Sure, you can go back and look for an error or an overly pessimistic or conservative assumption. You can even try altering a few of the inevitable numbers that you really have no way of estimating accurately to see where the pressure points are, if nothing else. But what if you do that, even pushing your alterations past the point of credibility, and your plan still doesn't make sense? Well, in that case, you've probably done yourself the really big favor of finding out something isn't going to work before you sink your money into it.
Nobody knows exactly how often this happens, but it's safe to say that a lot of businesses are never attempted because the plan convincingly says that they shouldn't be. Is that bad? Well, it may feel bad. But think how much worse you would feel if you went ahead with the venture, and things turned out as the plan forecast. Business planning is a powerful tool for evaluating the feasibility of business ventures. Use it. It would be a shame to keep the benefits of a well-done plan to yourself.
And you shouldn't. You can use your plan to find funding. But a good plan can also help sell your products, services, and your whole company to prospects and suppliers. Furthermore, a plan is a valuable tool for communicating your visions, goals and objectives to other managers and key employees in your firm.
Selling with Your Plan As a rule, your business plan is only likely to be required in the later stages of being selected as a supplier. Let the customer's process decide when or if you'll present your plan.
As an added benefit, working your way through the early stages of vendor selection will give you a chance to rework your plan, if necessary, to stress the areas you've learned are more important to your potential customer.
Informing Suppliers and Customers Increasingly, companies large and small have been trying to trim the number of suppliers and customers they deal with and develop deeper and stronger relationships with the ones they keep.
An essential part of this is getting to know more about existing and prospective vendors and clients. So don't be surprised if one day, when you're trying to set up a new supplier relationship or pitch a deal to a big company, the person you're negotiating with asks to see your business plan.
Why do suppliers care about business plans? Suppliers only want to sell to people who can pay, which is one important reason a new supplier is likely to want to see your business plan before taking a big order. Remember, if a supplier is selling to you on credit--letting you take delivery of goods and pay for them later--that supplier is, in effect, your creditor. Suppliers who sell for other than cash on delivery have the same legitimate interest in your business's strategy and soundness as does a banker.
Say a supplier's analysis of customer records shows it has a knack for developing long-term profitable relationships with moderate-sized companies that emphasize excellent service, price at a premium level, and provide only the best merchandise.
Business plans provide all the information such a company will need to find and clone its best customers. So if a supplier asks to see your plan, be willing to share it.
It could be the start of a long and mutually beneficial relationship. Customers are likely to be concerned about how well your respective strategies fit with theirs. For instance, say your mission statement says that you intend to produce the best-in-the-world example of your product no matter what the cost.
Your customer, meanwhile, is a high-volume, low-price reseller of the type of products you make. Even if your offering fits the customer's need this time, odds are good that the relationship won't work out over the long haul. If, on the other hand, a look at your business plan reveals that your companies share the same kind of strategies and have similar objectives in type if not scope, it's an encouraging sign.
Managing With Your Plan The spread of the open-book management theory means a lot more employees are seeing their companies' business plans than ever before. When employees get the key information managers are using to make decisions, they understand management better and make better decisions themselves, and efficiency and profitability often increase as a result.
Many companies hold annual meetings at which they present and discuss an edited version of their business plan to all employees. Others provide new hires with their business plan-type information as part of their indoctrination in company culture. Both are effective approaches. You can also use bulletin boards or company newsletters to publish smaller sections of your plan, such as your mission statement or some details of financial objectives and how you're progressing.
One drawback to using a plan to help inform and manage your employees is that many won't understand it. Some firms provide employees with rudimentary training in matters like how to read a financial report before they hand out the company's plans. Often this training is done by the CEO and can take considerable time. But don't be afraid to share details of your business plan with employees. They may turn out to understand it better than you. Monitoring Your Business's Performance Using a business plan to monitor your performance has many benefits.
If your cash flow is running much shorter than projected at the moment, even though you're not currently in trouble, that information may help you to spot disaster before it occurs. By comparing plan projections with actual results, you gain a deeper understanding of your business's pressure points or the components of your operation that have the most effect on results. Spotting trouble early. A teenager taking driver's education is told to look through the rear window of the car in front to try to see the brake lights on the vehicle ahead of that one.
The idea is that if the novice driver waits until the car immediately ahead slams on the brakes, it may be too late to stop. Looking forward, past the immediate future, helps traffic move more smoothly and averts countless accidents. The same principle applies in business planning. You don't have to be a wizard to get some solid hints about the future beyond tomorrow, especially when it comes to the operations of your own business.
You can look at virtually any page of your business plan and find an important concept or number describing some expected future event that, if it turns out to be diverging from reality, may hint at future trouble. Say your profit margins are shrinking slowly but steadily and seemingly irreversibly.
If you can see that within a few months your declining margins will push your break-even point too high to live with, you can take action now to fix the problem. You may need to add a new, higher-margin product; get rid of an old one; or begin marketing to a more profitable clientele. All these moves, and many more you could take, have a good chance of working if your careful comparison of plan projections with actual results warns you of impending danger.
Wait until the last minute, and you could be peeling yourself off the windshield. Understanding pressure points. Not all tips that come from comparing plans with results have to do with avoiding danger. Some help you identify profit opportunities. Others may show how seemingly minor tweaks can produce outsized improvements in sales or profitability.
