Cogent Analytics Project Director, Rod Shuck, discusses the importance of business plans for small business.
Are you a small business owner who has not taken the time to develop or update a formal plan for the business? Do you understand why business plans are essential? What could it mean for your business? What if you were told that there was a possibility for a $1 million return for spending only two workdays—16 total hours—developing a business plan? Would it be worth your time? This article simplifies the steps for writing a first-rate business plan and shares the benefits of having one.
It is not uncommon for a business to skip over having or updating a business plan. It’s one of those things that is easy to put off until it is needed. Sometimes understanding why or when it would be found to be valuable is unknown to the owner. As an owner, have you ever daydreamed about the fun for jumping right into starting a new business—bypassing all the planning, financials, paperwork, possible doubts, concerns and oppositions? Wake up because jumping into any business investment without the clarity of a well-thought-out plan is more challenging to navigate than staying off the interstate during a coast to coast drive without a map. Solid business plans function as a road map that specifies strategic stops that help steer the business to discover insights for the initial and long-term sustainability of any new venture investment. A well-written plan is structured beyond providing a determination for the probability of success. It is a comprehensive written document communicating the goals for the investment. It includes any required resources and provides the details for how they will be reached. Without it, the small business owner will find themselves lost at some point on the journey. The plan should incorporate information for the industry and provide specific details for how the business stands out in the field of competitors.
What happens when the time comes to expand or reinvest in a small business to replace worn-out equipment or make other capital improvements? It is not possible to get outside funding from banks or investors without sharing the business plan. The plan must share the business’ story—from where it started, where it has been, and where it hopes to travel. Having a business plan is critical for financial assistance from banks, investors, and bidding on state and federal government contracts. Financials are important, but they don’t always tell the entire story. If a bank or investor knew the small business retained 300 customers each year, they might be viewed in a different light, depending on the industry.
Approach it “one hour at a time”:
- Description of the business. Provide a description of the company, including what it does, objectives and accomplishments, and what makes it unique, competitive, and successful. Describe special features that make the business attractive to potential customers considered the keys to success. Be a definite but concise as possible.
- Executive summary. Identify the names and positions for crucial leadership.
- Company Ownership/Legal Entity. Indicate what type of business the business is. Is the market a sole proprietorship, corporation (type), or partnership? You should also define the industry the business serves when possible; for example, does the company function in the manufacturing, merchandising, or service industries? If the industry requires licenses or permits, describe the requirements for acquiring them and where you are in the process. Identify whether this is a new independent business, a takeover, a franchise, or an expansion of formal business.
- Highlights. Feature critical highlights such as charts that reflect sales, expenses, and net profit for the last four years.
- Objectives for the business. Provide a specific definition of the objective and include a timeline for the identified goals.
- Mission Statement. Enlist the help of key team members to develop one.
- Location. Location is essential for some types of businesses, less for others. The following is a guide:
- A company that does not require specific location considerations could be an advantage and should be noted.
- If the location is chosen, describe the highlights for that setting. If the area is unknown, specify the key criteria for determining a suitable place for the business.
- Describe any particular area that would be especially desirable from a marketing viewpoint?
- Consider traffic access and flow, parking, street lighting, proximity to other businesses that may provide foot traffic, and probability for attention by the public passing by.
- Consider appropriate signage is appropriate and share any local ordinances concerning signs that might adversely affect or contribute to the business. For a start-up, include the cost of signage.
- Hours of operation. List of the days and times the business will operate during a normal work week.
- Products and services. Describe products or services and establish there is a demand for them. Identify the potential market, how they benefit customers, and discuss ideas for the ways a particular product(s) or service(s ) provide a competitive edge.
- Suppliers. When information about suppliers, including any financial arrangements with them, is relevant information and should appear in this section.
- Manufacturing. If applicable, the description of the process, including special machinery and facilities, is included.
- Management. Describe how each management person contributes to the business and its impact on the overall plan. Include specialized certifications and licenses for each management person. Describe the chain of command and the company’s handbook provided to the workforce.
- Financial Management. This section details how the finances are managed within the business.
- Advertising, Promotion, and Marketing. Describe potential customers in as much detail as possible—who they are, what they want (and don’t want), and commonly-held expectations for the products or services offered. Describe how the business will be advertised, including social media, media (newspaper, magazine, television, radio), direct mail, telephone solicitation, seminars and other events, joint advertising with other companies, sale representatives, word of mouth, and any other avenues. Describe how the budget determined and how and how often the business tracks results.
- Market segment. If the market is segmented, describe and include any details of segmentation governed by geographic area, product lines, pricing, or other criteria.
- Competition. Describe others in the same industry within the demographic and physical location.
- Pricing. Describe how the company developed the pricing policy referencing retail costs, competitive positioning, pricing below competition, pricing above competitions, multiple pricing, price lining, cost-plus pricing, mark-up, or other. Include and provide a comparison for the competitors’ pricing policies. Stipulate whether all prices are within industry averages.
- Strategy and implementation. A strategy for implementing the business plans needs to be summarized. If the business is new, prioritize the steps necessary to open the doors. Describe the objectives and time frame.
Still unsure if business plans are worth the time to create it? Don’t go down the wrong road even when the challenge is not for a financial need. A good plan will keep the business moving in the right direction by setting S.M.A.R.T. goals and maintaining accountability.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:
Cogent Analytics, LLC is a business management consulting firm, with a primary focus to help small to medium size, privately held businesses achieve success and long term profitability. Cogent provides powerful solutions with integrity and transparency to privately-held businesses throughout the United States.