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The old saying goes that ‘by failing to plan you are planning to fail’. While simply writing a business plan will not guarantee success, there is no doubt that businesses that operate with up-to-date business plans outperform the pack.
Why? Because they know where they are heading and are not simply floating along with the tide. They know their direction and their effort goes into achieving their clearly defined goals and objectives.
Your business plan tells your business story –Your NOW-WHERE-HOW-WHY VISION
The answers to these questions will be the cornerstones of your plan and will be powerful drivers as you move towards your business goals.
In this article, we’ll have a look at the different types of plans, who uses them and why. We will also explore what should be included and drill down further into the benefits of planning for your business.
At its most basic it is a roadmap for your business that outlines what you want to achieve and how you are going to do it. Yes, it will have a lot of other detail, but try and think of it as a structured way of recording your goals and defining the activities you need to achieve them.
Unfortunately for many, the idea of a business plan brings back horrible memories of some 40-page template they were forced to complete in Year 9 business class. Or worse, downloaded from a government website. These were long, full of often irrelevant details and did little to really help define the businesses goals and objectives.
Now these longer form plans do have a place, which we will touch on later. But today we are generally working with much more concise plans, often down to one double-sided page, with the clear intent of keeping the business focussed on the activities required to achieve its objectives.
A fundamental reason for undertaking a formal business planning process is to pressure test your business idea and concepts. It forces you to clearly outline your vision, detail the key components of your business, assess the competitive environment and challenge your assumptions.
By including budgets and KPIs you are forced to put some rigor around your grand idea and set some realistic financial goals. In time, these provide the yardstick for performance measurement as you build the business and work towards your goals.
As you grow, your business plan provides a framework for developing your business model, guiding your decisions and identifying those key goals and projects that will help you build a great business that fulfills your personal objectives.
In addition to validating the business concept and setting goals, the business plan document may be useful, or even mandatory when discussing your business with the following stakeholders:
A well-formulated business plan, short or long, provides evidence to stakeholders of a well-organised business with a commitment to a defined set of goals and a plan for achieving them.
Taking the time to develop a business plan will deliver greater benefits than simply documenting the business model and confirming your business goals. These other benefits will include:
Reduce procrastination and increase focus on key activities. Having clear goals keeps the business and the team on track.
Provide guidance for business decision making. When the business understands its vision and mission, it is easier to make decisions about the projects that the business should undertake. Just because something is a good idea, does not mean that it aligns with the overall business strategy.
Confirm the degree of alignment of the business owners to the business goals. It is not uncommon for business partners to have entirely different ideas about the future of their business. Undertaking a formal planning process helps measure alignment to agreed goals and provides a process to work through any matters of concern.
Helps to identify the resources required by the business to achieve its goals. Knowing what you want to achieve means you can make better decisions about the resources you will need for success.
Delivers an accountability framework to monitor progress towards agreed goals. Knowing your goals, the activities required to achieve them, and key performance targets, provides a framework for monitoring your performance.
Is a key tool for communicating business goals across organisations and teams. Being able to properly explain your business strategy ensures everyone is on the same page and helps build engagement within teams.
Do it yourself. If you are just starting out, then doing a basic plan and researching the business fundamentals yourself is essential. Down the track, you may want to get some help with some of the financial information. It’s always a good idea to get an independent review of your business concept from a suitably qualified and trusted third party. The challenge here is being disciplined enough to complete the plan and set clear goals and objectives.
Go online. Yes, you can pay a fee, provide your information and get a business plan direct to your inbox quite quickly. As always, ‘Buyer Beware’. You will get what you pay for.
Do a business plan workshop with a facilitator. These workshops can be anything from half a day, through to several days, depending on the size of the business and the depth of the review being undertaken. A properly facilitated half-day planning session will deliver a well structured one-page business plan with a 12 to 24-month focus. These are an excellent option for many businesses and provide a solid foundation for improving business performance.
Depending on the required use there are many different forms of business plans available. Before you commence, think about your intended audience and the purpose of the plan. This will largely determine the style and tone of the document. Internal plans may be presented in a more casual style while a plan for potential investors will likely be longer, include more technical language, have detailed financial projections and a very polished appearance.
