Writing An Effective Business Plan- Part Two

The Business Success Strategies Blog is sponsored by ABC Business Consulting

This is Part Two of a two part blog on Writing and Developing an Effective Business Plan. Please refer to the previous blog for Part One.

Picking up where we left off in the previous blog with Section 4 of the Business Plan:  

Section Four: Products and Services

Now that you have developed the Company and Management sections, it is time to describe in detail your company’s Product or Service (P/S).  This section also contains information on your competitor’s P/S.  One of the most important aspects of the P/S section of the Business Plan explains why your P/S is unique: i.e. its competitive advantage or put another way, the utility of your P/S.  On the converse, the P/S section states where you have weaknesses in your P/S line-up.

A Resource Audit is an honest self-evaluation of your company.  In this analysis you identify your strengths, weaknesses, opportunities and threats, which will be considered in your Marketing Plan and addressed in your Strategic Plan.  You develop your P/S price points, features and value to be fully exploited in the Marketing Plan and implemented in the Strategic Plan.  Customer identification, analysis and segmentation starts in the P/S Section to be later developed in the Marketing Plan (and yes, implemented in the Strategic Plan).

Section Five: Marketing Plan

The Marketing Plan fully develops how your P/S will be marketed; summarizes your Marketing Research (actual research contained in the Appendix); fully details your specific Target Market Segments; and explains your P/S Competitive Advantage.  In essence, The Marketing Plan explains in great detail how your P/S will be positioned in the market and should be supported by detailed, believable market research. The Marketing Plan carves out your niche(s) and develops effective Marketing Programs, along with a Strategic Marketing Plan.

Resource: Please see the ABC Business Consulting Article: Writing, Developing and Implementing a Winning Marketing Plan for more details on the Marketing Plan Section.

Section Six:  Strategic & Sales Plan

The Strategic Plan puts the Marketing Plan into action.  The Strategic Plan will show how to implement the Marketing Plan. The Strategic Plan equals action and implementation.  It also details your Sales Forecast for each particular product or service.  The Strategic Plan translates what will be the result of the Marketing Plan, and how it will be implemented and achieved.  The Strategic Plan takes the vast amount of marketing information and research and puts it into a clearly defined Sales Plan.  It is very important a Strategic Plan is believable and achievable.  It works out the “kinks” and road blocks in your Marketing Plan and illustrates how you will overcome your Competitive Gaps.

The Strategic Plan also provides a process for Strategic Management, Strategic Auditing and Strategic Reassessment.  The end product not only implements The Company’s Strategy, but also it provides measurable performance, control functions, corrective actions and reassessment when necessary.  It is a top down and bottom up approach, completely integral with your Company’s Operations, from the Vision and Leadership of the CEO, to Management’s implementation oversight of the Strategy, to the Sales and Operations units of the company.  It provides a Company-Wide Strategic Vision, Focus, Structure and Discipline, while providing an atmosphere of learning and awareness, with a process for identifying deficiencies, and in turn, fixing those problems.

Resource: For more information on developing a Strategic & Sales Plan, please see the ABC Business Consulting Article: Developing A Successful Strategic Plan.

Section Seven: Financials

If you develop your Strategic Plan effectively, completing the Financials will not be difficult.  The principal reason why business owners have such a hard time with the Financials Section of a Business Plan is often due to a cursory job on their Strategic Planning (as well as other important sections).  Financial Projections are not believable chiefly because a suitable, well developed Strategic Plan wasn’t accomplished.  Guess what makes a successful Strategic Plan?  The proceeding section, the Marketing Plan.  As stated previously, the sections and the order of the sections in a business plan are very important because each section builds on the previous section, the culmination of which makes for certain data from which solid Financial Projections can be made. 

You should have two sets of Financials, simple and detailed, as well as, conservative and best case.  The following types of financials are typical for a Business Plan:

Ø  Cash Flow: Monthly basis for 12 months. Yearly and Quarterly basis for 3-5 years.

