Creating a Business Plan
A business plan … some might view it as a necessary evil, but a well-drafted business plan is necessary for every entrepreneur. It is important to spend some time on developing a solid business plan to give your business its best start, just as it is important to re-visit the plan to make sure your business is on track. Business plans are often required by bankers and other funding sources and if a business is looking at governmental contracts and relationships.
The most critical element of a business plan is the mission statement. A mission statement tells your staff and clients why the business exists and its purpose. While some businesses go so far as to post their mission statement as part of a marketing activity, if your business adheres to its purpose it would be redundant to post it. Your business’ mission or purpose should be evident to your staff and your clients due to your adherence to it. In other words, the actions of your business should be consistent with the mission. And keep that mission statement away from your creative staff … the mission statement must be concise, easily understood, and functional. An example of a mission statement is, “… to provide the products and services necessary for our clients to succeed in … “. And the mission statement needs to be re-visited each year during your company’s strategic planning. Ask the assembled group if the products and services of the business, for example, are consistent with the mission. If not, should the mission statement be changed or the line of business be dropped.
The next element of a business plan is to establish a set of goals for the business that are measurable and short- to medium-term in nature. The goals must be consistent with the mission, and vice-versa. As you establish goals, make sure there is at least one business metric that can be used to measure the business’ success (or failure) in meeting the goal. For example, if the goal is “to grow the client base”, would the business consider the addition of 1 client over the next year a success? Likely not. Rather, a goal such as “grow the client base by 10% in the next year” is measurable and the business’ likely success in meeting or exceeding the goal is something that can be tracked and reported. The number of goals should be appropriate so that activities can be focused; probably 5-8 goals is reasonable. And goal-setting should be done at least annually.
Your business’ staff should then be assigned their goals consistent with the company’s goals. While this gets off the track of the business plan a bit, your staff must be focused on the overall goals of the business, so if the goal of the business is to “grow the client base by 10%”, sales goals should not be geared toward only a 5% increase.
The business plan should also identify the business’ outputs and inputs and key and critical vendors. Is a certain level of production or output required for success? Are there contingency plans existing to ensure that production through-put and output is maintained? Is the business or a business line dependent on a particular vendor? Some businesses re-brand a product or service. If that vendor cannot supply the product or service, is the business line viable? Are there alternative vendors? Are there contracts in place to protect key business relationships? While this aspect delves into vendor management – a very broad subject – the business plan should be very specific as to key infrastructure requirements (power, internet, servers), relationships, and reliance.
Finally, a business plan should consider the business environment and the inherent risks associated with the business operation. What are the economic conditions and how do they affect the business? Try to obtain a local economic forecast – a local financial institution or broker-dealer is a good resource. The Federal Reserve Banks also publish economic data on a regional basis. Inherent risks include regulatory and legal risks associated with the industry, reputational risks, reliance on and technology-related risks, risks associated with complexity, and risks associated with the maturity of the business.
Spending some time examining each of these business-related risks can help when it comes time to consider additional services. For example, if a business line is in the financial industry, regulations are a key consideration when it comes to consumer disclosure, consumer rights and responsibilities, and the protection of the private customer information. For a small business, perhaps the complexity of a contemplated service is such that current staff is deemed inadequate and training would be required. Identifying lines of business with more inherent risk than other business lines is also important should the business consider reductions in force or even the elimination of a line of business. Where can cuts be made and where is headcount necessary to protect the business from these risks that come just from operating?
The business plan is a good tool for a business’ tool kit. When starting a business, writing a solid business plan is necessary to help focus efforts when just starting out. Re-visiting a business plan annually is necessary to make sure that operations remain aligned and to ensure that the business is still focused. A business plan is also a great tool when considering new services and products to ensure that the new offering is consistent with the existing operation.