Writing Your Business Plan (Traditional or Online Business)

How To Write A Business Plan

In my previous article, I talked about how you can plan your business startup. I defined a business plan as a written description of the future of your business. This is a document that indicates what you intend to do and how you intend to do it. I further explained that if all you have is a paragraph on the back of an envelope describing your business strategy, you have written a plan, or at least the beginning of a plan. I also said that a business plan consists of a narrative and several financial worksheets.

I mentioned that the ‘writing of a business plan’ as one of the pivotal steps involved in setting up a successful business. By now you should understand the need for writing a business plan. Writing a business plan, for a traditional brick and mortar business, will probably take a lot of time. It may take up to 100 hours or even more. For obvious reasons, a new business needs to carry out a lot of research before a business plan can even be developed.

For an online business, a detailed and in depth business plan is usually not necessary unless you are trying to combine your online business with a traditional business. For most online business startups, the detail involved with planning a traditional business is not required. However, it would still be beneficial to you if most of the topics were still covered, even if only briefly. Having a written plan in front of you will help you to focus on important aspects of the business.

You may not have thought much about your competition or outsourcing some of your work, but things like that will impact your ability to make a profit. And you will find this especially so in the beginning phases of your business. Even you are just opening a lemonade stand in the front yard, you will still need to know what Susie is selling her lemonade for on the next street over!

So, although a detailed business plan may not be required for an online business, I am going to include it here so you can at least look at and consider each section and determine yourself if it applies to your business.

Here I shall be discussing the basic steps involved in writing a business plan:

1. Executive Summary: The first step involved in writing a business plan is the executive summary. Here, include everything that you would cover in a five minute interview.

Explain the fundamentals of the proposed business: What will your product be? Who will your customers be? Who are the owners? What do you think the future holds for your business and your industry?

Make it enthusiastic, professional, complete, and concise.

If you are applying for a loan, state clearly how much you need and be precise in how you are going to use it. Also include detail about how the money will make your business more profitable, thereby ensuring repayment of the loan.

2. Business Description: After the executive summary, you need to write a short description of the business you are going into. You need to give a general description of the industry your business belongs to. You will write about your company’s mission statement, goals and objectives, business philosophy, as well as its legal form of ownership (sole proprietor, corporation, LLC, etc.).

Describe your most important company strengths and core competencies. What factors will make the company succeed? What do you think your major competitive strengths will be? What background, experience, skills, and strengths do you personally bring to this new venture?

3. Marketing Analysis/Strategy: The next thing to write (after the general description) should be your marketing strategy. For new or existing businesses, market analysis is an important basis for the marketing plan and will help justify the sales forecast. Existing businesses will rely heavily on past performance as an indicator of the future. New businesses have a greater challenge – they will rely more on market research using libraries, trade associations, government statistics, surveys, competitor observations, etc. In all cases, make sure your market analysis is relevant to establishing the viability of your new business and the reasonableness of the sales forecast.

4. Location: Writing down the location of your business is very important. Locations with greater customer traffic usually cost more to buy or rent, but they require less spending for advertising to attract customers. This is especially true of retail businesses where traffic count and accessibility are critical.

If an online business, you need to go into detail how you will attract customers to your website. General statements like “I will use Face Book ads and email marketing” will contribute almost nothing to helping your cause unless you have detailed statistical analysis of tests you have conducted or of another similar business you have been associated with. If you do not have any data upon which you reference your estimates, it could show lack of proper thought to the remainder of your business plan.

5. Competitive Analysis: Business by nature is competitive, and few businesses are completely new. If there are no competitors, be careful; there may be no market for your products. Expand your concept of competition. If you plan to open the first roller skating rink in town, your competition will include movie theaters, malls, bowling alleys, etc.

6. Management and Operations: Because management problems are the leading cause of business failures, it is important to discuss management qualifications and structure. Resumes of the Principals should be included in supporting data. If your business will have few employees and rely heavily on outside professionals, list these key people and their qualifications. If you are seeking financing, include personal financial statements for all of the principals in the supporting data section.

7. Personnel: The success of any company depends on their ability to recruit, train and retain quality employees. The amount of emphasis in your plan for this section will depend on the number and type of employees required.

8. Projected Financial Statements: These statements are usually helpful, but not necessary. You will develop and describe your strategies for the business throughout your Business Plan. In the financial section, you will need to estimate the financial impact of those strategies by developing projected Income Statements, Balance Sheets, and Cash Flow Statements.

It is usually recommended that these projected statements be on a monthly basis for at least the first twelve months or until the business is projected to be profitable and stable. Activity displayed beyond the monthly detail may be in summary form (such as quarterly or annually). The forecast period for most business plans is two to four years.

9. Summary Section: This section is where you will be able to attach or explain any detail not applicable to the previous sections. This section should be used to provide the financial statements of the Principle’s involved in the business and any other data you think an investor would be interested in seeing.

The main thing to remember in this section is not to provide new data, but to explain in detail data that has already been provided and to provide the support for that data.

When you sit down to compile all of the elements of your business plan, make sure you have each section able to stand on its own merits. This means you should not reference other sections sending the reader (your potential investor) back and forth between sections.

