How to Structure a Business Plan For Your Small Business – Don’t Wait, Just Do It!

Three quarters of all small businesses fail within the first two or three years of opening.

Business owners who put together a business plan, and structure planning and strategizing as a formal function of their regular business activities, are more likely to succeed and avoid failure.

Even if they do not fail, they will make more profits than if they did not have a plan.

What makes small businesses very vulnerable is the fact they do not have the resources to take them through tough times or bad mistakes as larger companies do.

It is even more critical for a small business to understand their market and plan their limited resources accordingly to react quickly to changes, and to avoid critical business errors that could fold their company in a heart beat.

These statements alone should encourage every small business owner to learn and master the business planning process.

Business Planning is not just for borrowing money

The only time that many owners/managers produce a plan (even successful businesses) is when they go to their bank or investors to ask for money.

After the loan requirements have been satisfied, the plan usually gets filed away in a cabinet and never reviewed again until the next time they need to go for a loan.

Producing a business plan is not a one time event that is performed to satisfy a third party requirement. It is a function that needs to be designed into the regular activities of running your business to make it more successful.

Business planning is a function that helps struggling businesses to survive and good businesses to become even better.

Business Planning Elements

A formal business plan has several common elements regardless of the nature of your business.

The faster you learn and master these elements, the faster you will gain control of your business and direct it towards higher profitability.

I have included a brief outline of the necessary elements you need to include in your plan if it is to be reviewed by a third party lender or investor.

However, you should construct your plan in a manner that not only cover the detail for potential investors, but more importantly it needs to be constructed in a manner that it becomes a critical tool that provides practical guidance for your company.

1. Executive Summary

Your executive summary touches briefly on every element of your business plan. It is more than just an introduction, it is a shorter version of your entire plan.

If you are presenting your plan to a third party, the people reading your summary should be able to understand your business and your plan without reading any further.

2. Company Overview

This element describes your business.

Here you outline:

- The nature of your business – The key factors of your industry – Your customers – The product and service value streams you wish to develop

As you construct this element you also need to state:

- A Value Statement. Which defines your set of beliefs and principles that guide the activities of your business – Vision Statement. Which defines what you want your company to become – Mission Statement. Which defines your company’s purpose, what it is and what does – Goals and Objectives. List your goals for the period and the objectives that you have set to achieve these goals

3. Business Environment

Here you want to describe the nature of the business climate in which you operate. You should outline:

- The direction in which your market is moving – What your customers are looking for – The business conditions that are out of your control – The nature of your competition – The opportunities you see – The threats you see to your business – A description of how you plan to be successful

4. Company Description

In this section you want to cover what your company has to offer to the market place.

Describe the strengths of your company and how these strengths give your company an edge over your competitors examining the following areas:

- Management and organization structure – Product and service value streams – New technologies adopted by your business – Operations capabilities – Marketing capabilities – Financial and personnel resources

5. Company Strategy

This element describes the strategies your company plans to adopt for major parts of your business that will include:

- Marketing strategy to promote and expand you business – New product and service development strategy – Operations strategy for improved speed, quality and cost reduction – Employee development strategy to meet new business needs – Financial strategies to prepare your business for new opportunities

You should describe how your business strategies will impact the future outcome of your business and you should also present alternative courses of action should the business climate change.

6. Financial Overview

The company financial review consists of both financial statements describing the “current state” and your “future state” financial predictions that are backed by the previous strategies and assumptions that you made in your plan.

The basic financial statements for the “current state” and “future state” are the same which include:

- Income Statements – Balance Sheets – Cash-flow Statements

The income statements should break down the financial numbers associated with each product or service value stream to make it clear where the income is generated and how it is being spent across your product and service lines.

The numbers for the future state are predictions that are based on what may happen. So, ensure that you link those predictions to your assumptions.

7. Tactical Plan

The tactical plan lays out how you intend to execute your business plan.

It should identify:

- Major activity steps – Who is responsible for which activities – The planned completion time frames to complete the plan – The resources you need

It should also identify how resources such as equipment, facilities, personnel and training are to be acquired if the current state does not satisfy the future state requirements.

You should include with your tactical plan:

- A brief description of the planning organizational structure – The frequency for reviewing – The execution process for addressing the activities of the plan – The measures necessary to ensure adequate feedback is available to monitor progress against planned goals and objectives.

How long should your plan be?

No more that 20 pages written in specific, but brief language.

Just Do It

Do not wait until the bank or some investor asks you to generate a business plan. Do it now with whatever data and information you have. It is easy to get bogged down in the details of constructing a business plan. Yes, your predictions and assumptions need to be accurate, but not to the extent that you are overwhelmed with “analysis paralysis” that prevents you from taking the actions necessary to get moving.

The accuracy of your business plan does not need to be absolutely perfect if you establish regular reviews of your plan against the current business environment. The more frequent those reviews the greater the accuracy of your plan will become with time as you make constant adjustments where they are necessary.

In order for your business plan to be successful, it should be a “living, dynamic” document that forms the direction for every activity performed by the employees within your organization. Organizations that go through an annual planning process, but then discard their plans in some cabinet until the following year are no better off than if they ran their business by “shoot from the hip” reactionary strategies. Your business plan will become more sophisticated, more accurate and generate improved results the more frequently you go through the planning process.

The very motions of performing the process will force you to ask yourself the important questions that govern your market and business.

New ideas will spring from these discussions and over time the process will become second nature and part of the “culture” of running your business.

Good luck,

Les