The following is an overview of common types of business plans:
Long Form or External Business plans. Yes, they still exist, although thankfully today even long-form plans are generally much shorter and include more relevant information. These are the formal documents you might have come across and are designed to provide the reader with detailed information about the entire business, from its history, resumes of key people, explanation of the business model and future direction. These plans are often prepared for prospective investors and financiers to make the case for investment and to explain how the funds will be used.
One Page Plans. Very common today. These plans don’t drill down into all the background information. Instead, they have a clear operational focus on how the business will achieve its goals in the next 12 to 24 months. One-page plans are clear and concise with a focus on providing a framework that will guide business decision making, set clear objectives and build confidence in executing the necessary activities.
Strategic Plans. These are more comprehensive plans looking at the business in more depth over a longer time period. These plans will focus on the bigger picture over a time frame of 3,5 or even 10 years and above. Issues addressed might include what are our future growth opportunities. Should we acquire a competitor? And what new markets can we focus on? It is likely a strategic plan will generate further projects to investigate specific options for the business.
Exit or Succession Plans. These plans focus specifically on the issues to be addressed when planning for a business exit or transition. These will include value creation, risk mitigation, personal issues, taxation, estate planning, and sale strategies. These plans are often overlooked and are essential for ensuring that business value is maximised upon exit.
Internal Project Plans. As these will likely never leave the office, they will not have the polish of external documents. The language will be more casual designed to get straight to the point. It’ll outline what the project requirements are and how we will get the job done.
Simply, if you or your business is dedicating a significant amount of time and resources to an operation - you need a plan. However, if you are running a side hustle or going to freelance alongside your day job then perhaps not.
One myth that needs busting from the outset is that business plans are only for start-up businesses. This is not the case. Businesses at all stages of the business life cycle [start up, growth, step up and get out] need to plan, they may just need different types of plans. For simplicity, we will break our discussion into start-up and existing businesses.
Start-up & Investor Ready businesses
This may well be the Long Form Plan discussed earlier. This is about the founder doing a brain dump and getting the different parts of the business down on paper and put into some order. This is useful for several reasons:
Existing, Growth Ready & Scale-Up businesses
This is likely to be a shorter format One Page Plan. It is generally designed to focus on the existing operation, what the goals and objectives are, and the actions required to achieve them. By this stage the business is up and running, so the focus of the plan may well be about driving growth and efficiency as well as determining objectives that deliver these outcomes. This plan will provide a framework to guide the business operation and identify the key performance indicators [KPIs]required to measure the progress. Larger businesses may undertake Strategic Planning processes where longer-term elements of the organisation are considered and evaluated.
Breakthrough or Break Out businesses
These are existing businesses that may be stuck in a rut or simply need to shake things up to reenergize the business. Business planning can be an effective way of looking at the business, or part of it, and pulling it apart as a process of idea generation and innovation. This process works best when the leadership team undertakes the planning process away from the business and with an experienced facilitator.
Once you have decided your audience and the type of plan you need you can start the planning process. If you are compiling a long form plan, then there will be a fair amount of research and data to organise. The internal information about your business model and financials will come from you and advisers like your accountant and lawyer. This may include information like:
For broader data about potential markets, competition and opportunities find the most recent information possible from sources like:
A business plan is a lot more than just a cash flow projection and, while there is no set formula, all plans will include a number of key elements. These include a statement of the vision, mission & values, your personal objectives, target market, ideal customer, value proposition, high-level budget, KPIs, opportunities, critical challenges, and key goals.
Longer form business plans may require more detailed information about the company history, management team, explanation of the business model, detailed financial projections, competitor & market analysis, sales & marketing plans, and what-if scenario modeling.
The key point is the plan should be adapted as required to suits its purpose and the current state of the business.
Vision, Mission, and Values
Vision is about where the company wants to be if it achieves its mission. A great example is McDonald’s who want “to be the world’s best quick service restaurant experience”.
What is the vision for your business, what will it look like in five [ten, twenty] years time and what do you want to achieve?
Your mission is defining the overall goal of your business and may include references to products, business scale or even geographic regions. For example, McDonald’s brand mission is to “be our customer’s favourite way to eat and drink”. If McDonald’s achieve this then they will fulfill their vision “to be the world’s best quick service restaurant experience”.
