Writing a Business Plan – What Makes a Good One?

Writing a business plan can be a lot of hard work or it can be great fun. An effective plan can help your company to greatness. A poor one can lead you out of business. No plan is like asking to fail before you even start.

Not every business needs a 200 page bound business plan. However every business needs to have some idea of where they want to go and how they are going to get there. This article covers some key insights into writing a business plan that get your business to where you want to be.

The first stage of any plan is ANALYSIS. You need to take a very objective look at a number of factors that may impact your business. There are many factors to consider but the two major ones are competition and your operating environment.

Let’s look first at competition. Every business has competition, even if you think your product or service is unique. How is this? Well it’s quite simple really, people have choices to make. The most fundamental choice they make in most cases is whether to buy what you offer or but something else. For example I could buy a game console or I could buy groceries instead. Customers only have so much money available so you first task is to ask yourself what is my competition like and can I beat them? The more you understand your competition the more you can develop your business strategy of being different and outperforming them.

Now let’s look at operating environment. This is understanding what factors around your area of operation are likely to affect your business performance. For some companies this includes looking around the World in other cases it’s just your local neighbourhood. You need to ask questions such as:

How is the economy going?

What is consumer confidence like?

Where is technology heading in my industry?

After answering all the questions you need to decide how these might negatively or positively influence your performance.

Now you know more about your competition and operating environment it’s time to set some OBJECTIVES. This is what you want to achieve in the period your business plan covers. It is said that good objectives are SMART. That is specific, measurable, achievable, realistic and targeted. Here’s an example of a SMART objective for a hypothetical business.

“By the end of this year we will have increased sales of product X by 7.5% over the previous year.”

You can see how clear this objective is. It is much easier to achieve high performance with clear objectives.

Now you need to outline your STRATEGY. How are you going to reach you objective(s)? This is where your marketing plan often comes in as it helps describe the programs you will run to achieve your desired objective(s). To continue the example above our strategy may be to gain distribution for our product in one new major retail chain.

To make your strategy work you must then allocate appropriate RESOURCES. Certain things will need to be provided to reach your goal. This could be dollars, people, equipment, etc. Your plan must have included the resources you are allocating and why you believe this is adequate to get the result.

Every business plans also has some PROJECTIONS. This is your basic financials that you plan will deliver. Are you expecting a profit or loss? How much?

Lastly you need to allow for CONTINGENCIES. Things change all the time and your plan needs to consider these possibilities in advance. A good way to do this is to ask What if?

What if a new competitor enters our market?

What if a distributor delists our product?

What if interest rates rise?

Your analysis should give you some idea of likely contingencies. It saves a lot of stress if you have some documented ideas for dealing with them before they become a big problem.

Writing a business plan is never perfect, the plan is on paper and you’re operating in the real world. However a good plan can really guide you in the right direction. Take time to put real thought into preparing your plan an above all make sure you USE YOUR PLAN!

Inspect What You Expect – Business Planning is Key

“Inspect what you expect” is a fairly tired saying; but no less true than it ever was. I manage a team blog that my co-workers and I regularly contribute to. Last week I noticed that our traffic from Google Search had fallen dramatically. This is a concern because organic Google search results are free traffic to our website, and they had suddenly disappeared. So I started investigating, and learned a lot.

But why is this important to you? It illustrates the wisdom of the earlier saying. If a process or an activity is important to you, you probably have expectations about its outcome. And you can’t assume that the outcome will just naturally result. You have to monitor and manage the process or activity to ensure that the results are what you expect.

I work with about one hundred organizations every year, and I am amazed how many of them do not develop operating budgets. It seems like a simple thing to do, but people don’t do it. And if they do have a budget, it is regarded as a historical document; rarely to be examined or referenced.

On the other hand, the most successful business people I know, create, revise, monitor, share, and analyze their operating budgets on a weekly and daily basis. I once worked for a daily newspaper, and the business manager planned the size and advertising space for each daily paper a year in advance. He analyzed the advertising content of each daily publishing and compared it to his expectations throughout the year.

