Creating a Plan
Often business owners create a business plan because someone (perhaps a lender or an investor) ask for one. The better reason to create a business plan is to chart a course for your business and to be able to ask a very important question. It will enrich you to create a business plan, but how do you create a business plan?
The term “plan” could refer to an operational plan – how the business intends to meet the goals set forth in a strategic (long-term) plan. On the other hand, “plan” could clearly include both kinds of planning (strategic and operational). It is important to think about both.
The owners of a business, reflecting upon their own values and goals, should communicate and plan, setting forth a written strategic plan to be followed by the business. This plan should include issues relating to ownership transition and leadership or executive succession. The executives or managers of the business (who may also be all or in part owners) should create an operating plan to accomplish the goals of the strategic plan. Generally, the strategic plan is reviewed and revised annually, but it can be reviewed much more often. The operating plan will be impacted by any change in the strategic plan and should be immediately revised accordingly. Aside from that, other dynamic factors concerning the effective operation of the business may force changes in the operating plan on a more frequent basis.
The best place to start is at the end – the end of the planning cycle. I recommend something five years or less. Envision the business you could sell to a third party (non-owner) for the highest reasonable amount. (Understand that at this point of sale a selling owner cannot be an integral part of the business to obtain the highest possible value for the business.) Then work backward. What would the business be doing the fourth year to get to the apex in the fifth year, the third year to the fourth, and so forth? If the market will not support the five-year plan, something needs to be changed. Therefore, the market analysis becomes the reality check for the projected business status at the end of the planning cycle. The beginning question should be: “How can I develop a business I can sell for top dollar in five years?” In five years you do not have to sell, but you will develop a better business if you have that goal.
There are a number of ways to construct plans from questionnaires and software; there is nothing wrong with adding structure and detail in that way. Do the marketing and conceptual work first to know if you can go where you want. After you have established this perspective, the details can fall into place. This is not to say that the details are unimportant – they can make you or break you – but they must be within a frame that is realistic and defined.
The purpose of doing a business plan is that it gives you the ability to ask a very important question: “Why didn’t things go as in the business plan?” Answering that question is a valuable business analysis tool. Of course, the plan is the prerequisite to having the analysis tool.