Your values are your core beliefs that provide the foundation for how your business will interact as a team, with customers and suppliers. These will define your behaviour and guide the business along the journey towards achieving its mission. McDonald’s values of Responsible Leadership, Inclusiveness, Progressiveness and Local Integration provide the ethical guidance for McDonald’s global business.
From the McDonald’s example, you can see how the Vision, Mission, and Values combine to provide the skeleton of what the business does, why it does it and the fundamental beliefs that guide behaviour and decisions.
Some of you will be thinking well this is all great, but how do these help me with my business plan?
The reality is they will influence every element of the plan and provide essential guidance for the decisions you will make in your business. For example, McDonald’s responded to community expectations around healthy eating by introducing a variety of new menu options and providing nutritional information about its products. By responding to this customer feedback, McDonald’s have lived into their core value of progressiveness and supported their mission of being the customer’s favourite place to eat and drink.
Being able to clearly and succinctly explain these attributes of your business can be a powerful driver for your team and customers and provide a real point of difference from your competitors.
Your personal objectives
Your business should be there to serve you and not the other way around. Your business plan is about setting the business goals that will deliver your personal objectives.
What do you really want from your business? Be clear and precise:
Be clear and Precise. Make your goals SMART:
Target Market, Ideal Customer, and Value Proposition
As the saying goes you can’t be all things to all people as you will end up being nothing to no one. Understanding your target market is critical because without a clear focus on the target you may miss completely. Clearly define what you are selling, what problem are you solving and who for?
Who is your ideal customer? This will not be your only customer but a description of your primary target that will assist with product development and marketing. For example, McDonald’s target:
Incorporating your target market and ideal customer is your value proposition – why should your customers choose your business, what is your point of difference and how do you stand out from the competition? Answering these questions helps explain the value that you are promising to deliver to your customer and why they should become a customer of your brand.
Continuing with the McDonald’s theme, we would see their value proposition include convenient locations, efficient service, consistent quality, broad menu choice, barista coffee, and a good value offering.
Offered to the market correctly each of these will fulfill the needs of their target customer segments and therefore fulfill their Mission to “be our customer’s favourite way to eat and drink”.
Budget & KPIs
Understanding your critical numbers is essential and your business plan should include a high-level budget. What do we mean by high level? This is about focussing on the key numbers and using them to track your progress. You will need more detailed reporting like profit & loss, cash flow projections, and balance sheet to work alongside this but for inclusion into your business plan something along these lines will be enough to keep you on track:
Sales / Revenue 1,390,000
Other Income 0
Total Income 1,390,000
Less Cost of Goods Sold 890,000
Gross Profit 36%500,000
Less Operating Expenses 350,000
Earnings before interest, tax, depreciation & amortisation 150,000
It can sometimes be useful to build these budgets from the bottom up by starting with the income figure that business needs to provide to the owner [from the ‘What I want to achieve section above’]. Then working upwards determine the likely operating expenses for the period and the gross margin required to generate the sales necessary to operate the business and deliver the desired profit. Does this level of sales look realistic for the business or do adjustments need to be made?
This is where it’s important, to be honest about your expectations. Using the above example, there is no point the owner saying they want to earn $150,000 in the next year which requires almost $1.4 million in sales if the maximum sales that the business has ever made is $750,000. It’s not that it can’t be done, rather it is unlikely to be done in the next year. So, what are the steps required to reach this business goal and over what period of time?
Also, helping track business performance will be the key performance indicators or KPIs. These are measures of the key drivers in your business and can be financial and non-financial measures. The KPIs link to those business levers that can be pulled to deliver an impact on business performance. Your business plan should include your 4 or 5 critical KPIs and the performance level required to achieve the desired results. By analysing your important KPIs you can quickly determine if you are on track towards achieving your goals or need to take corrective action.
For example, lead generation and sales conversions are primary sales drivers for many businesses. If we see a decrease in sales conversions leading to reduced revenue, we can investigate our procedures to understand the root cause of the problem. We can also work out what steps can be taken to improve performance before the situation becomes critical.