As a Controller for a company with huge working capital requirements, I modeled customer cash receipts on a daily basis, months in advance. As the company went about its business, I could tell in the first week whether I was going to have a problem, instead of waiting for week four or five of the month. This gave me a big advantage in managing the business.

If you’re devoting your time to a business, you really need to develop an operating budget and monitor your actual results against the budget.

Every business will have its own business drivers that should be budgeted. It’s up to you to identify what they are and how best to quantify them. And a budget does not have to be tracking just money. You likely have non-monetary business drivers that affect your business results, such as new client sign-ups, lost clients, employee turnover, etc. Budget these items as well.

It’s up to you on whether you want to share the budget with others. But my experience is that a budget becomes a much more effective tool if others are involved.

Finally track your actual results against the budget. Do it on a daily basis, if that makes sense; it probably does. Analyze the results. You will find variances that are unanticipated results, and variances that indicate inadequate expectations.

If you determine that your expectations are incorrect, change the budget. There’s nothing wrong with that.

If you plan and monitor your business activities you will find that it’s much easier to manage your business and reach your goals.

I work with small and medium sized businesses, analyzing their current and future systems needs. I work primarily with business application software such as ERP, CRM, and Information Worker (IW).

The Concept of Company Situation Analysis – To What Extent is it a Valid Tool in Business Planning?

Generally, a poorly prepared business plan would definitely fail and it can be blamed on any one or more of the following factors: inadequate information about the industry, lack of competitors, and knowledge about the business unit’s position i.e. Strengths & weakness, opportunities, threat and unrealistic goals.

Good business planning could be the means to achieve this. Business planning could be described as past of an on-going continuous activity concerning the direction of the whole organization. It contains the mission, objectives, strategies, tactics and policies that will serve as a guide to the organization in adapting to the environment for a specified period of time. A business plan is considered as the backbone of the business unit. And as such business planning implies vision and attempt to follow it to reach the goal.

Planning must bring about a specified course of action from the objectives outlined by the organization.Plans are meant to bring positive results but there is the possibility of this not being realized due to restriction which might be inherent with the planning process.

Business planning should not be a blue print so to speak but flexible and accommodative so that it could from time to time be changed to successfully become adapted to the general environment. For example in the event of problems in a production process, corrective action could be taken easily by those who are directing affairs not necessarily the planners.

Business planning could be effected for a new as well as existing organization or business unit; the sequence is to define the company’s mission statement and then thoroughly analyze the situation in which the business currently finds itself. This is the concept of company situation analysis.

Next in the sequence is an organizational objective which is how the company should fulfill its mission and clarifies where the company wants to be. These unlike the mission statement, should be quantified. The choice of strategies which are the concrete ideas that set about achieving company objectives then follows; they are related to how the mission will be accomplished.Emanating from the strategy is tactics which is the day to day operation of the objectives and mission to achieve the company objectives.

There are two parts of making up this analysis. The first input relates to the organization’s macro – environment and these are factors over which the company has little or no control. They are listed under four separate headings: political, economic, socio-cultural and Technological and are known by acronym ”PEST”. Some planners also add ‘Legal’ (making the acronym SLEEP) and environmental (PESTLE). This is the external audit part of what is called the company audit. A number of very short statements are made in respect of each of the PESTLE sub-divisions.

The second part concerns what is called the internal audit; this considers the individual capabilities of the company, SBU by SBU, and again short statements are made. Thereafter, a fundamental appraisal process – SWOT analysis – is carried out. This SWOT analysis (strengths, Weaknesses, opportunities and threats) is an attempt to translate company specific factors from the company audit into corporate strengths and weaknesses plus external environmental factors (from PESTLE analysis) into external opportunities and threats. It must be noted here that, the strengths and weaknesses got to do with the internal environmental part of the situation analysis whilst the opportunities and threats got to do with the external environment. SWOT analysis is a simple tool for auditing an organization and its environment and generating strategic alternatives from situation analysis. It is the first stage of business planning.It is applicable to the organization on the issues that potentially have the most impact and so it is useful when a very limited amount of time is available.

