Business Plans - It's Not the Document
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Many times the business plan document is viewed as an "end product." Actually, the plan is the documentation of the product - the definition, clarification, and intention of the business model. The plan captures and communicates concisely the business - from markets and products to operational activity to past and future financial performance.
The importance of a well-written and complete plan document is its ability to convey to the targeted reader - a potential equity investor or debt holder - that “every” aspect of the business has been thought through and analyzed; that you have made reasoned decisions and assumptions about the business's product, market potential, operations; and that you have quantified the financial potential of the business model. The document is the means of telling your story and selling it to interested parties. The document communicates the "business case" you are presenting to the panel which is judging its potential against other opportunities.
Business plan content can be broken down into these major headings:
- Marketing Analysis
- Product/Technology/Service Definition
- Leadership
- Operations
- Financials
- Capitalization/Exit Strategy
Each of these major categories is critical to communicating the organization's level of self-knowledge, its capability to deliver on the business's "promise", and the reasons your audience should join in. Given that the business plan's purpose is to serve as a communication tool and a sales document for the business concept, the writing is straightforward. The challenge is in developing the underlying tenets and assumptions, defining the business model, gathering the data, generating financial models and forecasts, and insuring integration between what the organization says it is and does and the pro forma financials that need to be written.
For many concept stage and technology/product-oriented companies, the challenge extends to all categories of information beyond their technology or product. Most of these companies have begun due to the founders’ enthusiasm for the product or technology; there is often little or minimal research and analysis performed on market or business operation requirements. Some of the areas of concern are:
- gathering data in support of assumptions
- markets, whether consumer or business
- competitors
- inputs/components, both materials and labor
- infrastructure
- systems
- equipment
- facilities
- developing representative pro forma financial statements
- detailing the operational structure and processes
- conveying the marketing message
Because process of generating the document provides a framework for answering core business questions, often this is the first “robust” look at the business in its entirety. For the organization to get the most out of its business plan, it is necessary to get beyond the document-focused perspective. The plan document will be a by-product of a robust enterprise analysis and design process.
To launch your business plan activity, first define the purpose and audience of the plan. Is it needed for internal or external purposes? If internal, what are the driving forces - New phase of business? Less than stellar performance? Inability to leverage resources? Poor ROI? Low sales numbers? Under performance? Shrinking margins? Shrinking markets? New competitors?
If the purpose is external, do you need to fund growth? Commercialize a new technology? Expand into new markets? Invest in product development? Acquire a competitor? Get a new business started?
Who is your audience? Existing or new investors? A bank or other lender? Your leadership team? Your Board?
Knowing the purpose and the audience of the business plan development process enables you to develop the relevant information for the message; creating the actual plan document becomes a writing project with all the research at hand for a cohesive, comprehensive marketing tool. The business plan development process is the means of defining and solidifying your business concept and marketing message. The resulting document is your marketing and sales tool for getting the “business” across to the audience – from concept to financial results.
After you have defined your audience, move on to understanding what information the audience needs to make its decision – whatever that decision is. Craft your marketing message, then gather the data and information to support your position. This includes customer and competitor information as well as a timeline of what you plan to achieve at key dates.
From the market data and volume projections, the business can build and explain the infrastructure needs – people, equipment, and so on. The amount of capital required and the timing of those expenditures is critical information to provide. It is especially important for the organization to understand what the returns are and what is the timing of those returns on the investment being made. When does the business begin to generate positive operational cash flows? When does the business break-even? The list can continue . . . .
When you understand the questions which need to be answered AND when you have found the answers, the process of physically generating the business plan document is greatly simplified. Take the time to craft a sound marketing message, sales strategy, business model, and robust pro forma financials, then write the document.
Looking for Strategic Finance
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Who hasn't heard about the impact of Sarbanes-Oxley on the operations of public companies and the boards of those companies? Is there a lesson to be learned for the private, early-stage, emerging, or growth company? Emphatically YES!
One of the areas where private companies can look for improved business performance is through the addition of experienced numbers people throughout the organization and on the boards of directors and advisors. Many companies, especially early in the business, view the accounting and financial aspects of business as "administrative" rather than strategic.
Having sound financial knowledge and experience early in the development and growth of the business opens many more options for funding and for maximizing every dollar the company raises or makes. Sound financial controls, processes, and strategic planning can enable the business to grow wisely and rapidly.
