Small Business Planning for Success: The Business Plan

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A business plan is a document that sets out the present and future of a going concern.

As well, it formalizes an idea for a new venture, developing the idea and outlining how a business based on the idea could succeed. A business plan maps out the course of an organization, whether it’s an entrepreneurial start-up or an ongoing operation.

There are several reasons to prepare a business plan:

• Raise money. Financial institutions often ask for a business plan before lending money. The first question investors ask is, “Do you have a business plan (or a slide deck?)”.

Knud Jensen

• A template for growth. Many companies want to grow and a business plan helps identify potential opportunities in the market, setting out a plan to take advantage of the opportunities, along with the investment necessary.

• A document for owners/managers/employees, providing both direction and information. To set out a vision for an organization, some understanding of the external and internal environment is necessary and the business plan becomes the platform to build on.

• Guide the company for the next couple of years. An organization needs a map into the future and the business plan is such a map.

• Clarify issues. Organizations often face complex decisions, and the business plan provides a background for making better decisions.

• Focus effort. A business plan helps to focus a company’s investments.

The SBA (Small Business Administration, www.sbagov/business-guide/plan) advises that there is no best way to write a plan, the best way being the one that is appropriate for you at a particular point in time. There are standard structures and many templates on the web. You need a set of clearly articulated objectives before you start in order stay on the rails.

The plan should reveal the organization’s ability to create value, solve problems, and make money (New Venture Creation. Timmons, Spinelli, Ensign. 2010). There is no doubt that a business plan increases the odds of creating a successful company.

Plans come in many formats and lengths, including a “dehydrated” plan of 10-15 pages. Many investor business plans are formatted as slide decks, fitting the current zoom environment.

The traditional business plan has the following building blocks: Market/products/service;Management/organization;Operation, including IP/technology; Financials and Critical risks, potential problems

A good illustration of a business plan was written by a successful entrepreneur in the cannabis sector, with a vision for a new type of cannabis retail store: small (approximately 353 sq. ft. in total, 80 sq. ft. of shop floor), low cost, limited inventory, and quick in and out.

His view of the current market is that the average cannabis retail store is too big, so he translated his vision to an approximately 20-page slide deck for investors. Since his concept (small cannabis retail stores) was new, he included a limited set of architectural drawings so investors could understand his vision. A key side benefit of putting together the slide deck was a deeper understanding of the potential and challenges of the project for the entrepreneur and his team and they are better prepared.

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Why Plan? Writing a plan takes a deep dive into the often complex details of the venture and exposes the essentials for success.

This is a big payoff. It may also unearth barriers that are just too big to overcome and a limited potential for the business, even if it is successful. If the founders are a team, the plan forces agreement on the road ahead. Once the process is put on paper, it becomes more tangible and opens up points for discussion among the team. Even an ongoing company could use a business plan to reboot the company or to form the basis of a one-day planning session to future-proof the company. Not every business or entrepreneur can benefit from a business plan.

Sometimes, action takes precedence over planning, and sometimes the environment is so volatile that a plan would be out of date in a month. For example, a new CEO was hired to turn a failing company around. He discovered that the company’s product wasn’t up to competitive standards, the manufacturing process didn’t use new technology, and the sales force was ineffective.

Clearly, action was called for, not planning.

Common Business Plan

Flaws Most entrepreneurs and business people are optimistic by nature, but they often overstate financial projections (the hockey stick syndrome). Forecasts are often vague and without supporting evidence, strategies are unclear, timelines may be overly rosy, and there is an assumption that everything will go well. Market acceptance is often assumed. Contents of a Typical Business Plan A business plan is really a series of plans, and which sub-plan is emphasized depends on the situation.

1. Executive Summary: Ties everything together, less than a page (one slide).

2. Marketing Plan: Contains a snapshot of the industry, market, trends, competitive analysis, target market, growth strategy.

3. Product/Service Plan: Positioning in market, value provided, competitive advantage, technology (R&D), map the product/service, value chain.

4. Management Plan: The team, structure, present, future, compensation.

5. Operation Plan: Facilities, cost, processes, technology.

6. Financial Plan: Capital requirements, income statements (3 years), cash flow, margins, breakeven points. 7. Critical risks, potential problems, mitigation, assumptions. A business plan tells a story, so write it like a good story, not a fairy tale. Remember, hope is not a strategy. Keep in mind that less is more, and treat the business plan as a road map to success.

Knud Jensen is a Professor Emeritus in Entrepreneurship and Strategy at the Ted Rogers School of Management at Ryerson University.