The internal and external situation analysis can produce a large number of information with much of them being highly irrelevant so the SWOT analysis serves as an interpretative filter to reduce the information to a manageable quantity of key issues. By understanding these four aspects of its situation a firm can better leverage its strengths, correct its weaknesses capitalize on opportunities and remedy potential threats. The organization may also use the understanding of these situation analyzes as evaluative criteria to judge the current state of the organization. An example of corporate strength could be found in a company’s brand image like Coca Cola which can stand flaws as when after some newspapers reported that coke was contaminated, sales soared in spite of the report in Pakistan against Coca-Cola.

Google is reported to lack customer lock-in. Its competitors have much firmer hold on customers because they hold much information about users. Opportunities are the chance to introduce a new product or service whilst a threat could be the entry of competitors to the market.

Using as part of a tool of situation analysis, corporate strengths and weaknesses may be identified by function area and or key issues with each later on analyzed. An example of (by function) issues to analyze include marketing (market position) technology (e.g. R & D, product development) Financial (Profitability, ROCE) etc operational (JIT requirements, cost-effectiveness, etc) Human resources (skills and flexibility, competence, etc) Human resources (skills and flexibility, competence, etc) Human resources (skill and flexibility, competence, etc) and management (attitudes towards innovation and change). Others are (by key issues capacity to achieve and maintain appropriate competitive advantage and market position on the medium and long-term; ownership structure and the means of policy formulation, capacity to develop and manage international or global activities, etc.

Having considered the internal analysis of the company’s state, a brief consideration of the external analysis through the opportunities and threats by using PESTLE analysis; each word in the acronym is analyzed in brief for example:

Political:
The government in power might make decisions (usually political) which affect economic trends, market and industrial structure and employment law. These can affect the business directly or indirectly.
Economic factors: Exchange rates, interest rates, tax laws etc also have direct effect on the organization.

Socio-cultural factors:
Social and cultural factors also affect the environment in which the organization operates. For example, education, income levels and skills and competence will impact upon the organization.

Technological Environment:
Analyzing the technological stance of the organization itself and or the rate of technological advancement prevailing in the industry e.g. the computer, electronics and automobile industry could indicate the company potentials. People are becoming increasingly concerned about environmental issues like pollution, noise, destruction every length to even campaign against certain products and for that matter the firms concerned.

Legal environment:
Morden (1993) writes that the external environments may be analysed in terms of the following:

Stability:
Variables within the extension environment show little or no change over long periods of time. This is the mature stage. It shows good relationship between firm and stake holders.
Moderately dynamic: Variables show a limited degree of change over time e.g. minor changes in technology.

Turbulent:
Variables show a significant degree of change over time. The situation may be worsened by entry of new entrants and exit of others. An example of UK turbulent environment was the 1986 Building Society Act which brought about the deregulation of the Building Societies and increased competition.

Turbulent with increasing rates of change: environmental variables show an increasingly rapid rate of change. This threatens the survival of existing operators who are not forward-looking and so not innovative. The computer industry provides a good example when the founders of Google came out with a unique search engine which even caught MSN unawares. Innovation at this stage needs to be constant.

At the end of this analysis, the threats and opportunities inherent would have been unearthed. Threats are the features or variables which threaten the very survival of the business directly or indirectly. Some examples include political uncertainty, global recession which present themselves as bottlenecks to growth. Opportunities may include changes in legislation, removal of barriers to international trade the emergence of ‘grey’ markets.

To the business planner, having analyzed the situation of the business in-depth as above, and the corporate strengths and weaknesses, the external environment, environmental stability and specific threat and opportunities identified, these may then be used in the planning aspect. For example the choice of appropriate strategy to exploit the corporate strengths and external opportunities as well as those to remedy corporate weaknesses and the external threats. This being made possible because of the knowledge of the general environment available to the planner as a result of situation analysis.
Since intended outcome of the business planning is the successful positioning of the company armed with the above information gathered, the situational analysis to a large extent becomes a valid tool needed to carve the future position of the business.