Businesses can run with "ad hoc" and basic accounting systems. The transactional aspects of finance and accounting are frequently addressed easily through internal or external options. The strategic aspects of finance and accounting are often, at best, afterthoughts or in answer to watershed events that mandate change and attention - audits, seeking funding (debt or equity), receiving grants, etc.
When a business waits for a defining event to trigger action at the strategic level, the results can be much more costly. For instance, an audit by a government agency, whether it is the IRS, NC Revenue Sales and Use Tax Division, or the Defense Contract Audit Agency (for government funded companies or contractors) can lead to fines, penalties, and other implications, such as repayment of grant dollars.
What is “Strategic Finance”? It encompasses treasury, cash management, business capitalization structures, enterprise reporting and control systems, risk management, financial analysis, and capturing the financial implications of non-financial activities. Remember EVERY thing a business does or doesn’t do impacts the financials. You are either spending money or making money. You generate cash from operations, investing, or financing activities. The amount of return you get on every dollar used determines how much you get back over and above the dollar spent.
Furthermore, when you choose between various business alternatives, projects, and investment opportunities, there are both direct costs and opportunity costs that must be considered and evaluated. Selecting the wrong projects, overspending on the “right” projects, and not having adequate capability in determining the impact of either event can significantly impair the organization’s ability to pursue future opportunities or even cause the organization to be unable to continue.
Strategic financial leadership is critical to every business. The ability to establish clear internal investment parameters, such as minimum return on investment, payback periods, and other key factors, enables the organization to make reasoned decisions amongst alternatives.
Strategic Human Resources return to top
Your organization is required to comply with all applicable legislation from the first day you open your doors. Often business owners believe they can wait until they reach some “magic number” of employees before must become concerned with employment practices and human resources activities. By the time many organizations “get around to” addressing the human resources aspect of their business – especially the compliance aspect – there are numerous violations which can impact not just the financial and operational aspects of the business but also impair the ownership of intellectual property. Let’s begin with the implications of “at-will” legislation on the business.
Many companies believe that the "at-will" employment relationship does not really exist. While it is true that the "a-will" tenets have been eroded, it is important to understand what "at-will" signifies: Employment at-will means that an employer can discharge an employee for any reason or no reason, with or without notice, and the employee has the same freedom right to leave..
This doesn’t mean workers are “disposable” or that sound processes, systems, and objective standards shouldn’t be established and used when recruiting, hiring, and reviewing employees. “At-will” doesn’t mean that candidates, interviewees, and employees can’t file lawsuits for discrimination, hostile work environment, or a host of other reasons. It does mean an employer can discharge an employee for any documented, legitimate reason, with or without notice.
To protect your organization, it is important to establish legal, nondiscriminatory standard recruiting, screening, and hiring practices, as well as operational aspects like job descriptions, performance evaluation and review processes, and termination policies and procedures. Well-documented policies and procedures accompanied by well-trained managers enable the organization to be more effective and fair in the application of policies, evaluation, and interaction with employees, and compliant with key employment regulations and practices.
The following areas of employment practices are some of the areas most critical to “get right” in your organization to reduce risk:
- Recruiting, Selecting, and Hiring
- Job advertisements
- Job “requirements”
- Job descriptions
- Interview content and consistency
- Applications
- Reference and background checks
- Drug screening
- Employment agreements
- Documentation
- I-9
- New Hire
- HIPAA
- Privacy
- Performance and Compensation
- Evaluation
- Raises and bonuses
- Payroll
In addition to the above categories of activities, it is also important to understand which regulations and legislation applies to your business. Some legislation applies from the first employee, while other regulations don’t come into effect until the 25th, 50th, or even 100th employee. Here are some key pieces of legislation to be aware of:
- Federal Wage and Hour
- Fair Labor Standards Act (FLSA)
- Minimum Wage
- Employee Retirement Income Security Act (ERISA)
- Title VII Civil Rights Act
- Americans with Disabilities Act (ADA)
- Family Medical Leave Act (FMLA)
- Health Insurance Portability and Accountability Act (HIPAA)
- Consolidated Omnibus Budget Reconciliation Act (COBRA)
Return on Investment: Strategy and Action return to top
Many times we undertake projects because we have the “excess” funds available to do so. We invest capital and time to improve the operations and processes that are functioning and are somewhat successful (or we wouldn’t have the funds).
At the times the organization is struggling, stumbling, or on the verge of ceasing – a time when cash and other resources are most constrained; spending on “fixing” or “altering” the organization isn’t usually an option. While those expenditures could be viewed as a necessity – keeping the lights on is the priority. What we define as necessary are the core infrastructure items and continuing to sustain operations as they have been operating.
