A business plan is to a business what a game plan is to an athlete, or a map is to a bushwalker. Business plans are essential to get you where you want to be. So how do you create a business plan that reflects a structured approach to thinking strategically about the future of the business, while considering the present situation?
A clearly articulated business plan documents the vision of where you would like your business to be in five to 10 years. It shows how you plan to get from where you are today to where you want to be, and how you will know when you actually get there. It enables you to document each stage of growth, make periodic assessments of each area of your business, and make a smooth transition at each stage of growth.
A business plan is never static. The market is constantly changing and the only way you can remain in control of your business’ future is by regularly reviewing your business plan. A regularly reviewed plan will more than pay for itself in strategic and tactical clarity as your company grows. This is true for any business, no matter what industry, size, or stage in the business cycle.
It could be argued that the plan itself is not as important as the processes involved in putting the plan on paper. The plan itself is testament to the fact that you have done the hard yards–thought through all aspects of the business and identified your strengths and weakness, opportunities and threats.
Bill Hovey, CEO of the Linchpin Group, explains that a comprehensive business plan should have a clear statement of the strategic intent, supported by the mission, values, and vision of the business. It involves having a strategy and a tactical plan.
Many small and medium businesses fail to appreciate the difference between strategy and tactics. Worse, strategy will often exist only in the mind of the owner and is rarely articulated and shared with others in the business.
Hovey warns that if you have no defined strategy, no matter what tactics you employ you probably won’t meet your goals. Strategies are forward-looking. They provide the guidelines for growth, how you are looking at future performance gaps and how you are going to overcome them. Tactics are more or less present or ‘now’ oriented. So when speaking of tactical plans, you are basically speaking of present performance gaps and how you are addressing them.
Hovey explains: “A clear statement of strategic intent is rarely static because a strategy will sometimes need to change as a result of a shift in the competitive context or as a result of shifts by consumers or industry segments.
“We recommend to our clients the ‘balanced scorecard’ approach to strategy which means that strategy, and the implementable tactics, are interrelated with four core perspectives—the four pillars—which are an increase in shareholder value; an increase in customer value; operational excellence; and motivated and aligned people.”
Hovey says that a successful business plan also includes a clear statement of the business’ current position in terms of its financial statements, sales, marketing, and operational tactical plans which support the four pillars. Credible financial forecasts in terms of expected shifts in the P&L and balance sheet, together with appropriate cash flow forecasts, should also be in the plan, along with measurable goals and objectives, sometimes expressed as key performance indicators (KPIs).
“Successful business plans will also reflect some what-if or alternative scenarios,” Hovey explains. “Where possible, the assumptions within a successful business plan are tested using sensitivity analysis. Successful business plans which are regularly reviewed will also continuously challenge existing assumptions and show clear links to operational processes within a business.”
“Just as all businesses are different, no two business plans are the same,” says Jon Moyes, general manager of sales, marketing and distribution at NSW Business Chamber. “Your plan must be tailored to your individual business, articulated clearly, provide a framework to monitor and measure the actual performance of your business, and be able to be used as a guide to enable you to make sound business decisions. It also must communicate the essential characteristics of your business so that interested parties can see why it is likely to be successful.”
Steps to Creating a Business Plan
Here are steps our experts recommend following when creating a sound business plan:
1. Agree to the process. Prepare a structure for your plan and decide on the team needed to complete the plan. Set the key goals for your business and agree on the process to be adopted and the timetable to complete the plan. Assign responsibilities.
2. Know your business. Make sure you understand your industry and your particular segment of the industry. What are the recognised critical success factors and key result areas? Identify the specific issues facing your business in terms of your history and in terms of best practice.
3. Collect information and gather data. Undertake market research on your industry and competitors. Gather historical information about your own organisation. Uncover the issues facing your products or services. Research the trends and developments in your industry.
4. Analyse your information. Undertake a SWOT analysis of your company’s strengths, weaknesses, opportunities, and threats. The intention is to build on your strengths, reduce your weaknesses, manage your threats, and maximise your opportunities.
5. Plan your future. Decide on your vision, where you want the business to be; your mission, the purpose of the business and how this will be achieved in general terms; the objectives, based on prioritising the key management goals; and strategies, broad statements as to how the objectives will be met.
