If you like what you read, check out my first book, My Happy Assets at http://www.myhappyassets.com/ and the complete second book, Small Business Coffee Hour, Three Essential Ingredients for a Successful Business at http://www.smallbizcoffee.com/.
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“There is a lot of noise surrounding the business plan John. When I meet with people who need a business plan, 90% of the time it is because the bank requested it and it is a marketing tool to sell the bank on a loan. The flip side to that coin is using it as a road map for your own planning purposes.
There are dozens of varying outlines, all containing the same major elements. Here’s the one I use.
Executive Summary
The Business
Vision and Mission
Goals
Strengths and Weaknesses
Legal Structure
Business Description
Product or Service Description
IP Property Description
Location
Management Personnel
Records
Insurance
Security
Litigation
Risk Factors
Major Forecasted Achievements – Milestones and Goals
The Marketing
Markets
Competition
Distribution and Sales
Marketing
Industry and Market Trends
Strategy
The Operational Plan
Organizational Structure
Management and Personnel
Legal Structure
Equipment and Supplies
Accounting and Legal
Daily Operations and Processes
The Financials
Uses of Funds
Income Statement
Cash Flow Statement
Balance Sheet
Income Projections
Breakeven Analysis
The Supporting Documents
“I think from our previous discussion you can tell already which sections I think will be the most relevant to putting your business to work for you,” I said.
“Yeah, let me guess,” John replied, “the vision, mission and goals will be at the top of the list. The operational plan, obviously will be at the top of your list as well. It appears to contain the organization chart and structure elements you have been talking about.”
“Precisely,” I told him, “I also like the financials section but we will cover that in a later section.”
“Let me provide you with something really useful now John. Let me provide you with a breakdown of each of the sections: First some stats and information in order to eliminate preconceptions and blue sky.”
· Seven out of 10 businesses fail even with business plans.
· Most business plans are written to attract funding, to start a business or to expand.
· They are also built to help a business grow.
In the business plan, you must ask yourself and answer the following questions:
1. Can I make money investing in this business? (risk versus reward)
2. Do I like and understand the business I’m investing in?
3. Do I trust the people I’m investing with?
Don't forget to include an exit plan: the ultimate goal of the business
For example, do you intend to run the business forever until you're 120 years old or do you plan on selling it in ten years for a profit?
A B Quadrant Person will:
· Plan
· Learn more about a business before purchasing it
· Analyze a local market for price points
· Attend business classes
· Seek help from mentors
· Form a business plan
An S Quadrant Person Will Go Solo
A business plan is not only a roadmap or check list of things that must be done in a proper order; It will also alert you to the risks.
An S person cannot remove themselves from the business without losing cash flow.
A B person creates assets that deliver passive cash flow, they build a team of employees, advisors and mentors that grow businesses without them (team players)
If you want both personal and financial freedom, plan to build a business that can at some point run itself and provide excessive cash flow.
The business plan will capture the major W's:
· Who
· What
· When
· Why
· Where
Money follows management; Investors look first at people involved in the company and examine their experience, education and track record.
A business plan looks at everything inside the company, cost, products, services and personnel, as well as everything outside the company including competition, market trends, and political forces.
A business plan outlines goals, communicates strategies and establishes plans for both the best and worst-case scenarios.
The Business Plan Should Cite Several Critical Functions:
1. It helps to clarify, focus and research business development and prospects.
2. It contains the strategic pyramid and remember, the mission is the compass, the goals are the map, and the tactics are the steps to get there.
3. It serves as a basis for discussion with third parties including shareholders, bankers and investors.
4. It also provides benchmarking which can be used to measure and review actual performance.
Business Plan Elements
There are five major parts to a business plan: the business, the marketing, the operations, the financials, and the supporting materials.
The business section discusses all pertinent aspects of your business. It covers every aspect of production from the idea to service after the sale, including management, personnel, equipment, paperwork and property involved.
The marketing covers all the forces that come to bear on your business from the customers to the competition, advertising to the pricing, industry trends to global economics. This section gives the reader a thorough understanding of how your business will deal with getting the product to potential buyers.
