The Importance of Creating a Business Plan
Tuesday, February 10, 2015
In October's article, we took a look at how most business owners spend more time planning a vacation than they do planning for the future growth of their company. This month we are going to take a closer look at how to create a written business plan.
The starting point of any family vacation is determining where we want to go and when. Your business plan starts the same way. Where do you want the company to be in one, three or five years? Do you want to double in gross sales, pick up additional products and services, or simply increase the bottom line profit in percentage and/or dollar amount? You can't create a plan to reach your goal until you know where you want to go. Most families know the destination of their vacation before they start their trip. Your business is no different. Step one is to answer the following question: what do you want your company to look like several years in the future?
Ok, we now know what our five-year goal is. The destination of the family vacation was set months before the trip took place. Why? Because it was going to take some planning. Mom and dad had to plan the route, get the vehicle checked out, purchase games for the kids and make reservations at hotels along the way. This all took place before the trip began. It’s the same principle for your business plan. Once the goal is set, it's going to take some planning before the game plan moves forward. The end goal might include hiring additional techs and/or support staff. How many will you need and when? Few company owners can hire that perfect employee within 24 hours. The process must begin weeks, and perhaps months, before the employee is hired. What process will be used and when does it need to begin in order for the right people to be on the team, at the right time?
Let’s back up a step. If you are going to need two more techs and one additional staff member in 12 months, wouldn't it be nice to have work for them to do? If the plan calls for additional employees, that means the company needs to increase its gross sales. Increasing sales won't just happen. Marketing and advertising plans need to be developed and implemented. Remember, marketing and advertising cost money so keep your budget in the back of your mind.
As the company grows, additional inventory is going to have to be purchased including additional hand tools and vehicles. What will you need when? Go back to the budget because these investments, again, will cost money.
Each stage of growth needs to be planned and each stage involves spending additional dollars, so we need to create, and constantly update, our budget. The budget will include our projected sales and every dollar you expect to spend. Our basic overhead costs (rent, utilities, insurance, gasoline, vehicle maintenance, yellow pages, etc.) will need to be adjusted. We will also need to put in additional dollars for marketing, advertising and those new employees we will hire.
As you can imagine, the cost of doing business a couple years from now looks a lot different than what we are spending today. So our pricing needs to be adjusted as well. Please listen to this next statement. Whenever your cost of doing business changes, your labor rates will, by necessity, also need to change. I strongly suggest you review your labor pricing at least twice a year. Nothing ever stays the same in terms of your costs of doing business.
Growth takes planning, and planning requires a vision of where you want your company to be several years in the future. Reaching your goal will be a work in progress. The work will begin with step one, then step two, and so forth. You have probably heard this little phrase, “Plan your work, then work your plan.” That is what a detailed business plan is all about.
We have just touched the tip of the iceberg in terms of creating a detailed business plan. Below is an outline of a basic business plan to get you started. If you are serious about profitable growth you might want to use this outline as a guide.
1. Executive Summary
a) History of your company
b) General market conditions
c) Status of competition
d) Company goals
2. Financial Plan
a) History of company from a financial standpoint
b) Current financial statements
c) Capital expenditure forecast (what equipment will be needed and when)
d) Month-by-month cash flow budget for the next two years
e) Cash flow projections for the next five years
3. Marketing Plan
a) How will you “market” your company (radio, TV, yellow pages, pay for click, etc.)
b) Show the cost of each and the expected results
c) What will be done when and by whom?
d) What is the “cost” of the plan, your budget?
4. Production Needs
a) Labor needs
b) Material forecast including inventory
c) Assets - what equipment will be needed?
5. Organizational Plan
a) Organizational chart
b) Training - salaried and technical
The following quote from author Lewis Carroll perfectly sums it up: "If you don't know where you are going, any road will get you there. The only problem is that you will never know when you arrive!" Growth, all by itself, can lead to failure. However, planned growth, via the development of a detailed business plan can lead to profitable growth!