Business Planning: Eating the ElephantBy: Gary Clark
We really get tired of seeing the same old tired ads for business planning. It appears that what is being sold is “business in a box.” The suggestion that once completed, you will have a full business plan that any banker will fund, is false and misleading. Here are the facts: If you are writing a business plan just to get a loan, STOP, rethink your business. Getting a loan should be your last reason for writing a plan.
The Value of Planning
Breathing Life into Your Ideas
Business plans are best used internally for the management of the operation. The operational plan sets the tone of the business for the employees and advisors who will be working to make the business successful. The operational plan starts everyone out on the same page.
One common belief within business and venture capital circles is that the actual plan itself has little value, but it’s the act of planning that has the real merit. A fact that most people ignore, is that if a business idea is good, a business plan makes it workable - but if the idea is garbage – no amount of planning can make it good or fundable.
We said that the process of building a business plan is made simpler if you build it in logical stages. By logical we mean build the plan as you thought of it. For example, the first thought someone usually has is “I have an idea.” The next question then becomes – is your idea feasible? You prove it by developing the feasibility study.
Overview of the Feasibility Study.
A feasibility study is the process of testing ideas against known factors. A feasibility study asks - is the business idea sound? Is the product or services wanted by others? Who wants it? What other company is currently selling the same product? For what price? And, how do they sell them? We test our answers – not just say yes or no to them. The test is general research to prove the hypothesis – stopping just short of a full blow research study.
A feasibility study may only be one to 15 pages in length depending on the business idea, and includes cursory attention to such key matters as business concept (above), preliminary financing needs and a brief marketing section. It serves as the base plan, and later - as a valuable prelude to a full-length plan if the idea takes off.
If all the answers in the feasibility study are good and the decision is made to go forth, the ways and means of selling the product or service are required. You have done the preliminary ideas in the feasibility study; now flesh them out in the Marketing Plan.
Overview of the Marketing Plan.
The marketing plan sections points out the Who, What, When, Where, and How of marketing the product or service. From this marketing plan, you can determine your budgeting requirements. The marketing plan also discusses the web requirements of your business, and how the internet will be used. Get expert advice here and work with a full service internet developer to help you determine the direction you need to go. In other words, don’t get sucked into the hype surrounding pay-per-click, or ad-words until you know if you can afford these and your business model warrants these methods.
From the answers derived in the planning, you will be able to develop a cost of marketing estimate. The next step is the Working or Operational Plan.
Overview of the Operational Plan.
As with the feasibility study, you can afford a somewhat higher degree of candor and informality when preparing a working plan. The working plan is an operational plan that conveys your requirements and sets the tone for future employee policies.
Once you know how you are gong to run the business, the next question is “how are you going to fund it?” Stage two of the operational plan sets the funding requirements. The funding portion is based on the knowledge you have gained in the previous stages.
We know what we are going to sell, we know to whom we are going to sell it to and we know the resources we will need to operate the business. We can project assumed costs and thus the expected profits out of this information. Pretty simple huh? The question we want to solve at this stage is - can we sell our product or service for the price needed to make a profit and stay in business?
In addition, the drafting of the funding plan allows us to map out the exit strategy, a part of planning often never discussed. (Right alone with contingency plans and business life insurance) Look for my up coming article on Contingency Planning. The simple explanation for an exit strategy is how you plan to terminate your ownership of the company, or some part of the company. You and your investors pre-plan ways of recouping the capital that will be invested in the company.
Once the answers are determined in the strategy meeting with your advisors, the final decision is – will you self-fund, use private investors, or do you need venture capital? If the outside capital route is the answer, then say hello to the Presentation Plan.
Overview of the Presentation Plan.
A Word of Caution Regarding Planning Software
I will stop short of recommending software for I have seen and used both good and bad software over the 20 plus years I have been helping people write their business plans. I also want to caution you in using the sample plans. I can tell you this. Every serious investor knows the difference, has seen the sample in countless other plans, and the minute they see the same old hackneyed answers; the plan goes in the garbage. Save yourself the time and the embarrassment. The bottom line is that if you cannot plan out your own business, using your own words, then you probably should consider staying an employee.
Staged Business Planning is the solution to the question of “How do you eat an elephant?” The answer of course is “one bite at a time.”
© Copyright 2009, Gary Clark
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