Ø  Income Statement: Monthly basis for 12 months. Yearly and Quarterly basis for 3-5 years.

Ø  Balance Sheet:  Yearly and Quarterly basis for 3-5 years.

Another very important Financial in addition to the three prescribed Financials, is the Budget.  Budgets are used principally for two purposes:  Planning and Control.  A Budget matches short term targets with long term Strategic Planning, while providing an indication of problems ahead.  A good Budget system will indicate when Expenses are heading over Budget and there is sufficient time to correct the problem. Budgets are often developed during the Strategic Planning Process.

We like Rolling Budgets which look ahead 12 months on a monthly basis, and it budgets an additional Quarter at the end of each Quarter.  This way, you always have a 12 month continuous Budget Outlook.  A Budget should also be flexible so that you can separate the effects of variations between Actual and Estimated results.  Lastly, a Budget is a tool to Evaluate your Business Units and Management’s Performance.  Needless to say, assembling and actively managing a good Budget requires the input of your entire organization.It is important to understand that your Financials relate to each other when building them (a reason why Financial Software Programs are so beneficial).  There’s a lot of back and forth between the Income Statement, Balance Sheet and Cash Flow Statement.  The Cash Flow Statement is the most important Financial for many reasons but principally because it shows in detail how much cash is necessary to finance and grow your company.

Computer Programs are excellent resources for developing your company’s Financials, such as Quicken for Business, Quick Books or other Business Planning Financial Software Programs. It is important that these programs allow you to 1) customize the Formats for your needs and 2) are downloadable into Excel Spreadsheets for maximum utility and flexibility.

The projection period differs and depends for a particular company, venture or project.  For instance, a large scale Real Estate development project’s Cash Flow could be 5+ years and 60+ months depending on the length of the project build out.  Also, Real Estate development projects require more Financials than detailed above. Typically, a Construction Cost Analysis and Cash Flow, Schedule of Real Estate, Construction Cost Schedule and so forth are requirements. Real Estate Development Financials are developed through a Loan Package and transferred to the Business Plan Financial section, so consult how to properly package a loan in order to learn more about these project specific Financials. 

A very important element of the Financial Section is the Assumptions area.  This details the assumptions you have utilized in constructing the financials.  You should also list the various calculations and formulas used in your financials since those formulas can be company, deal or project specific.  Financials should also include Return of Investment / Return on Equity calculations and the assumptions used in those calculations.

Your Financials need to be believable and realistic.  If anything, they need to be conservative.  Too often we see extremes of too few numbers or too many numbers.  If you build out your Financials as a direct result of your Strategic Plan (as we have prescribed), this process results in numbers that are realistic and achievable.  An option is to build two sets of Financials, conservative and a little more aggressive.  We find if you have truly conservative numbers, you will often exceed your Plan, which is a great Psychological boost for any company in any stage of development.  (This assumes these numbers are based on sound planning and thinking and most importantly, that your company can make a nice profit at the conservative level).

Resources: Please refer to the following ABC Business Consulting Business Success Articles for more detailed information on Business Financials:

Cash Flow Management

Profit Statement Analysis

Section 8: Appendix

The Appendix Section of a Business Plan contains all the bulky items:  marketing research, construction plans, appraisals, valuations, company art work and graphics, company charters and share details and so forth.  Since an Appendix is often large in volume, it is important to have a table of contents in the beginning of the section, detailing what is contained and where it appears in the Appendix section.

MORE TIPS FOR WRITING AN EFFECTIVE BUSINESS PLAN

Ø  Have a business mentor who has a lot of experience in your area of business read your business plan and critique it.

Ø  Business Plans do not need a lot of fancy graphics and art work to be effective.  Simplicity and straight forwardness are more important than a bunch of pretty graphs.  Many modern business plans lack substance and have lots of flash.  Add some flash and graphics to the plan after the substance of the plan is completed and only if it aides the understanding and comprehension of the written content.

