Writing A Business Plan

Making and writing a business plan, marketing your business, and finding starting capital is an extremely hard and time consuming process, but these are all important steps that every business owner must go through to establish a business. Even a person with no experience in any of these activities can set up and operate a successful business.

The key to owning and operating a successful company is having a well thought out business plan. In general, a plan for your business can be quickly described as a written description of how a company plans to make its money.

A good plan should start by including a list and descriptions of the business' expected costs. This typically includes line items such as rent, supplies, labor, and inventory. A good business owner will spend a lot of time carefully researching the current and future costs of each of the items on this list. Generally speaking, the more research that goes into each aspect of a business plan means that the plan is more likely to accurately reflect what will actually happen once the company starts operation.

Next, a potential business owner should list the expected price points of all of the merchandise, goods, and services that will be offered by the company. After this, list any prices that are currently charged by similar businesses for their merchandise or services. The idea behind this is to show that the proposed company's prices are in line with their competition. It is also important to show the reasons behind any price differences.

While charging prices that are higher than the competition can reduce sales, this might be mitigated in cases where the business offers services that increase the value of their product. For example, an upscale restaurant can justify their higher prices by offering a better atmosphere, location, and customer service than a mid-scale restaurant serving cheaper food would.

Finally, it is critical to include projected profit margins into the business plan. In addition, many strong business plans include a list of scenarios or stress tests along with a plan on how the business will overcome these obstacles. For example, a business plan might include a projected scenario in which sales fall by twenty percent. Solutions could include laying-off staff and cutting store hours and/or reducing inventory.

After the business plan has been written, the process of error checking and troubleshooting can take months. In fact, many potential business owners will change their plan multiple times in the course of establishing funding and actually setting up shop. As the process of starting a business moves forward, many business owners will rewrite their plan to include updated pricing for both their expenses and merchandise.

Since the business plan is the way that many potential investors will learn about the business, it is important to keep the tone of the plan positive. Some potential business owners even write several different drafts of their plan to present to potential investors; customizing each plan to speak to the area of knowledge or expertise that the investor understands best.

Business Ownership Pitfalls

Most people who have ever worked at some point in time or another have hated a job they have had. Often that same person has thought or said, if this was my company I would do this or that. Before jumping out and starting your own business, reading this guide will help prevent your business venture from ending in failure. A lot of the content will focus on people who work for themselves and less of those who simply own a business and make money off of others.

1. Know Your Industry. Usually a successful business owner will know the overall industry they are a part of. Often times the business owner will have known or worked in the industry for a good period of time and understand it. Focus should be made towards the customers, the competitors, the overall market share and potential profitability. Does the industry have peaks and valleys, how bright is the future, and how easily can competitors come in and compete in the market.
   
2. Love Your Work. Often successful ventures are lead or involve individuals that go above and beyond the call of duty. These leaders will often spearhead the organization or venture and motivate other members by teaching or promoting the business. As a business owner, I know how hard it can be day in and day out. Often owners will mention how much harder it is working for yourself than for other people. If the leader of the organization isn't passionate about the work than others will take notice. So if you have to work harder and longer to make a business successful by most accounts than imagine how hard it would be if you hated it. So advice here is to love it first and worry about what it pays secondly.
   
3. Hire The Right People. Often business decisions are made on price and not experience. From personal experience, my advice here is to do 1 of 2 things. Either get the highest qualified person you can afford for the job or if you know your industry and are experienced enough than find someone you can teach and hire them to do it. Obviously, on both counts you hope you don't bring someone in and learn the business and they end up working for or as a competitor. I have found 2 experienced people can do the job of 4 less experienced workers and cause the owner half the headaches.
   
4. Do The Right Thing. As a Marine, this advice comes natural. Always do the right thing by your customers and success should come hand and hand. Lying, cheating and stealing will get you no where and should be avoided at all costs.

Businesses Without Exit Strategies Often Die Slowly

Choosing the time to leave your business

With so much emotional energy invested into your business you are likely to not make the right decisions when it is critical to do so.

For example, when you are throwing good money after bad in your business and watching it all going to waste, you try and hang in there hoping that things will get better.

Too late, the business folds and all your investment goes with it.

What is an exit strategy?