For example, the plan for a one-person professional service business indicated that rising sales were not, in general, accompanied by rising costs. Fixed items such as office rent and insurance stayed the same, and even semivariable costs such as phone bills went up only slightly. The bulk of any extra business went straight to the bottom line, showing up as profit improvement.
But one cost that didn't seem especially variable went up sharply as business volume climbed. That was the number of transactions. Ordinarily this would be a given and not necessarily a matter of grave concern.
A large enterprise could absorb these costs, but for this single professional, however, added paperwork came at a very high cost--her own time. As a part of checking her plan against results, she noticed this unexpected increase in transactions and calculated that she spent around an hour on paperwork for each transaction no matter how large or small.
She realized that one of the most important pressure points in her business was related to the size of a transaction. By refusing small engagements and seeking clients who could offer big jobs, she would reduce the amount of time spent on otherwise unproductive paperwork and increase the time she could spend completing client requirements. Ultimately, she was able to trim what had been annual transactions down to 75, while increasing the amount of her dollar revenue.
The result was a free 25 hours to spend working on more business or just vacationing. If you can see and relieve a pressure point like that, you can really keep your business from boiling over. There are few things to equal the sensation of filling in all the numbers on a cash flow projection, hitting the recalculate button, and scrolling to the bottom of your spreadsheet to see what the future holds.
If the news is good and you see a steady string of positive cash balances across the bottom row, you know that, assuming your data is good and your assumptions reasonable, your business has a good chance of making it.
Do the Numbers Add Up? Many businesses fail because of events that are impossible to foresee. If you'd begun a car dealership specializing in yacht-sized gas guzzlers right before the Arab oil embargo in the s, you would be in the same position as a driver heading at miles per hour into a brick wall--through no fault of your own. The same might go for a software startup that comes out with a new program just before Microsoft unveils a top-secret, long-term development effort to create something that does the same job for a lot less money.
It's probably not a bad idea, as part of your business planning process, to try to include some information in your business plan about the activities or intentions of the potential embargos and Microsofts.
If nothing else, crafting a scenario in which the unthinkably awful occurs may help you to deal with it if it does. But some things are just wild cards and can't be predicted. For these you just have to trust the luck of the draw. So what numbers have to add up? Certainly you have to be selling your products and services at a profit that will let you sustain the business long term. You'll also have to have a financial structure, including payables and receivables systems and financing, that will keep you from running out of cash even once.
If you have investors who want to sell the company someday, you may need a plan with a big number in the field for shareholders' equity on the projected balance sheet. Your research will help you in putting the business plan together as it will give you an understanding of the dynamics and forces affecting the industry.
All sections in the business plan format are interrelated, and cannot be written in isolation. Each should be written by people who are fully aware of the contents and intricacies of the other areas of the plan so that the different sections are all integrated.
The best option is to write the plan yourself as you know your business best. Also, if you are responsible for writing the business plan, you could identify certain challenges and find solutions to them, it will also ensure that you know every single aspect of the business, which is critical when meeting with potential investors.
Will you have to pay for the goods and services before you actually receive them? So don't be surprised if one day, when you're trying to set up a new supplier relationship or pitch a deal to a big company, the person you're negotiating with asks to see your business plan. A teenager taking driver's education is told to look through the rear window of the car in front to try to see the brake lights on the vehicle ahead of that one. But there's no reason that only serial entrepreneurs should get the benefit of regular business planning sessions.
Why is the suppliers pricing strategy important?
The products supplied to your business must meet the agreed specifications and be suited for the purpose intended. That's all there is to it--a document that desribes what you plan to do and how you plan to do it. There are few things to equal the sensation of filling in all the numbers on a cash flow projection, hitting the recalculate button, and scrolling to the bottom of your spreadsheet to see what the future holds. Lets briefly discuss these pricing approaches; assuming the suppliers point of view.
Furthermore, suppliers use various pricing strategies when setting their prices. Luckily, these are exactly the same questions a business plan is designed to address, so you're likely to please even a demanding prospective partner by simply showing him or her a well-prepared plan.
You'll spot future trouble areas, identify opportunities, and help your organization run smoothly, simply through the act of writing a plan. Evaluating a New Venture Lisa Angowski Rogak is an entrepreneur who started several newsletters in much the same way. If you can see that within a few months your declining margins will push your break-even point too high to live with, you can take action now to fix the problem. It's tempting to noodle around with the numbers until you come up with the desired result. And if you only make small changes here and there, it may seem all right. Both situations usually result in lose of customers to competitors.
Temper your enthusiasm. It's probably not a bad idea, as part of your business planning process, to try to include some information in your business plan about the activities or intentions of the potential embargos and Microsofts. Product Availability: A third consideration one should examine when choosing a supplier is product availability. Bangs has been working with small-business owners for more than 20 years and is the author of 11 small-business books.
An Introduction to Business Plans - Entrepreneur A business plan is a written description of your business's future.
The same principle applies in business planning. Then start planning how to make the most of any extra cash you generate.
Your research will help you in putting the business plan together as it will give you an understanding of the dynamics and forces affecting the industry. You may be asking for investments from friends and family you care about as well as putting your own life savings into the enterprise. Use it. As an added benefit, working your way through the early stages of vendor selection will give you a chance to rework your plan, if necessary, to stress the areas you've learned are more important to your potential customer. So what numbers have to add up? If you can see and relieve a pressure point like that, you can really keep your business from boiling over.