One of the key things I want to get everyone who reads this article to do is rethink (or think about in the first place) what a good business plan is and what is involved in putting one into writing. The bad news is – it will take time and effort – you’ll have to engage the strategic thinking part of your brain. The good news is – it’s not as hard as you think and there are numerous resources available to you to if you feel as though you’re not up to the task of putting it all together yourself. You never know, you might even find a friendly, helpful business banker that would be willing to point you in the right direction.
Essentially, there are three key elements to a good business plan. Remember, I am speaking from the perspective of the guy that is going to be putting your application together and submitting it to the bank’s credit people. There are literally hundreds of books, articles, websites, blogs, etc. out there that will tell you what “has to be” included in a business plan. At last check, a Google search of the term “business plan” returned about 195 million results. The fact of the matter is, whatever the format, whatever the content, you need to have a business plan – full stop. It can always be updated, amended to suit the audience (banker, investor, customer – whatever) and should be constantly reviewed to make sure it is a document that you can use in the day to day management of your business. That being said, let’s look at the three elements of a good business plan.
A Good Business Plan Has a “School of Thought”
Some people call this “vision” or a “mission statement”. I call it a School of Thought because, to me, you need to have a more expansive idea of why your business exists than just a catchy one-liner or slogan, which is what so many vision/mission statements have become. It’s good to be able to boil your School of Thought down into a single idea or even a sentence, but you have to have some meat on the bone. Your School of Thought should consider what you do best, why you do it and how you’ll go about executing it. It’s your philosophy, your guiding principles, your world view. Having this sort of thing written down will allow you to refer back to your core values when making important business decisions, basing them on the things you find most important rather than on emotional responses to an ever-changing environment. And from a banker’s point of view, it will help with understanding your company’s history or background and what makes your business different from your competition (and every other business out there looking for money).
A Good Business Plan Has a Strategy
Strategy is a word that has been turned into a “buzzword” and has almost become an industry unto itself. Looking up “Business strategy planning” will return you over 43 million results on Google. But like many aspects of running a business, strategy doesn’t need to be overcomplicated. Having a strategy simply means that you have thought about how you are going to turn your brilliant business idea into something that will generate revenue. Strategy is about how you’re going to do business and about setting goals that are well defined and measurable. Strategy, if it is going to be useful, is about execution. The best business idea in the world is useless if you are not able to define how you’re going to turn it into an enterprise that will make money. And the best strategy in the world isn’t worth one dollar if you aren’t able to effectively execute it. The precise elements of a business strategy will vary depending on what your business is. But a good strategy should always have these characteristics:
o It’s Robust. That means it’s sufficiently detailed to allow someone else to be able to execute even it if you’re not there to explain it.
o It’s Relevant. That means that it’s been reviewed in the last 12 months (max) and takes into consideration current conditions in the business environment.
o It’s Dynamic. That means it isn’t stagnant. It should be able to be adapted to changing conditions on an ongoing basis.
o It’s Consistent with your School of Thought. That means it is reflective of the core values of your business. A strategy that is inconsistent with your School of Thought has little chance of being executed successfully.
o It’s Innovative. That means you don’t make your strategy a carbon copy of someone else’s. Too many business owners make the mistake of copying some other business when it comes to strategy. What works in one organisation may not work in yours. Be creative.
A Good Business Plan Has a Good Handle on the Numbers
Everyone should have seen this one coming. The all important numbers. They can’t be ignored. You will have to show the bank that the numbers work out on paper even when you take into consideration the impacts of the real world. If you’ve been in business for a while, you’ll need to show them your historical figures – usually the last 3 financial years at a minimum. And regardless of whether you’ve been in business before or not, you will most likely need to provide three-way financial projections. If your reaction to that last sentence was “three-way WHAT?” – don’t panic. Three-way financial projections are simply a forecast of what your 1) profit and loss, 2) balance sheet and 3) statement of cash flows will look like for the upcoming financial year. Three-way can also refer to the fact that this forecast information takes into consideration 1) a best case scenario, 2) a worst case scenario and 3) a most likely scenario. For most business owners, having these forecast numbers put together will require the assistance of a good accountant. Make sure you get an accountant that is not only confident in his ability to put these numbers together for you, but one that is also willing to help you get some personal insight into what it all means. (A good question to ask that will sort the good accountants from the average ones is: “What are the key drivers of my business and what can I do to have a positive impact on my business performance?”) This forecast should become the monthly budget that your business works to over the upcoming financial year. If you don’t understand the forecasts, they won’t be very useful to you as a management tool. And remember, you’ll be the one trying to explain it all to your business banking manager. You must know what you’re talking about!
Now I know that the mere mention of the words “business plan” is enough to make most business owners cringe. They instantly conjure up images in their minds of endless pages of tedious, mind-numbing details that will take way too much effort to put together. In fact, most of the people I’ve spoken to that don’t have a business plan for their business have told me that they’re just “too busy” to put the time and effort required into writing a business plan. On the other hand, those whom I’ve spoken to that DO have a business plan mostly fall into the category of those that were required to write a business plan so they could apply for a loan from a bank. Of those minority that actually have a business plan in place, most of them would admit to not having touched it (or in some instances even seen it) since submitting it to the bank with their application. One of my goals is to get everyone to think again about what a good business plan is and what is involved in putting one into writing. It is not nearly as arduous as everyone imagines, and it is a critically important exercise for every business owner. As a first step, consider the fact that not having a business plan is an almost guaranteed way to ensure that the bank won’t want to back your business. The old cliche is true; failure to plan really is an indicator that your business is planning to fail.
If you can get a business plan together that has at least the three elements detailed above, you will be able to go to your bank with greater confidence that your loan request will at least be taken seriously. It will give you instant credibility if you put it together with some care and a bit of effort. And if you actually utilise the plan regularly as a management tool, you will become more and more familiar with some of the key elements of your business that will lead you to make better business decisions.