Do not try to write your business plan in one sitting. As I mentioned in the beginning, for a traditional brick and mortar business, it could take in excess of 100 hours to compile all of the information needed into a comprehensive but yet understandable document. For online businesses, probably not that long. But your final product should be well thought out, well documented and easily understandable.

Do I Really Need a Business Plan for My Business?

Most successful businesses have created a business plan at some point, usually before their start-up.

Why?

A business plan is needed to address all of the central components to starting a business. It is essential to make sure that you, as a new entrepreneur have carefully thought through many if not all, of the important components of your business. Ideally, you need to do this BEFORE starting your business.

What is a business plan?

They are generally prepared for two reasons:

1. To obtain financing for the business

2. To help determine if essential components of starting a business have been considered.

Often times with new entrepreneur’s (and sometimes even with the more experienced!) they overlook certain aspects of starting a business. So the business plan helps to ensure that most, if not all reasonable questions have been answered and strategies thought about.

Although business plans are often considered optional – they serve a vital importance to entrepreneurs.

Many aspiring entrepreneurs and even experienced entrepreneurs fail to recognize their importance. It is often considered an “optional” component of their business and should only be prepared when absolutely necessary.

Not so!

It is needed to address all of the central components to starting your business. It is essential to make sure that you, as an entrepreneur of quality, have carefully considered what you are offering, how you are offering it and whom you are offering it to.

Although it may be tempting to say “I have everything in my head about my business” – could lead to a lack of clarity.

Why?

The idea of keeping everything in your mind makes it possible for you to:

  • forget certain things
  • remember things incorrectly or too modified to later be useful
  • misconstrue thought combinations that you had at one point but later revised
  • revisit ideas that you already have thought of and since dismissed…

Preparing a business plan will allow you to document what you know and have the permanent impact of writing it down.

But this is complicated – Right?

In the context of the larger corporate world a business plan is not only essential but required. Many formats of business plans are modelled after the layouts and inclusions used for larger public companies. The time frame and level of detail is much greater for large corporate entities as they are required for various interested parties (stakeholders). However, it is not necessary for smaller businesses, especially start-ups to prepare overly lengthy and complex documents.

Your business plan need not be a time consuming, uncontrollable and over-the-top difficult process!

How Can I, As an Entrepreneur Achieve This?

Through the simple process of preparing a Preliminary Business Plan you will:

  1. Engage in a key strategy that will help you to organize your thoughts
  2. Help you to focus on your business intentions.
  3. Apply a straightforward, step-by-step process to prepare one.
  4. Obtain clarity about your business.

Why is it called a Preliminary Business Plan?

Traditional business plans, like those used for large public corporations can be very complex and have the level of detail that is not required for most smaller, private businesses.

A Preliminary Business Plan is shorter, designed more for the start-up of the business and it is easier to understand and prepare.

Here are just some of the questions that it should answer:

  • Describe in detail exactly what your business is to be.
  • Describe whom your products and/or services are for.
  • How do you plan to deliver your products/services to your customers/clients.
  • What pricing do you plan to use.
  • If you have a product, list the major suppliers
  • Indicate whom your major customers/clients are likely to be.
  • What are the risk factors that you see for your business.
  • What current businesses pose as competition to your business?
  • How many employees do you plan to have in the company and at what point will they become active?
  • Have you completed one?

It will address all of the central components to starting your business. It is essential to make sure that you, as a new entrepreneur have thought carefully through and considered all that you need to BEFORE starting your business.

A Preliminary Business Plan is a step-by-step method that allows you to organize your thoughts and WRITE DOWN your intentions through documenting them in a meaningful way. It also provides you with a document to provide to interested parties (for example, banks, investors, etc.) if the need arises.

You need to prepare one, if you are:

  • An aspiring entrepreneur who is serious about properly planning a business and would like to discover if you need one for their new business.
  • An experienced entrepreneur who never has prepared one, but would like to learn how.
  • An aspiring entrepreneur who is skeptical, but would like to explore the process and know more.
  • Any entrepreneur who has heard about them, but are confused and would like some clear DIRECTION of what to do.

Woo Hoo! Time For Business Planning!

“It’s the most wonderful time of the year…..”

Ah yes…..the annual business planning cycle is upon us.

The time of the year to huddle all of your business colleagues in a room to hash out the key initiatives for the upcoming year. The time to throw everything up on the wall and try to get everything done in the first quarter. “This will be the year that all plans will be met” is the battle cry! Every vision, idea and strategy gets bantered about – shouts of “there are no bad ideas!” fill the air. The room is electric with visionaries exchanging ideas on how their idea solves all issues, yet year after year, it seems that plans never actually come to fruition.

Why is that? The intent was there; the energy was present; and ideas were flowing. That’s the easy part – coming up with the ideas. The success of your planning doesn’t rest on the ideas, but rather, implementing those ideas. It’s true, companies need to foster innovation in their business planning, but more importantly, they need to create a business environment that enables team members to execute these ideas with an “on-time, on-budget” mindset. That is where the work begins.