Ø  What is the most effective way to build a business plan?  For each section of the plan, write out questions prior to writing the section.  Pull the questions from your experience, your team’s experience, your mentor’s experience and published business planning books and software.  Answers to the questions will build out that particular section.  Order the sub-sections in a logical, building block order. Please see the ABC Business Consulting    Business Planning Book for more details on this process.

Ø  After you have developed your Comprehensive Business Plan, you should develop business plans of shorter length and format (usually no more than 20-30 pages in length) for various purposes:  Funding Business Plan, Investor Plan, Joint Venture Business Plan, Marketing Business Plan, Strategic Plan, Customer Plan, Supplier Plan and so forth.

Ø  A Business Plan is a technical document - a business document.   It should be written as such.  It should not be written like a novel or a book.  It should be concise and utilize outline organization versus long, wordy paragraphs.

Ø  A business plan should be realistic and believable.  It should contain facts and figures to support the “believability factor.”  For instance, just stating in your Marketing Plan that you will achieve 5% market share is not enough.  Your Strategic Plan in combination with your Marketing Plan should carefully illustrate how you will achieve 5% market share.

Ø  A comprehensive Business Plan serves two purposes typically: a dynamic document to run your company, and a document to start, acquire or expand a company, backed by the shorter version business plan formats (i.e. Funding Business Plan).

Ø  A Business Plan is never static.  It should be dynamic and easily adaptable to changes in the market and opportunities which arise.  It is a “living” document used to run your business on a daily, monthly, quarterly, and annual basis.

An Important Consideration

Should you hire someone to write your business plan?  The answer is Yes and No.  You do not want a business plan writer or technical writer to build the business plan.  You can use these writers after the business plan is built to make it more professional (i.e. adapted for a Funding Business Plan).  However, hiring an experienced Business Consultant can be quite advantageous when building a business plan. 

A good Business Consultant will take the time to get to know you and your business and issue you important questions for you to answer, which when analyzed, will build an effective Business Plan.  Nobody can solely write a business plan for you.  The business owner / founder must be integrally involved in the Business Planning process as you know your business better than anyone else.  A good Business Consultant harnesses the necessary information by asking the right questions in order to build a solid Business Plan, while applying and providing valuable experience during the planning process.

A  Business Consultant can also offer years of experience in working with many different businesses, business sectors, utilizing that know-how and experience in building your Business Plan.  Additionally, if you hire a Business Consultant early on in the business opportunity / business development stage, the consultant can not only help you build an effective Business Plan but also be available for advice as you implement your Business Plan and grow your company.  A Business Consultant can show you effective ways to maximize profits and margins, while minimizing expenses.  Moreover, a Business Consultant can introduce you to important business networks and connections to bolster your company operations.

Please visit The ABC Business Consulting Website for more information on what a Business Consultant can do for your Company.

This article on Business Planning is a simplistic overview. For a step-by-step guide on developing a Successful Business Plan, please consult the ABC Business Consulting Comprehensive Business Planning Workbook and Guide.

Author Bio

This Business Success Strategies Blog is written by Frank Goley, the ABC Business Consulting Chief Business Consultant, who has over 20 years experience helping companies start, grow, turn-around and succeed.

Visit Business Success Articles for more of Frank’s “how to” business success articles covering topics like Business Planning, Business Management, Financial Management, Growth Strategies and Business Finance.

Check out Frank’s books that are about to come online: The Comprehensive Business Planning Guide and Workbook and The Business Success Guide.

Be sure to subscribe to the Business Success Articles and E-Books Distribution Service and the Business Success Tips Newsletter! 

Disclaimer:  ABC Business Consulting, LLC is not offering or providing business investments or loans.  This is for informational purposes only.

Copyright 2009-2010 ABC Business Consulting, LLC

This entry was posted on 1. January 2010 at 00:07 and is filed under Business Planning, The Business Success Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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