In the initial business planning stage you need to decide how and when you will exit your business. Normally the exit planning covers situations such as;

• The market stalls or declines rapidly
• Someone makes an offer to buy your business
• Sales revenue drops below a certain trigger point for a period of time
• Licencing laws change making it impractical to continue cost effectively
• You want to retire or hand on your business to your family

Your exit strategy will include the details necessary so you can make the right decisions when a moment of crisis impacts on your business operations.

Recent example of not having an exit strategy

A new start-up business in the childrens party industry based its financial forecasts on certain trading hours. Everything looked good in the budgets and predicted sales forecast were achievable.

Before opening the leased premises the new business hit a snag with permits and ended up with unplanned legal costs and forced changes to the trading hours.

This is where the exit strategy plan would have been useful for reference. With no strategic review of their current situation the owners continued to launch their business idea.

What happened?

Months later the business is struggling to make costs and has little cashflow to stimulate additional sales through advertising. It seems that no one reviewed and adjusted the prior budget based on the initial opening hours.

The adjusted hours does not give enough hours per day to make the planned sales and the planned advertising budget was used to meet the legal costs.

At this point the owner should have thought about an exit option. Looking at the actual budget and lack of advertising budget the owner should have established a certain profit/loss figure as a trigger point to exit the business.

Why have an exit plan?

By planning early you already have the phone numbers and contracts established to sale equipment and stock in an orderly process. The other option is to suddenly realise that you have to lock your doors because you became insolvent just after lunch, and breached all your contracts.

It costs nothing to have exit strategies and will save you peace of mind when or if the moment comes to your business.

Moving Goods Efficiently Through the Supply Chain

There are some key questions about Supply Chain Strategy that businesses of all sizes need the answers to - whether they have heard them before or not it is important to always remember the basics.

The supply chain encompasses sourcing and procurement of raw materials, inbound logistics to the processing and production plants, warehousing and distribution of finished goods to the final customer.

Supply Chain Management and optimisation is the strategic coordination of the business functions (finance, administration, purchasing, production & manufacturing, logistics, sales and marketing) within a company with the aim of achieving the most efficient movement and storage of goods from point of origin to point of consumption.

What are the key mistakes that organisations make where supply chains are concerned?

Many organisations fail to truly coordinate their supply chains and often 'sub optimise' by treating each function as a silo e.g. targeting reductions in finished goods inventory without balancing the implications on economic production batch sizes, or bulk purchasing raw materials without considering the impact on working capital. Consequently, where one cost is driven down, another is increased.

During good economic growth businesses can prosper and grow financially focusing on sales and revenue, without perhaps the operational focus to ensure that best supply chain practice is implemented as the business grows. It is only when the growth slows down and the business is analysed in more detail that one realises that the supply chain has become fractured, cumbersome and expensive. This is a potentially very damaging situation for smaller businesses that have grown quickly without true understanding of the impact on to their costs.

Does a business need to reach a certain size and critical mass before it is worth investing in an outside organisation taking a strategic look at their supply chain management?

It isn't the size of the business or the complexity of the supply chain that drives the need for external expertise to review the supply management strategy; but the skill set and resource available within the business. It is often the case that the mistakes referred to above have been made and that it is only when the business is reviewed as a 'whole' that it can be truly analysed and optimised. This is not always possible for a company to undertake internally with an objective and unbiased approach and an independent review will be more productive.

What is the starting point of the optimisation process? Which key members of the business would be involved?

The starting point is always data. You can't start to make improvements without creating a baseline of how the business currently performs. You also need to understand how the business wants the supply chain to perform in future, and what growth plans are targeted. The key members of the business to establish this information are normally sales, operations and finance. You need to work with these members to gain cross-functional consensus on what the data is telling you about today, but also a consensus view of future growth plans. The latter can often be the most difficult - it is very rare in any business for sales, operations and finance to give the same answer concerning growth!

What, typically, are the kinds of benefits that can be gleaned by optimising supply chains?

The result of it being sub-optimised is often limited visibility, hidden costs and fragmented teams working against each other. If a sub-optimised supply chain is optimised correctly the benefits should include reduced operating costs, reduction in capital requirement and improved service levels to customers.

Is supply chain optimisation a relatively new phenomena?

