The 10-Step Business Plan

By David P. McClure

Kent Associates

Startup companies don't close their doors for lack of

customers. They don't fail because of cash flow problems

or inadequate financing. These are just symptoms of a

more serious problem -- the lack of a sound business plan.

Here's an easy way to sidestep the problem.

Every manager knows that a business plan is the bible of success, offering a healthy mix of history, insights and daily guidance. All too often, though, the plan is written as the book of Revelation rather than the book of Genesis. The plan is written as a final chapter in the company's history, hastily scrawled in a effort to gain emergency financing, a clean merger or a better selling price.

Reminding owners of Internet startups that it shouldn't happen that way is an exercise in the obvious -- akin to reminding people to floss their teeth every day. In the daily press of finding and keeping customers, sorting out problems and generating quotes, it is just too easy to put off writing and using a plan.

In part, that's because developing the business plan seems to be a major undertaking with few clear benefits to a healthy company on any given day. After all, if a business is growing and profitable, what could a business plan do that isn't already getting done?

The answer is three-fold:

The business plan is a powerful insurance policy against disappointment or major problems. It gives owners a preview of problems before they become serious enough to threaten the health of the organization.

It is a three-dimensional drawing of the company that can be rotated and studied from every angle. One of the major challenges an owner faces is how to have a clear and understandable view of the company every day. The plan offers this view, showing every facet of the company -- its finances, its marketing and its organization -- in enough detail to see where changes and improvements can be made.

A business plan is easy to develop. Contrary to its reputation as a stuffy exercise in number-crunching, the business plan is a relatively short document that can be developed from existing information. While the business plan is more numbers-oriented than other types of plans, its heart is still the management team's vision of the company's future, and how management intends to make that vision a reality.

The business plan is the first document that potential investors, venture capitalists, bankers and other sources of financial assistance will want to see. Its presentation is the first step in any business partnership, merger or acquisition discussions. But more importantly, the existence of the business plan says important things about the quality of management for the company. It is a visible sign of a competent, professional and forward-thinking management team.

If the company is planning oriented and already has written strategic and marketing plans, the business plan is more than 85 percent complete. But if the press of daily business makes written plans a lower priority, developing a business plan doesn't have to be an overwhelming or complicated process.

Business planning can be condensed into ten relatively easy steps that can be accomplished as time permits and as the information becomes available.

1. Buy a three-ring notebook and a package of ten dividers with tabs. An easy way to organize the project and get it off to a good start is to assemble the package that will hold it. The final result can -- and should -- be packaged in a nice binder (with company logo and the title "Business Plan" printed on the outside) and dividers with printed tabs. That way, it can be an impressive piece to share with outsiders and financial consultants. But the "working copy" can be packaged in any plain binder with a 1-1/2 inch spine and ten section dividers.

Label the ten sections as follow:

Executive Summary

Management Vision

History and Company Overview

Products and Services

Marketing Plan

Management Team

Organization and Operations

Company Requirements

Financial Summary

Appendices

2. Get the numbers and financial statements first. The requirements for financial data for a standard business plan are nothing more than the documents prepared every year by the accounting department. These should be divided into two parts:

A summary of historical financial data going back at least three (and preferably five) years should be presented in a chart with separate lines for net sales, costs of sales and inventory, gross profit, marketing costs, general and administrative costs and the net operating income or loss for each year. A second chart should project these same revenue and cost categories for the coming three years. An explanation of each line should follow the chart, noting highlights or areas that require more detail. The historical data and projections should be placed in the section tabbed "Financial Summary." In this section, also note any areas of significant risk to the company over the next three years -- including planned expansions or financing, executive buy-outs and retirement funding, outstanding obligations of the company or other risk factors that could affect the future financial performance of the company.

In preparing the projections, avoid the temptation to "massage" the numbers. A common mistake is to try to make these projections more optimistic than the market and the company can realistically support. People familiar with business plans (like venture capitalists) look for such massaging first -- and consider undue optimism a danger sign that will cause them to reject the plan.

A copy of the most current audited statements for the company (balance sheet, income statement, cash flow analysis and statement of changes in financial position) should be included as "Appendix A" in the section tabbed "Appendices." These should be readily available from the company's accountants.

Make sure that a statement from the auditors, attesting to the accuracy of the numbers, is included in this appendix. The statement is needed to support the financial statements, and the plan will not be credible without it.

3. Insert a copy of the current year's marketing plan in the section tabbed "Marketing Plan." If the company does not have a written marketing plan, this section should contain a paragraph or two on each of the following subjects:

-- A description of the market. Who are the company’s customers, what is its marketing area, and what need does the company fill for its customers?

-- What are the benefits of the products or services to the customer? Are they lower cost, better quality, more efficient, more convenient or otherwise beneficial? Do they help the customer to save time or money? For each major product line, document the specific benefits and how the company delivers benefits that are not matched by competitors.

-- What share of the market does the company have? That is, what percentage of the local market is taking advantage of the benefits listed above. Where possible, give s research data or sales figures to support the market share estimate.

-- Who are the competitors, and how do their products and services compare? How does management plan to out-sell, out-plan or out-think the competition?

-- What is the company's sales strategy? Explain the sales process step by step, from the time the product enters inventory until it is delivered to the customer. Include here any plans for advertising and promotion, and attach a copy of the current year's advertising and promotion budget.

If the company has produced any marketing literature -- brochures, flyers, mail pieces, news releases or product data sheets -- include a sample of these in the Appendices under "Appendix B."

