Business plans are an essential part of running a business. The starting point is goal clarity which was discussed previously (drop me a note if you need more information). Once you have set the major goals it is time to put a plan in place on how you will attain those goals.
So why is this process important and how is it used? The discussions and decisions made during the planning process, the ability to articulate clearly the firm’s goals and objectives and the documentation of the expected outcomes make the process as important, if not more so, than the final planning document. Once completed this document becomes the essence of what the company is all about and is a key component of attracting capital, debt or equity. That’s right, your bank views this document as an important part of the application process because it provides a detailed look “under the hood” of your company. It also allows management a road map that keeps them on course when the inevitable time arises when something that does not fit into your plan, tempts management to go astray of their main objective.
About the Company
This section contains the basic information about the company and includes the company history, management bios, and product descriptions. This is also the area where you share the company’s goals and objectives. This section provides an overview of what the company is about, the quality of management where it is going and how it plans to get there. The company also needs to determine its vision and core values. This provides the ability to give employees the expectations of how they deal with customers and one another. I worked at a company that took the CEO several months to get to the point where he could state his vision. The entire process was put on hold until this was accomplished. However, without this important step, the rest of the plan would have lacked context.
This section deals with the market for the company’s goods or services. The more research in this area provides the best approach for how the company will work to enter that market space.
Is it your intention to be a high volume low margin producer or a high margin low volume producer. What is your market entry strategy. Is there a web component? If so, how will that impact how you reach your target market.
And what is your target market? Business to Business? Business to Consumer? Can you stratify your target market, either demographically, geographically, or in some other fashion?
How do you plan to let the world know about your company? Internet, advertising, networking and many other means of communication can be used, but what is most effective for your type of business?
Finally are you clear of exactly what business you are in? Honda considers their company to be an engine company. Those engines can be used in cars, motorcycles, boats and electrical generators to name a few. How do you view your company? The answer to the question of what business you are in may keep your business from becoming the world’s best buggy whip manufacturer, i.e. a great company with a great product, but no market after the invention of the horseless carriage!
Finally define your competition and be realistic. If you find yourself wrapped in hyperbole when evaluating your completion, saying things like “we don’t have any competition”, stop and do a reality check. This area should also address things like innovation, the specific market and market size and anticipated market share, growth strategy, and targeted new markets.
Costs and Selling Price
Evaluate your anticipated costs and determine a selling price. What happens to your costs as volume increases? Do you completely understand your cost curve? Are the margins sufficient to cover the overhead? Can you use off shore products, manufacturing and/or staffing to reduce the cost of generating the revenues?
My Next post will address some of my remaining thoughts about Business Planning.