6. Schedule implementation. List each initiative you are proposing to adopt to achieve each strategy. Assign priority, timing, responsibility, and cost against each. Delegate authority and assign resources.
7. Document the plan. Incorporate the information you have gathered from the steps above under headings including: executive summary, statement of business objectives, background and organisation, market structure and plan, organisational plan, product or services summary, implementation schedule, financial plan. And, use annexures to provide detailed information supporting matters summarised elsewhere in the business plan.
8. Give ownership. Ensure your key management and staff have a feeling of ownership over the end product.
9. Consider outsourcing and professional assistance. External consultants can bring a level of specialised knowledge and expertise to your planning process. They will be objective and will have additional resources.
External Planning Advisers
As Hovey explains, the one thing an owner can’t get from the ‘inside’ is the benefit of ‘fresh eyes’, and contemporary and relevant insights from external advisers whose practice and experience will often have them concurrently working with owners across multiple sectors and a variety of business sizes. “External advisers can be fearless in challenging assumptions, not simply telling the business owner what they might like to hear,” he says.
You also need to make sure you review the plan. “It is imperative that businesses revisit their original plan annually,” says the NSW Business Chamber’s Jon Moyes. “Or at least every two years, to help you determine if your desired level of recompense is achievable; to review the various options available to achieve your goals; and to redevelop the framework of your original plan in order to achieve your goals.
“Regular reviews will help identify areas for improvement, and will identify your strengths, successes and wins, enabling you to build on these foundations.
“It is important for all business owners to regularly step away from the daily grind and rethink their plan for a successful business future. This is why NSW Business Chamber has developed a Business Planning CD which has tools, templates, checklists and worksheets to assist business owners to identify key operational, financial, HR, sales and marketing issues, and create an ‘actionable’ business plan.”
Hovey agrees and likens a business plan to a ‘match’ plan for a football game. “While a football coach has the opportunity to review and revise tactics at the half-time break, so too does a business owner have a series of ‘breaks’ which can be used to review progress and fine-tune tactics. These arise at the end of each month, where the duration of the review might be relatively short, and at the end of each quarter. An annual review of the business plan then affords the business owner, as ‘coach’, to seek and make refinements for the next ‘annual game’.
“Strategic plans also require review, certainly annually, where a relevance and context check can be done and minor fine-tuning implemented where necessary,” says Hovey.
Each time you review your plan you should undertake a SWOT analysis, which will indicate how you got where you are.
You should also monitor the progress of the plans and measure their success against pre-set KPIs. And revise the vision by adapting or changing it in line with market changes.
In Hovey’s experience the biggest errors he has seen business owners make are having too many goals and objectives and not taking enough time to measure and monitor.
And the results of those errors? “An inability to see or deal with ‘icebergs’ once your ship hits them!” says Hovey.
Business Plan Questions
There are several questions that need to be answered before developing a business plan, and your responses should give you a thorough understanding of your business and the direction it should be taking.
Your products and services:
What are the main applications, and who will buy them?
What trends do you anticipate?
Who do you see as potential competitors?
Does your competition offer a wide range?
How will yours be differentiated from competitors?
What advantages and problems are associated with yours?
Do you see scope to expand the range?
What price do you anticipate charging?
What will it cost to supply?
How price sensitive do you believe demand will be?
What is the current Australian market for your product/service?
What is the current overseas market for your product/service?
What problems do you anticipate entering the market?
Have you identified a niche in the market?
What characteristics do you see this market niche having?
What characteristics do you see your customers having?
What are the trends in the market in terms of how they will affect your product/service penetration?
What market share are you aiming for?
What are your anticipated distribution methods?
What other distribution methods are there or could there be?
What are the strengths and weaknesses of your competitors?
What assumptions have you made about your competitors in relation to your proposed business?
In what form does competition exist in the market?
How established are your competitors?
How important to your competitors is your offering?
What reaction do you anticipate from competitors when you launch?
How will you combat this?
Production and servicing aspects of your business:
What methods are proposed to manufacture or service the market?
What technologies are required and how advanced are these?
What production servicing problems do you anticipate?
What do you anticipate will be the critical factors for production and servicing operations?
How important are these factors?
To what extent do you anticipate you could reduce the importance of these factors?
—Charisse Gray is senior business writer for NSW Business Chamber.