Supply chains have always been around and there has always been a desire to ensure they are optimised. However with the increased complexity of a truly global market place and an increase in Global sourcing from Eastern Europe and the Far East it has become more of a challenge to optimise. This in itself has proven that a supply chain management strategy with a proper process for regular review and change is more important now than ever and will continue to be so.

How, if at all, has the economic downturn impacted on optimisation?

Never has so much attention been focused on taking cost out of all aspects of the supply chain as well as reducing the effects on the environment, whilst of course achieving higher levels of customer satisfaction - a tall order for any business especially in what are still considered in some sectors as uncertain economic times ahead.

The economic downturn has forced a number of businesses to reduce or integrate resource and infrastructure in some areas to such an extent, in an effort to minimise costs that they are now finding they are unable to operate to maximum efficiency and potential. This in most cases has provided a short term cost saving solution, but unfortunately has the medium to long term adverse effect on the business as the supply chain optimisation and the key business objectives are diluted; reducing their effectiveness and worth, preventing the business from achieving full optimisation.

Why Does Your Company Exist?

The prevailing business paradigm today is that a company only exists to maximize shareholder value. Any company or anyone who believes this to be true is in big trouble if they have this mindset operating within their organizations today. Not only is there really nothing else in business or life that can be successfully measured by only one metric, but the sole purpose of any organization needs to be "bigger" than just making money! Of course a company has to bring in more revenue than it spends, but only focusing on making money is a guaranteed way to drive your company out of business and quickly.

"My company exists to maximize shareholder value. Our company sole focus is to be number 1 in the world. Our company continuously strives to be the best!" If your company's growth strategy is aligned based on anyone of the above statements your organization is set up to fail. And yet way too many Fortune 500 companies have these types of statements as their corporate vision and mission.

For example, Facebook was not created to make shareholders wealthy- but rather to provide an on-line method for people to connect and communicate. Starbucks wasn't founded to employ thousands of people (which is a great benefit) but rather to provide a place for people to come together and commune. The sole purpose a company exists should be reflected in the company's vision. Microsoft founder Bill Gates had a vision of having a computer on every desk around the world- which at the time of main-frame computers was a revolutionary idea. In other words, the sole purpose Microsoft was created was to allow people to access information at their fingertips.

A company should exist to provide a product or service (which is what the mission is based on) to ultimately provide a benefit for society. There has to be a tangible benefit (which adds value for the customer) for the company to exist and maximizing shareholder value doesn't qualify. Ironically maximizing shareholder value (for both private and public companies) needs to be the goal and the corporate strategy needs to outline how the company will accomplish all of their goals while aligned around their sole purpose. Your company may provide the most in-demand product or service, but if you don't manage your organization profitably then it will simply cease to exist over time. So, maximizing value for your company is the most important outcome, but it depends on a myriad of other components to realize a profit. In order to realize your outcome you have to have your company aligned to achieve that desired result. Simply stated the four key organizational concepts are:

Vision (statement) - is why your company exists
Mission (statement) - is what product and/or service your organization provides.
Strategy - is the plan which will be executed to accomplish the goals.
Goals- are the specified results from all initiatives.

A recent advertisement for a large bank stated "XYZ bank treats every customer like our biggest customer. You're a big deal." So what is wrong with that very enticing idea? Who doesn't want to be the biggest? The most important? The problem is in how you define the biggest. Is it the customer that has the most money on deposit? Is it the customer that borrows the most? It is the customer that uses the most bank services? And makes the most money for the bank? The answer is you as their customer should want to be treated as their "most valuable" customer regardless of your financial status and then it is up to you and the bank to define what value means to you.

In order to be successful and provide shareholder value, a company must focus on providing value to their customers first and foremost. Of course you have to make sure every aspect of your organization is focused on delivering value and that your strategies are based on a well-executed plan and all of your employees are "on board" and engaged. To keep your organization on-track and growing, make sure you have clearly defined your company's purpose, vision, mission and strategy and then lead and manage your company to success!

As business advisors, Center Consulting Group specializes in working with businesses and organizations focused on improving their business practices. Proven results include increasing profits, reducing employee turnover, increasing client retention, and improving quality and productivity through strategic initiatives. Services offered: consulting, training, seminars, and keynote speeches.