Remember the Map

For the vast majority of business owners, external factors and random events dictate the path they travel on their business journey. They may have a general idea of where they are going, but for the most part their plans are reactionary. They readily admit they need a road map but so often fail to ever take action. After consulting with hundreds of business owners around the country, I have observed the most common reason is know-how. They simply lack the knowledge of how to research, organize and prepare, and use a business plan.

Before we tackle the know-how, we should start by gaining an understanding as to how a business plan will really benefit your organization. It will provide goals, an outline of how to get there, and a system for measuring your progress.

Case in Point
To illustrate let’s look at "Frank," an owner of a small manufacturing company that was established over ten years ago. Frank’s business was a steady performer and provided a healthy income. Recently, Frank invented a unique tool for a specialized niche in the utility industry. The tool was a "one of a kind" and certainly appeared to have great promise. Frank began to spend all of his time on fine-tuning his product design. Armed with a working prototype, he set about marketing his product. He quickly found out there was no market for his product. In the meantime, his core business suffered greatly as he needlessly pursued this particular product. Had he gone through the development of a business plan first, he would have quickly seen there was no real market potential for his product. His company is still trying to recover from the year he wasted.

In addition to saving you from wasting time and resources, there are at least four main purposes in developing a business plan: You need additional funding, you need to make strategic decisions regarding starting, buying, or growing a business, you want to improve the operations and organization of your company, and you are considering selling your business.

Action Step
Purchase business-planning software or engage a professional to begin the process of preparing a plan.

Research is the first and most important component in developing your business plan. To conduct your research effectively, you need to first determine the topics to be discussed. Your topics will provide the framework and direction for your research. With your framework in mind, utilize as many resources as possible from a diverse background including industry associations, competitors, employees, and the Internet.

After your research is complete, it is time to organize and prepare your plan. While there is no requirement as to how you organize it, most plans contain the following sections: an Executive Summary outlining goals and objectives, Company History, Corporate mission and goals, Management team history, Your service or product offering, Market potential, Marketing plan, Financial projections, and Exit strategy.

As you prepare and organize your plan, commit to presenting accurate and realistic information. Insure your ability to defend your assumptions and projections. Some of the more common mistakes made by business owners in preparing their plans are: Presenting unrealistic financial projections, Showing an unrealistic growth plan, Overestimating sales, Underestimating or belittling the competition, and Providing too few details.

Your final step is committing to use your plan. Your plan, of course, is of no benefit if upon completion it goes on your shelf. You should review your plan at least semi-annually and update it at least annually.

You can’t build a reputation on what you’re going to do - Henry Ford.

Once you begin to use your plan, learn a lesson from the many businesses in the marketplace that never succeed. Those that fail or stagnate usually trip up in one of the core areas of finance, sales and marketing, management, or operations. In finance, they typically underestimate start-up costs or cash flow needs, overuse debt, fail to understand the difference between profit and cash flow, or make overly optimistic assumptions. Failures in the sales and marketing area usually revolve around underestimating the competition, inaccurate assessment of market potential, inability to promote the product or service, unrealistic estimates of length of time to penetrate the market, or lack of understanding of customer needs. The breakdown in management most commonly occurs due to lack of experience, divergent shareholder goals, wearing too many hats, and lack of structure. Operational problems develop as a result of poor location, too much overhead, wrong equipment, or poor utilization.

Mark Jordan is the managing principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of Enhancing Your Business Value…The Climb to the Top, Selling Your Business The Hard Easy Way and co-author of The Business Sale…A Business Owner’s Most Perilous Expedition. He is also the author of numerous articles. For more information email him or visit www.vercoradvisor.com.