It is often difficult, if not impossible; to consider spending money to look at what the business needs to do differently – to diagnose the organizations issues and problems, its opportunities and strengths. At the time when something needs to be done differently, the resources are generally not there to get help with the problem.
It is tough to take a strategic and tactical approach to what the business needs to be doing when what you have been doing isn’t working. Businesses tend to continue what isn’t working because they see no alternative. If the organization can see itself objectively and identify changes, then finding the monetary resources to make those changes can be tough or impossible. So the organization continues the same processes, changing the things it can without having monetary resources to do more.
Many traditional “changes” come into play when an organization isn’t profitable – cut hours, cut wages, cut people, and stop investing in change. These activities are often significant contributors to the downward spiral of the business. You get rid of the things you need most in order to keep the doors open a bit longer. These cuts often aren’t strategic; they don’t consider the long-term implications. They look at saving cash today, they do not examine how you will generate revenues (and cash) tomorrow. Realistically, cash conservation is a top priority; it needs to be done, however, with an eye toward effecting changes that will still enable the organization to engage in business.
When operations falter, it is time to look for more effective solutions and results. What is the problem that needs to be defined and addressed – too few sales? Too many sales at too low margins? Price too low? Price too high? Poor quality? Poor market perception? What is going on with the business?
It is critically important to diagnose the problem and its source correctly BEFORE you take action. Once you understand the problem, then you can make decisions as to what to divest (people, products, or assets) and what to add…When you can define the specific desired outcomes and results which are not happening, then you can look within the organization to determine what is broken and how to fix it. If you don’t have the capabilities within the organization to analyze, diagnose, or fix the problem(s), then you may need to look externally.
First take a look at your organization yourself and with your team. Review the organization’s financial records:
• What money is coming and from where?
• What is the gross margin on those revenues?
• What is the revenue dollar amount being generated per person in your organization that is?
• What is your the structure for producing your product or service?
• How much are you spending each month – burn rate?
• Where are your expenditures occurring?
• Where are you leaking (or hemorrhaging) money?
Look next at the organizations staffing plan and structure:
• What is the composition of your organization’s staffing plan? Do you have the right roles? The right people?
• How successful is your sales force?
• If you’re not selling, is it the product/service, the message, the after-sale service, or the sales team?
Also look at buying habits – for everything from equipment, spare parts, to office supplies. (When one company analyzed purchasing patterns they found that in the July/August timeframe office supply costs nearly tripled…’twas the back-to-school season….) Every aspect of the business needs to be examined to understand its impact on financial results.
When resources are at dangerous levels, the ability to deploy those resources for return/result is mission critical. Every dollar needs to generate a return – directly or indirectly. If the organization has not demonstrated the ability to find a new approach, path, or plan of action, then finding a way to get a new perspective, to identify new alternative, and achieve viability depends upon the organization’s willingness to seek out tools to aid the process. There is a range of tools readily available:
• Business books and references
• Magazines and case studies
• Market research (pre-existing reports can be purchased for a fraction of custom research)
• Business advisors
• Business partners
• Vendors
• Customers
• Colleagues
• Workshops and lectures
• Peer groups
Some of the things you are seeking:
• Cash analysis – sources and uses
• Operational analysis
• Customer service ratings
• Sales per sales person
• Sales per employee
• Customer profitability
• Business-line or product profitability
• Pricing analysis versus cost to produce and deliver
It is difficult for an organization and its leadership and team members to evaluate objectively what is happening in the business. Any time an organization is experiencing financial crisis or competitive pressures, uncertainty increases. When you start analyzing the business for issues and opportunities, it is extremely important to communicate honestly and directly with the organization’s members about what is going on, why the information is needed, and the approach being taken. No memos posted on the bulletin board or sent via e-mail. This is an in-person meeting in small groups or company-wide. It is far better to communicate the truth than let rumors further erode operations and morale.
How do you enable your organization to determine what you can do better and what is working well? How can you get the ideas and answers you need from the right people – those who know (generally the people doing the day-to-day transactions of the business will know the situation operationally better than you do!)?
