RATIONALE OF A BUSINESS PLAN
“PLAN YOUR WORK, THEN WORK YOUR PLAN”
WHAT IS A BUSINESS PLAN?
A GAME PLAN THAT INCORPORATES YOUR STRATEGY IN DETAIL (Target market; Market strategy; Production plan; Distribution plan; etc.) FOR WHERE YOUR BUSINESS IS GOING AND THE SPECIFIC DETAILS OF WHAT IS GOING TO BE DONE, BY WHOM, WHEN, WITH WHAT RESOURCES, ACQUIRED FROM WHERE, SO THAT THE BUSINESS GETS TO WHERE YOU SAY IT WILL GO.
IT IS A WORKING DOCUMENT, A WORK IN PROGRESS - NOT A SHELF WARMER.
IT IS NEVER “FINISHED” SO LONG AS YOUR BUSINESS CONTINUES.
WHY DO A BUSINESS PLAN?
TO PRO-ACTIVELY MANAGE YOUR BUSINESS:
You need a plan to make things happen instead of reacting to events.
TO BEAT YOUR COMPETITION
To be better than your competition, you have to identify your competition’s strengths to be avoided or mitigated and your competition's weaknesses to be exploited.
TO ATTRACT SOMEONE ELSE'S MONEY:
WHAT ALL POTENTIAL FINANCIERS WANT TO KNOW:
WHAT DOES A BUSINESS PLAN SAY?
THE ULTIMATE QUESTION: HOW, AFTER YOU HAVE DONE YOUR HOMEWORK, CAN YOU DEMONSTRATE WITH FACTS THAT YOUR IDEA CAN BE USED BY SOMEONE WITH YOUR QUALIFICATIONS IN A PROFITABLE COMPANY THAT COMPETES SUCCESSFULLY AGAINST YOUR COMPETITORS SO AS TO BENEFIT ME, THE BUSINESS PLAN READER.
CRUCIAL BUSINESS PLAN SECTIONS
This section provides basic information on the business: its name and address, the names and addresses of its principals, its nature, its statement of any financing sought and a statement that the plan is confidential.
In this (preferably one page) section, you will summarize why the documented and demonstrable facts show your business will succeed, through your management and your skills, against the management and the skills of your competitors, in persuading your identified potential customers to buy your products or skills at a price and in a quantity sufficient for your business to make and deliver them profitably and generate a return for your business's investors.
This section identifies who is going to run the enterprise. It establishes that the management has the experience and skill to run a business of the size, scale, nature, growth and type that is the business goal identified in the plan. If the current management lacks those qualities, this section describes how and when that deficiency will be remedied.
This section also describes the managers’ “strategic partners” and advisors who bring additional depth and expertise to the management of the business.
This section describes the macro trends that affect the business. If a rising tide lifts all boats, this is where you demonstrate the tide is rising. Alternatively, if the industry is stagnant or shrinking this is where you demonstrate that those circumstances favor your enterprise.
This section describes the target market for the business. Put plainly, it describes who is going to buy the business’s product, who the decisionmakers are for buying the business's product, and how the business is going to reach those customers and decisionmakers, and why they will buy from this enterprise rather than another.
This section describes your product in a manner such that someone unfamiliar with your industry can understand what the product is, what the product does, and how the product benefits the customer. This section pays especial attention to why your product is superior to your competitors’ product. It describes how your product’s advantages are protected from usurpation by your competitors or new entrants into the industry.
Akin areas are: a production plan showing how you will be able to produce the quantities of product needed at the time your plan shows they will be demanded/required; a distribution plan showing how your product can be gotten to the market at the times, and at the places, and in the amounts your plan reflects will be needed.
This section describes who you are selling against, their strengths and how you plan to mitigate those; their weaknesses and how you plan to exploit those. The quality of your competition should not be belittled, as your competition has demonstrated success in the marketplace the ultimate proving ground -- whereas your company may not yet have done so.
This section reports the numbers experienced and projects the numbers expected. Projections of any sort are supported by information from sources concretely identified and cited in a way that they can be double-checked.
This section will focus first and foremost on cash flow. Profit and loss is very much secondary to having on hand at all times a sufficiency of cash to operate the enterprise. Cash flow should be projected on a month by month basis for an appropriate time period. Eighteen months is a rule of thumb. However, all projections over a significant period of time are taken with a grain of salt. All sophisticated business people recognize projections are highly uncertain. Projections going out five or more years are pipedreams and suggest inexperienced naietivity.
THIS SECTION IS THE HEART AND SOUL OF THE BUSINESS PLAN! THIS IS WHERE THE READER IS CONVINCED YOUR DATA (AND, CONSEQUENTLY, YOUR CONCLUSIONS) ARE JUSTIFIED, BY WHICH IS MEANT THAT THEY ARE RELIABLY PREDICTIVE OF WHAT WILL HAPPEN.
FOCUS OF THE BUSINESS PLANNING PROCESS
The topics described are arranged roughly in order of necessity and importance for the plan reviewer. A plan reviewer needs an overview, then to be convinced he is dealing with the right people, then to understand the context, then to understand exactly who needs to be convinced of the product’s superiority for the business to succeed, then to have demonstrated, specific, concrete, detailed and documented facts showing that there is a plan, that that plan has been researched, reviewed and tested for logic, knowledge, consistency and workability, and that the conclusion that that plan will succeed is therefore sound.
The product is secondary. A breakthrough product that customers don’t understand and therefore won’t buy is useless. Absence of competition is secondary (and possibly negative). It may mean only that there isn’t enough of a marketplace for the product to be worthwhile for someone else to make and market. A successful business is driven by customer need, not by the elegance of its products as a solution to a problem no one cares about enough as a practical matter to pay for the solution you want to sell.
Good management is responsive to customer need as defined by what the customer will buy at a price profitable to the enterprise to make and sell. Financiers in particular put great weight on management’s perceived ability to adopt to changes in perceived customer need rather than on the product offered. “You invest in the management, not the company” is so true it's a bromide.
Materials provided on this website are for information purposes only, do not constitute legal advice, and may not be relied on in making legal decision. No warranty or representation is made that the material on this website has been kept current, is complete, or accurately states the current status of the law. Seek legal counsel licensed in your jurisdiction for binding legal advice on the law applying to your individual situation.
© 2004 Patrick Nesbitt, Attorney. All rights reserved.
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