuring and assessing a business? Do we just judge them on reputation, income, profit, their market? It would seem that everyone has their own criteria and that there are no longer a certain set of standards that a venture capitalist has to meet when showcasing their company to potential buyers.

Of course financial information and projections are still vital to the success of any start-up, but it seems that would be investors are spending a greater proportion of their time researching the market to determine industry trends, competition and customers. The macro-environment gives a wider picture of where the potential investment lies, what the demand is and how many competitors are already in the area.

So should you make a business plan? Of course, you should. Just because the arena has changed, it doesn’t mean that you should completely abandon solid business planning all of a sudden. However, what you concentrate on in your business plan might be different from what you would have concentrated on 20 years ago. Look at the wider environment in more detail and growth areas the company could potentially move into in future. Keep your plan agile and regularly updated and success is much more likely to come your way.

Venture Capital Business Plans

What is the primary difference between a venture capital business plan and a small business or other business plan? The answer is typically risk. Venture capital business plans have much more risk than other plans, and as a result, the potential rewards from success are much higher.

When preparing a plan for venture capitalists, it is critical to try to mitigate the risks inherent in the venture. To mitigate the risks, the plan should stress areas in which the venture excels. This will give the investors validation that their chance of success is highest. To accomplish this, the plan must, among others, stress the qualifications of the management team, prove that the size of opportunity is formidable, show competitive advantage, and detail the operations plan that will allow the venture to effectively and efficiently go “from here to there.”

When venture capitalists read a business plan, they constantly ask “what if.” By giving them the confidence that the team, the opportunity, and the strategy are all sound, answering the “what if” questions positively becomes easier. This in turn pushes them to the next step which is typically to meet with the management team and assess whether it is the right team to execute the venture.

When developing a venture capital business plan it is also critical that the plan be properly edited. Most venture capitalists have advanced degrees and have spent many, many years in school. As a result, they naturally spot typos and other inconsistencies, which cast a negative light on the venture. Likewise, since venture capitalists must review so many plans per week, making them visually appealing enhances their impact.