The operations details the framework of the business and should set timelines for finishing org charts and operations manuals.
The financials should represent the income and cash flow of the business as well as the balance sheet as it moves through time.
The supporting material can include documents such as resumes, letters of reference, better reports, legal documents, agreements and contracts.
Mission and Goals
Mission = compass
Goals = the map
Tactics = steps to achieve your goals
Remember how important your mission statement and goals are. The mission statement is the purpose of your organization and the goals provide a target. You must first have a target in order to hit it. The key tactic to setting goals is to set specific goals.
For example, if you want to lose weight, it is better to say I want to weigh 171 pounds by September 22, 2010 at 7 PM than it is to say I wish to be lighter.
Write out a list of your goals: be specific, read them three times a day, rewrite them one time a day, read them out loud twice a day, visualize them as already complete three times a day.
These goals should be in your business plan and if you follow through on the previous tactics you will have a much higher chance of reaching them.
The mission statement is the main reason why you are in business. It is not good enough to say that you are in business to make a lot of money. You must also be seeking to deliver a higher value purpose mission. Many businesses are formed to serve others and as a result of higher and higher levels of service, they reap a higher economic reward. Your mission statement should succinctly state your overall purpose which leads to an economic reward.
The Executive Summary
This is the highlight reel of your business and should be written last. You can include a summary of the other five sections here; You can include highlight pieces of the business, the marketing, the operations, the financials and the supporting materials.
The executive summary is a summary of the business and answers all the key W questions: why, who, what, when, where and how.
It includes the basics including the name and type of business, legal structure, required investment or loan info as well as the why, which is the dreams and the mission statement. Remember, the executive summary is just that: it is a summary and should be very short. One page is ideal.
The business plan is a long-term planning document that will cover a lot of ground. The final goal is the realization of your business goals as set out in your plan.
Project the future: what will your work force look like in the future? What will your costs and income be? Will you expand? Will there be new technology? What is the picture of your cash flow in your balance sheet in the future? What will your role be?
Benchmark similar companies both industry-wise and numbers-wise.
The Business Section
This section is a detailed description of your business and includes:
· Entity choice.
· Strengths and weaknesses.
· Description of operations.
· Location.
· Personnel.
· Records.
· Insurance and security.
With each section, you can provide an intro with a brief one-page summary and then get into the details in the subsection.
This section is colored with two main questions:
· Why are you in business?
· What is your business?
Entity Choice / Legal Structure
If you are a business operating as a sole proprietorship, change that now or get out of business. You are 100% exposed asset-wise when you operate as a sole proprietorship. In addition, an investor will not take you seriously if they see you are a sole proprietor under the legal structure subsection of the business section. They will promptly put your business plan in the trash.
You should state your entity in this section-for example the business is organized as an LLC, elected to be taxed as a sole proprietorship, and you should also state why you chose this entity.
For example, this entity was chosen for its asset protection and its pass through taxation to the owner’s personal tax return as well as its low yearly maintenance.
Strengths and Weaknesses
A strength is either something that you do well or something that you do better than others in your field. For example, if you're an excellent painter and your business is an art gallery than one of your strengths is your skill and planning. Another example would be if you open a hamburger stand and you are able to cook hamburgers faster than anybody and deliver them to customers faster than existing business systems. This would be something you do better than others in your field which is a competitive strength.
So when you think of strengths think of it quite simply as something you do well or something you do better than others. What are the things that will be a strength in your business?
Common weaknesses are those you share with a lot of other businesses such as startup hurdles, learning curves and cash flow. Catastrophic weaknesses are those that consistently put you at the bottom of the pile.
For example, if you're bad with numbers this is a weakness but you would mention this in your business plan because you can overcome this weakness by outsourcing your bookkeeping and accounting work.
You can see how the business plan helps you realistically evaluate your business and find solutions. Don't sugarcoat this section- be honest and candid with yourself and your investors. And then address the weakness stating how you're going to accommodate for that weakness.
Opportunities and Threats can be included here as well. Think of strengths and weaknesses as internal company forces and opportunities and threats as outside forces.
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