I have been putting together business plans for over 25 years and it is clear to me that the strength of its core rests solely on being able to execute the plan. Each year I approach business planning as an opportunity, rather than a burden. I would rather invest the time up front in mapping out the upcoming year, than leaving it to chance to dictate my strategy. While this may force me to think strategically as well as tactically, preparing a detailed business plan in advance enables me to identify the challenges in advance of actually facing them.

So, why is business planning so crucial? In a word, it provides “clarity”. Investing time to develop a plan provides precise clarification of the company vision to both employees and customers. In addition, it provides a mechanism to gauge the results of the business and provides the foundation for future growth plans. In the long haul, it enhances the company valuation through fiscal responsibility, which provides the story of opportunity to any future investor or employee. In short, the benefits of planning allow the company to articulate a common vision to align resources and make an efficient use of investment dollars. A company that is perceived to be a “well-oiled machine” is attractive on many fronts – both externally with investors and internally with employees through job satisfaction and increased tenure.

Strategic Planning & Goals: The first step is to identify the key company goals which will be the over-arching direction of the plan. These goals should be focused on three areas: financial, growth initiatives and alignment to the company’s vision/mission. This provides the overall direction of the company by establishing high-level goals that will be achieved by tactical initiatives. The overall plan should be 1 to 3 years with measurement mileposts monthly, quarterly and annually. While the plan is put in place at the onset of the year, it should be constantly re-forecast with actual results throughout the year.

Developing Planning Modules: Compartmentalizing your plan by developing planning modules or “chunks” allows you to attack the plan in parts, yet still maintain a cohesive plan. I have found that developing an annual plan made up of quarterly targets – thus becoming a rolling quarterly forecast financial model – allows for a cohesive structure along with the nimbleness to react to market conditions. At the end of each quarter, a true-up process to align results to annual targets needs to be re-forecast and adjustments made.

Develop Non-Capital Initiatives: Each project initiative should have a corresponding project plan that monitors whether it will be completed on-time and on-budget. The importance of the detailed project plan is to accomplish the following: a) identify all the steps to be completed; b) establish a realistic timeline for each step; c) identify and allocate the necessary resources for accomplishing the initiative; d) ensure that the initiative has been vetted for departmental inter-dependencies and potential conflicts; and e) ensure that the initiative is in alignment with the overall strategic plan.

Create A Capital Plan: Next, I would develop a capital plan identifying dollars to be spent on the business to increase its overall value. While all capital dollars may not entirely be discretionary – i.e., investing dollars for anticipated return from growth – it is necessary to determine how capital dollars will be allocated whether for discretionary purposes or general maintenance. Projects that require capital are critical for the company growth and must be managed to their desired return, avoiding shortfalls in ROI or issues involving “capital creep”. If you haven’t already, setting up a capital committee to review expenditures in advance of the start of the project provides some assurance that the projects have been vetted against return on investment. Lastly, developing a post-audit process enables the team to review and monitor the progress of ongoing investments.

Business Plan Analytics Through Key Performance Indicators (KPI’s): Identifying key performance indicators for your business to use as benchmarks throughout the year is perhaps the most critical step you can make with regard to business analytics. Not only will KPI’s help identify key shortfalls in the plan, but will help narrow your focus in addressing the shortfalls. For instance, recognizing that you have an issue in labor isn’t merely enough when you consider the following possibilities: a) labor rates may be too high; b) overtime has exceeded its budget; c) the issue is regionally-based, not across the board; d) man hours may have exceeded its allocated budget, etc. It could be a myriad of triggers that caused labor to exceed its budget and KPI’s enable you to drill down to the cause. KPI management requires a disciplined review process established monthly that fosters a blended analysis throughout the year that compares actual results against both budgets and forecasts.

Fundamentals, Cycles & Trends (FC & T’s): Your plan, if done in advance and thoroughly, should provide and excellent foundation from which to work. Even the best plan still has to react to outside forces that will influence your best intentions. Identifying certain fundamentals, cycles and trends that may impact your company is a prudent way to being able to develop a contingency “plan B” in the event an outside force rears its head. A series of key FC & T’s should be monitored throughout the year so that if required, your plan can react. Certain FC & T’s may include wholesale pricing, weather, commodity markets or labor market impacts that are out of your control. In my opinion, developing contingency plans in advance for these outside forces at least gives you a fighting chance to react favorably.

Strategic Review of Plans/Goals at Year-End: At the end of the year, a thorough review of the plan and its process should be discussed with the team in order to make the next planning cycle more effective and efficient. Take a look at all of the successful initiatives and the ones that fell short in order to identify where the “broken pipes” occurred in the process. Remember not to double-dip on the capital projects EBIDTA contribution for the upcoming year – your budgetary baselines should move in concert with these investments. All projects that straddle the budgetary year, should be rolled over into the new plan. Business planning is the road map that identifies where you are headed in advance. As importantly, it also identifies road blocks – in advance. Your business plan should provide a common vision supported by tactical initiatives that, ultimately, creates greater value for your company. It may seem daunting, but by knowing your vision and its corresponding financial targets, you will have a better chance at executing how to get there and avoiding traps in advance.