The following is an excerpt from Building a Small Business That Warren Buffett Would Love available at Amazon.com.
The Business Plan - Well Yeah There is an Outline But This is Not War and Peace
If you perform a web search on the term “business plan outline” or peruse your local book warehouse, you will inevitably come across a half a dozen, varying outlines. My motto is: find one that you are comfortable with and then get very comfortable with that outline, quite similar to Warren Buffet’s line, “put all of your eggs in one basket and then watch that basket closely,” except he has a billion dollars and I do not. If you are dusting off the old business plan or starting from scratch then you need to familiarize yourself with a good outline. And remember, this is not an Ayn Rand novel.
A Living, Breathing, Implementable Document
In a perfect world, your business plan would sprout arms and operate the cash register but the truth is it is probably dead in a drawer somewhere next to an old Kenny Roger’s CD you keep around for “me” time. Your mission now is to find that drawer, open drawer, grab feather duster and get to work. Your business plan in part contains your hopes and dreams for your business as well as how to operate the whole thing. It sure as heck deserves a better fate than Kenny.
As far as the living, breathing and implementing part, your business plan should be wired directly into the business. At a minimum, this should be done by reviewing and tracking the progress against the key elements of the plan in bi-weekly team meetings and quarterly strategic meetings.
Let’s examine specific sections and see how you are stacking up:
The Vision and Mission – sometimes viewed as the enlightening, blue sky statement that hangs on the manager’s wood paneling – it sounds idealistic and cute but the real world says otherwise. The real world says to hell with your idyllic view of how you think your business should run, I’m in charge. But isn’t the Mission why you went into business in the first place? The Vision and Mission at a minimum is the driving force of the business, the fountainhead the business is chasing after. The whole point of having one is to use it to drive through the daily onslaught of reality. It should be kept at the forefront and reviewed daily. If you haven’t developed an overall mission or vision stop now, do not pass go, do not collect $200. Get to work putting one together by asking who do we serve, why do we serve them and how do we serve them? What is our overall purpose for being in business? What should our business look like now and in the future? Write it down and read it at every meeting.
Business Description and Product or Service Description – this is the section that says “we will deliver quality service and products in a unique and outstanding environment. Our customers will be wowed by us until their head’s explode.” Great! Now the question is, how is this glorious statement tied into the business? What is the standard for checking up on customer satisfaction and product quality? Are the customers surveyed on a regular basis and is the information reviewed in team meetings? It should be.
Which brings us to our next area of planning and integration …
Management and Personnel
If you bring your “A” game to this section you will develop an organizational chart. If you bring your “A” game, a cup of coffee and a knack for delegating, then you will flesh out roles, responsibilities and accountability for each position listed in the org chart. In keeping with the previous product and service example, if you show up at a meeting and don’t know who is responsible for improving customer service, then chances are the business has some unhappy customers. If the organization chart indicates that Joe is responsible for customer satisfaction then the meeting script would go something like this … “Joe, we are receiving a fair amount of customer complaints. Any insight into this?” or “Joe, our customers are raving happy, how’d you do this?”
Ideally, Joe would wake up from his nap at this point and ask “are you talking to me?”
If everyone knows their roles and responsibilities and accountability, then in theory, big surprises should not occur.
Marketing
The marketing section should detail the varying channels that will be employed to market the business – web, print, radio, blimps, wacky, waving, inflatable-arm, flailing, tube-men, etcetera. This section should also include a measure on how to grade the effectiveness of each channel. How are you doing? If the newspaper ads are providing a rate of return of 150% but the radio spots are barely breaking even, then perhaps it is time to kick out the radio channel advertising and beef up the print ads … or invest in half a dozen more wacky, waving, inflatable-arm, flailing, tube-men.
Finally, Financials
No matter how you slice it, the purpose of a business is to make a profit. It is therefore imperative to examine for profit on a monthly basis by preparing and reconciling monthly budgets back to actuals. If this is not being done, then again, do not pass go, do not collect $200, go directly to your local book warehouse or search on “budgeting”. Budgeting is a very important tool for the health of your business. Additionally, as a part of the planning process, longer-term forecasts have been prepared. It is helpful to review and compare the forecasts to actuals. Opportunities for improvement may exist.
Get cozy with the balance sheet and cash flow statement as well. You don’t have to be an accountant but understand the differences between assets, liabilities and equity and how a cash flow statement differs from an income statement. Ideally, over time, the business is building assets and increasing equity over time, not metastasizing into a hopeless spiral of death. If you are continually throwing good money after bad into a black hole of debt, it is time for radical improvement or time to cut your losses.
Goals and Milestones – You Said You Were Going to Live up to Them, How’d you do?
Although by all appearances The Secret was a profitable attempt to repackage motivational material from the 80s and market it into an international bestselling book and DVD, the real secret is to set meaningful goals and milestones for your business and keep them in front of you at all times. Goals will serve as a motivational engine that will drive you forward even when you don’t want to go into work for the day and should describe where the business heading and prompt you to take the steps to get there.
In the existing business plan, review the goals that were created and check to see if they have been hit. If not, why not? Keep the business goals in front of you and the staff at all times and remember, be specific: It is much better to say “I want to weigh 171 by December, 25th 2011 at 7pm” than “I want to lose weight.” In the second example you can take off a sock and then cheer “mission accomplished.” In the first example, you have to step on the scale on December 25th and face facts.
Some Goals and Milestones to Think About
1) An exit strategy is not a planned fire escape route. It is the ultimate goal of the business. Are you going to work until you hit the ripe old age of 110, hand it off to the kids, or sell it for a nice sum of cash? Michael Gerber, author of eMyth Revisited, asserts that the goal of every business owner is to eventually sell the business. How much will you sell it for?
2) When will you reach financial independence? You didn’t start the business to have a hobby. At what point will your passive income be equal to or greater than your expenses?
3) How much revenue will the business generate in the next three and five years? How much net income?
4) Will you expand and open additional stores this year, create a new strategic alliance, or perhaps diversify the product offerings? Sometimes though it is best to remember that many business opportunities will come your way and it is best to not jump at all of them.
The Times They are A’Changin
Many business owners do not accommodate for change in their business plans. They remain rigid and hope that everything will roll out exactly as planned. If it doesn’t, they are typically at a loss and cannot adjust.
The point is, plan for change. The budget should have a miscellaneous category for unforeseen expenses and a best case, worst case and most likely revenue projection.
Implementation – It’s a Pretty Document … So What?
Again, as previously indicated, if you have a great plan chock full of financially literate terms such as “nominal rate of return” and “net present value” then good for you … you have a great vocabulary. If you actually use the plan in the business then regardless of vocabulary, you are focusing on the important part of writing a business plan. I can’t emphasis this enough: the plan needs to be integrated into the business on a strategic and tactical level via company meetings and day to day operations. The individuals responsible for facilitating the key functions of the business need roles and responsibilities spelled out and a standard that they are being held accountable to. The mission, vision and goals should be at the forefront of the business. The cash flow projection should be reconciled monthly.
Wrapping Up
In summary, the business plan is typically gathering dust in a drawer next to a fork stashed away for lunch. More than likely the initial development process was haphazard, painstaking and a relief to finish. In reality the plan, if done correctly and implemented, provides a great vision and map for your business to succeed as well as a consistent experience for both the customer and employees. It provides a standard of operation in your business and delivers a consistent value proposition to your customers. It creates the future by laying out goals and milestones, and builds rail-road tracks to take you there. It is a cliché to say it is a “living document” but the fact is the business plan can be a multi-cylindered engine that drives you to a better business model.
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