Opportunities and Critical Challenges
Completing a SWOT analysis [Strengths, Weaknesses, Opportunities, and Threats] remains an efficient way of identifying major factors that may impact your business. Strengths and weaknesses are internal, and opportunities and threats are generally external to the business. Understanding these factors can help you identify opportunities to exploit and develop tactics to eliminate or mitigate risks.
Always consider your SWOT analysis from a competitor perspective as well as your own. For example, if you have high-quality production processes and so do all your competitors then this is not a strength it is an essential requirement for competing in your industry segment.
This analysis will help you develop the goals and objectives which are the primary purpose of your business plan.
Your goals and objectives
As stated, these should follow on from the SWOT and competitor analysis already completed. Importantly, they should also align with your business vision and mission and help to deliver on your personal objectives.
What are the top 3 or 4 key projects that you want to achieve over the next 12 or 24 months? These should also contribute to your longer 3, 5 or 10-year goals.
Be clear and precise about what these goals are. Break down these longer term goals into workable chunks. For example, identify what you need to accomplish in the next 90 days, what actions you need to take to achieve this, who is responsible for the activity and by when.
Don’t fall into the trap of setting too many goals, this is a recipe for failure as the attempt to do too many compromises the successful completion of all activities. Narrow down to your top 3 goals for the next time period – that’s your focus. The other goals on your list can then sit on the horizon in your long term plan and filter through as you progress.
Use it as a management tool. Don’t leave it in a draw. Keep it in front of you and use it for decision making and review purposes.
Break down the big goals. 90 days, 30 days, 7 days. What are the activities required for each small chunk, by who and by when? Make mini plans if needed, or even individual plans for teams and key staff. This helps build the accountability mindset across your business. At the end of 90 days review and set again for the next 90.
Review the numbers. Monitor your KPIs, compare budgets against actual results and make decisions to adjust your activities as required. If you need to ask your accountant about the best way to report and review these numbers.
Have some independent accountability in place. To get the most out of your plan you need someone independent to hold you to account as you work towards achieving your goals. Your business partner or spouse is not independent as the relationship is too forgiving. By having someone independent hold you to account and support you along the way you are far more likely to achieve your stated goals.
Refer to it and its contents all of the time. All stakeholders feel reassured when you communicate that what you are doing is all part of a bigger plan. Your team, your investors, your partners, your bank, will get value out of being reminded about the plan and that we are still on track.
Use parts of it for other documents. If you do a good, thorough plan you can often copy sections of it to help with other documents you need to complete rather than reinventing the wheel. Grant and R&D applications, proposals, tenders, team onboarding presentations are all examples.
If you are using your business plan as a roadmap, then you should be developing the disciplines of regularly reviewing your progress towards your milestones and agreed goals. While this regular review is an important operational habit it does not replace the need to complete a full review of your plan on an annual basis.
This annual review ensures you keep an eye on the bigger picture issues like developments in your market, competitive influences, customer behaviour, critical challenges, industry changes, and your long-term goals. Ideally, you should conduct this review away from the business and involve someone independent to challenge your assumptions and ideas.
Planning is not perfection
No plan will ever be perfect, it’s impossible, so don’t put off firing the starter's gun because you feel you need to review the draft again – just start. You are better off with a ‘B’ grade business plan and ‘A’ grade execution than vice versa.
Be honest about your current state.
There is no point kidding yourself. If you want to improve your business and achieve your goals, then be honest about where you are starting from. Involve the team with reviewing the ‘now’ to hear the real truth.
Be clear about your future state
What exactly do you want to achieve and what will the business that delivers that look like?
If you as the captain either don’t know or can’t explain it, or both, what hope does the crew have? Be precise and set SMART goals.
A business plan is a living document
Once you have started implementation then continually review your progress and keep developing and refining the plan as you go. Don’t develop the plan and leave it in the draw. Share the relevant parts with your team, use it to drive your business and guide your decision making. Planning is like everything else in life, the more you do it the better you will get.
Business planning can be daunting but having a clear direction for your business will pay real dividends. The important thing to do is just start, you can update and adjust your plan along the way. Follow your plan, focus your effort, review your numbers regularly and you will be amazed at the progress that you and your team can achieve.
If you would like to learn more, book a planning session or have a plan that you would like to review please feel free to give me a call.