Paul Tiffany - Business Plans For Dummies

In this chapter, we look at why having a plan is so important and how you can use your business plan in different ways. We talk about your business plan as a guide to your company’s future and a record of where you’ve been and how you’ve done. We help you take the first steps in describing what you actually plan to do and how you plan to do it. Finally, we look a little closer at two important groups: investors who may want to own a piece of your business and lenders who provide funds to help you grow.

The concept of a plan originated with the early builders of, well, buildings, not businesses. If you’ve had a house built or have remodeled one recently, you know that this kind of plan is still around (and is expensive). Over the centuries, however, the meaning of the word plan has expanded to include time as well as space. A plan in the modern sense also refers to a view of the future, as seen from the present. You make plans for a business trip next month or a holiday next summer ( holiday, you ask; what’s that? Is it an Italian word?).

A business plan is a particular view of your company both today and into the future, planning for the following things:

What your industry will look like

What markets you want to compete in

What competition you’ll be up against

What products and services you want to offer

What value you can provide customers

What long-term advantages you think you’ll have

How big and profitable your company can become

To create this detailed view of the future, you have to make a whole bunch of predictions about what’s going to happen down the road. If your company manufactures crystal balls, of course, you’re in luck. If not, you have to find other ways to make some basic business assumptions about the future.

In the end, your business plan is only as good as all the assumptions you put into it. To make sure that your assumptions make sense, much of your planning should involve trying to understand your surroundings today — what goes on right now in your industry and marketplace. By making these assumptions, you can better predict the future of your business. Will your predictions actually come true? Only time can tell. Fortunately, the planning process better prepares you for what lies ahead.

A business plan provides a view of the future. Whether your company is large or small, whether you’re just starting a business or you’re a part of a seasoned company, you still need some sort of planning process to point you in the right direction and guide you along the way:

A brand-new company makes a business plan to get its bearings and often uses the plan to get funding.

An up-and-running company uses a plan to prepare for the inevitable changes in the marketplace.

A large company needs a plan so everybody sees the same view ahead.

A small company constructs a plan to make sure it has the necessary resources to survive year-in and year-out.

In fact, a small company needs a business plan most of all; unfortunately, small businesses are often the last to prepare a formal business plan. If you own or manage a small business, you already know that you’re the jack-or-jill-of-all-trades. You hardly have enough time to get your daily business chores done, much less plan for next week, next month, or next year. But because you run a small business, you simply can’t afford not to plan.

When a giant corporation stumbles, it usually has the financial reserves to break the fall and get back on its feet. General Motors, for example, filed for bankruptcy not that long ago, but it’s still churning out millions of cars a year. If your resources are limited, however, a single mistake — such as exaggerating the demand for your product or underestimating how long you have to wait to get paid — can spell the end of everything you’ve invested in and worked so hard to achieve. A business plan points out many dangers, alerting you to the hazards and obstacles that lie ahead, so that you can plan to avoid such pitfalls.

Three-quarters of all new businesses fail within two or three years. And untold numbers never even make it off the ground. Smart business planning up front can reduce these dismal casualty rates.

A business plan paints a picture of where your company has been and how it has changed over the years. By reviewing your past performance or the track records of your newly discovered competitors, you can use your plan to figure out what worked and what didn’t. In effect, your business plan offers you an opportunity to keep score, allowing you to set goals for your company and then keep track of your achievements. For example:

Your plan creates a view of the future. In years to come, you can use old copies of your plan to look back and determine just how well you predicted the future.

Your plan maps out a direction in which to go and the route to take. You can use it to gauge how skillfully you accomplish what you set out to do.

Your plan forecasts where you want to be. You can use it to check out how close you come to your targets for the industry, your market, and your finances.

Your history, as described in your business plan, teaches you important lessons about the business you’re in — so you aren’t doomed to make the same mistakes over and over. If you can’t remember exactly where your company has been, you probably can’t see where you’re headed.

You can use your business plan to tell the world (or at least anyone out there who displays an interest) meaningful information about your company. No matter who you deal with or why, your plan has a ready-made description to back up the claims you make. Your plan comes in handy when you deal with the following constituencies:

People you want to recruit to join your organization as staff associates

Suppliers you want to work with on a regular basis

Distributors interested in carrying your product or service

Customers you want to establish long-term relationships with

The board of directors or other advisers who want to offer their support

Outside consultants you hire to help out with specific issues

Bankers who decide to lend you money or shut you out

Investors who show interest in taking a stake in your company

The general public in your community who might have an interest in your activities

All these constituents have their own special reasons for wanting more information about you. Each group is probably interested in a different part of your plan. A well-written business plan satisfies all these groups and makes your company stronger in the process.