3. Write a brief history and description of the company. This section need not be elaborate -- a few paragraphs on the company was founded and a few more on the shape of the company today. Include a description of the physical facilities, truck or delivery fleets and the size and value of the current inventory.

Also note the number of employees, their longevity with the company (as an indicator of management style and company stability) and any other special characteristics of the work force. This section is also a good place to note company involvement with the community (support of local organizations and charities, local taxes paid, etc.) and with professional organizations.

This information on the company is placed in the section tabbed "Company History and Overview."

4. Describe the company's products and services. What does the company carry (and how much is kept in inventory)? Does it provide special services to customers, such as immediate delivery or overnight shipments, and how are these services paid for (surcharges or markups, for example)? Group the products and services so that they are easy to review and understand, rather than simply providing a raw list of inventory. Place this information in the section tabbed "Products and Services."

5. Profile the management team. Inventory doesn't make a winning company, management does. Any potential lender or partner will put more emphasis on the quality of the management team than they will on the financial statements. This is because a bad year or two can be overcome by a stable company, but a weak management team doesn't have the strength to guide the company long-term.

A simple way to do this is to have each key manager (e.g., the people who report directly to the president, or those who have vice-president titles) write a one-paragraph biography of themselves. Focus on education, experience, professional credentials and current responsibilities.

This is also the section for the company's organizational chart. The chart graphically outlines employees, reporting relationships and organizational structure so the company is easier to "visualize."

This information can then be compiled on two pages and inserted in the section tabbed "Management Team."

6. Outline the company's operations. There are four areas of concern here -- product purchasing and inventory; sales and marketing; production and delivery (including any value-added services such as fabrication); and administration. Profile each of these areas of the company, noting the level of staffing, responsibilities, and how the departments work together to make the company successful and its customers satisfied.

7. Convey the "vision." This is a job for the most senior member of the firm, but should be reviewed and agreed upon by all of the members of the management team. It is basically a 1-2 page statement of what the company stands for, what its goals are into the 21st Century, and how management intends to meet those goals.

This is a section that the purists of business planning might leave out, because it is a "think piece" not supported by facts, numbers and documentation. But it is easily the most powerful part of management's presentation to people not familiar with the company, and can make the difference between a successful business plan and a mundane re-hash of accounting numbers.

It goes in its own tabbed section near the front of the plan.

8. Review the completed plan. Once these sections have been completed and placed in their tabbed sections, put the plan on the shelf for two weeks. At the end of this "aging period," take the plan and read it from cover to cover, looking for ways to enhance, expand and improve it.

The guiding rule is this: "Fluff fails, but sizzle sells."

Wherever possible, document claims and providing supporting detail. Fill in any gaps in the document, re-write sections that are unclear, and add any supporting documents (such as research studies, additional financial projects, or a copy of the firm's strategic plan) as additional appendices in the back.

Check to make sure that action verbs are used where ever possible (for example, "Employees are motivated by. . ." rather than "Employees have been motivated by. . ."). Use more colorful terms and stronger adjectives wherever these can be reasonably supported. Use short, powerful sentences. Replace long words with short ones. The intent is to make the plan more interesting and easier to read.

Also check to ensure that there are no inconsistencies, and that information given in one section is not contradicted by another.

Remember that people who review the plan will probably do so in one sitting, and that the first impression will be the most lasting.

9. Adapt the plan to the situation. If the plan is written over a period of weeks in a time when the company is strong and stable, this section may remain empty. Or it may simply note that all company requirements are being met through income from operations or existing financial resources.

If the plan is being developed or revised for a special purpose (acquiring a new source of financing or a merger, for example), this section should outline what the company is seeking to do, and how the action will benefit both the company and its business partners or new investors.

This section is placed in the section tabbed "Company Requirements." Note, though, that the title of this section may be changed to reflect the situation. In some cases, it may be titled "Funding Requirements," and will outline how the company will utilize additional funding and how the funding will be repaid. In the case of a merger, the section might be called "Merger Analysis" and would document how the merger would result in a more successful operation for both companies.

10. Write the Executive Summary. The summary is always the last part of the plan to be written. It should, in one or two pages, summarize the contents of the other nine tabbed sections.

The summary is the first part of the plan that outsiders will read, and it is critical that this section make a smashing first impression. Its style should be direct and eloquent. Review this part several times, removing any fluff and working to make the section more interesting and credible to the reader.

Take it to the bank

In most companies, the simple process of creating the business plan will turn up some inconsistencies, problem areas or items of concern to management. With the plan finished, management will be able to turn its attention to these areas and take positive actions -- updating the plan to reflect the corrections that are made.

Even if the plan makes the company look letter-perfect, however, it helps to have it reviewed by a professional before it is needed for any business purpose. The easiest and least expensive way to do this is to take the plan to the company's commercial banker.

Bankers are trained and experienced in the review of business plans. Ask a member of the bank's commercial loan department to give you an "informational review" of the plan to gain two invaluable pieces of insight -- whether the business plan passes muster, and whether the plan is strong enough to encourage the bank to loan the company money if it is ever needed.

Take any criticisms or suggestions to heart, and amend the plan as necessary.

Ideally, a business plan should be draft at the same time the company opens its doors and updated every year thereafter. In reality, few companies have a current plan on file. But the plan is a symbol of the quality of management within the company, and a powerful tool for identifying and correcting potential problems.

Taken in parts, the plan can be developed over a period of weeks, diverting little time or attention from other management chores. And it can be updated a piece at a time as new information becomes available.

A business plan is a good idea for even the healthiest and most profitable distributorship. Not because companies without a plan fail or close more frequently. But rather because business that have and use a plan succeed more frequently.

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