Sometimes it takes outside resources working directly with the organization. Sometimes it could be through attention and focus on or by particular team members – small groups given the accountability, authority, and responsibility to act. Still another approach is to engage with peer groups external to your organization:
• Share experiences
• Brainstorm options
• Engage in discussion
• Review ideas
• Challenge assumptions
• Craft alternatives, approaches, and solutions
If you take the peer group approach, be sure it is a group focused on action, execution, and implementation, that it will hold you accountable for staying on task and on time. If you are able to determine what is going “wrong” in your organization, you may want to seek out specific action groups that focus on your particular issue. There are in-person and virtual groups focused on strategy, marketing, and other business topics and operations in most areas.
In selecting a group, be aware of the nature of the group, the agreements related to shared information, and what degree you may need to share proprietary and/or strategic information in order to get sound ideas. If you would be sharing “competitive advantage”, intellectual property, or financial data that, if disseminated widely could adversely impact your business, you will need to determine how tightly participants are bound by agreements – confidentiality, etc. Proceed cautiously; know, however, that the right group can help you lay the groundwork for business change, assist you in acquiring new perspectives and skills, and get you to the point where you can seek out specific advisory services for your business.
Strategic Alliance Challenges return to top
Making the decision to form a strategic alliance and then finding the right person, company, or organization to "partner" with is an intense process not to be undertaken lightly. It is one of the hardest things to determine in business; it takes research, strategy, and well, faith.
If you have been so fortunate as to have a viable, productive, mutually beneficial strategic alliance spontaneously spring from your normal business activities then you are truly blessed. Many of the proffered strategic alliance opportunities turn out to be less than ideal, if not a drain on your resources.
Strategic alliances, as with other business ventures, require thought, planning, and strategic objectives from day one. Often businesses fall into the trap of the "well let's see what this will do" with no clear concept of what will be required to make the relationship succeed - or even if the relationship has the potential to generate a result that is in line with your overall business objective.
The best advice for forming strategic alliances, joint ventures, or other "collaborative" relationships is this: proceed with caution. Proceeding with caution means doing your homework on the people, the company/organization, the agreement, and how to protect yourself when things go right or things go wrong.
When things go right it is matter of insuring that the financial benefits are shared according to agreement and equitably. When things go wrong it is a matter of preserving the reputation of your business, minimizing the financial exposure and impact, and mitigating litigation and other risks. The ability to accomplish all of these elements lies in the foundation you build before entering the relationship.
Often the level of scrutiny and diligence used to screen potential employees isn't extended to other areas of the business such as strategic alliances, vendor relationships, and customers. There seems to be either a reluctance to "risk" the opportunity being presented or a lack of recognition of the true degree of risk these relationships can bring to the business.
Some areas to examine prior to entering into any business relationship:
• How long has the person been in business or in their area of expertise?
• What is the reputation of the business and the key people?
• Are they financially stable?
• Is the relationship going to be formalized - agreements, legal structure?
• What are they bringing to the relationship that is worth the additional complexity and risk?
• What are they saying versus what you are hearing? – Examine the true content of what they do, say, and can deliver.
• Examine their “success” to determine if the people who contributed to it are still there and part of the “deal”.
• What are they seeking from you? If they get it and the relationship goes bad, what will you be left with?
• What intellectual property will you be exposing?
• What damage can be done to you and/or your business if something goes wrong?
Strategic relationships can be positive ways to grow your business. Many businesses find them mutually beneficial and profitable. Be sure to define who is contributing what, the terms, conditions, limitations, and expectations of any strategic alliance. Protecting you and your business should be standard practice and expected by all parties concerned.
eWomen Network October Meeting return to top
eWomen Network will meet October 20, 2004
Sheraton Imperial - Emperor Blvd, Durham, NC
11:00 - 11:30 am Registration and informal networking
11:30 am - 1:30 pm Accelerated Networking (Facilitated Networking) and lunch
Productivity Seminar - Computers return to top
Harmony Creates a Great Tune
Finally - learn how to make Excel, Access, PowerPoint, and Word work together! See how to create an Acrobat report that anyone can read regardless of the applications installed on their system. Files created in the above application can be combined into an Acrobat file and distributed. Never again worry about data being out of date when you send out a form letter or report - it can update automatically! Magic? No. Harmony!
| Date |
Tuesday, October 26, 2004 |
| Registration Time |
8:15 AM |
| Class Time |
8:30 to 11:30 am |
| Cost |
$68 Cardinal Club Members |
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$75 Non-members |
| Cancellation Deadline |
October 20, 2004 |
Location: The Cardinal Club, 150 Fayetteville Street Mall, Raleigh, 28th Floor, 9191.834.8829
For more information:
Lorraine Stephens
Copyright © 2004 F.O.C.U.S. Resource, Inc.
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