Construction Accounting Article -
What’s the (Business) Plan?
Conciseness, Completeness Count in This Critical Document
Many people find journaling therapeutic. Why? Because writing about ourselves often leads to wonderful epiphanies about how to better succeed at our daily lives. Similarly, as a business owner, you can benefit from some inwardly directed composition. But instead of rambling, quasipoetic rants about your existential woes or prospective romantic partners, you should write a concisely worded and thoroughly detailed description of your company. In other words, you need to create a business plan. Let’s examine what makes up this critical strategic document.
5 Parts to a Better Whole
Business plans serve many functions. (For a few examples, see "Business Plans: Not Just for Startups Anymore.") But they must all have one thing in common: a practical structure. To that end, these documents typically comprise five parts:
1. A mission statement and business description. Many people believe only nonprofits need mission statements. Not true — every company needs a clear declaration of why it exists and how it intends to meet that primary objective. Think of your mission statement, which needn’t be much longer than a few sentences, as the heart of your business plan. All your goals and activities should flow from it.
With your mission statement set forth, next comprehensively describe your company. Provide a brief history (unless it’s a startup, of course) and then explain what it does, identify the marketplace niche it fills and assert why you’ll succeed. You might also reveal why your business chose its location and how you benefit the surrounding community.
2. A management profile. People matter — not only in real life, but also in your business plan. Potential investors, lenders and even employees aren’t interested in a faceless, soulless corporate entity. They want to know that competent, experienced people are steering the ship.
So illustrate your organizational structure and management team. An organizational chart showing your structure followed by brief bios of key employees can work particularly well. If you’re a small company, you may even be able to describe every employee and what he or she does. In any case, enhance your basic description with some solid reasons why your staff has the expertise to succeed.
3. A financial portrait and strategy. Although prospective investors, lenders and other business-plan readers definitely want to know your company’s personal aspects, they also want to know its financial ones. So include basic data such as a current and pro forma balance sheet, an income statement and a cash flow analysis. And don’t cut corners with these calculations — get a financial professional’s assistance or, at the very least, verification. If you’re a startup, project this information as accurately as possible.
Above all, make sure your numbers demonstrate that you and your management team have considered the key drivers that will determine your success or failure. Don’t pad the business plan with overly optimistic financial projections that could ultimately depict your company in a bad light.
4. Sales and marketing objectives. Of course, expertise and past success mean little without an up-to-date strategy for bringing your products or services to the public. So describe your intended market, giving specific details on its size and how much of it you intend to serve. What is your market’s growth potential? What specific geographic, economic and perhaps even political factors play a role?
Another important aspect of your marketing objectives is your competitive intelligence. Name your five biggest competitors and convince business-plan readers that you can serve your market better than these rivals. Don’t conceal your weaknesses, either. Recognizing the challenges you must still overcome conveys that you and your management team are in touch with reality.
5. An executive summary. Many companies write decent business plans that no one ever reads, because they forget to provide an executive summary. Truth is, busy venture capitalists and loan committees will often initially look only at this section. That’s not to say they’ll never read your entire business plan — it only means a concise, readable executive summary may be necessary to getting your foot in the door.
True to its name, your executive summary should hit the highlights of each business-plan section. Don’t slam readers with a lot of numbers or technicalities here. Just give a clear, confident synopsis of who you are, what you do and where you’re headed.
An Ongoing Process
Like keeping a journal, writing a business plan is an ongoing process. Yours must adapt to changes in your company, its market and the economy. And that means, no matter what its purpose, your business plan requires regular care. For help with this important task, please call us.
Business Plans: Not Just for Startups Anymore
Many people think business plans are for only those brave, ambitious souls who start their own companies. But what about owners who rise to power as internal hires or recruited talent? These executives need business plans, too. Unfortunately, they may never realize a plan’s absence — and this oversight’s effects can be devastating. For example, many experts believe Kmart’s decline into Chapter 11 bankruptcy was at least partly because of an ignored (and obsolete) business plan that underestimated competitors such as Wal-Mart and Target.
So, besides soliciting startup funds, why else should companies create and maintain a business plan? Well, growth financing, for starters. In an uncertain economy, lenders need more than a halfway decent profit history to approve a loan. A well-written business plan demonstrates that your company knows its past and has mapped out a decisive path to its future.
Another useful purpose for creating a business plan is strategic planning. Your company won’t develop by itself — you must nurture growth through winning strategies and smart decisions. And creating new objectives, let alone staying focused on your original ones, isn’t easy. A business plan can keep you grounded when challenges arise and help you craft new ideas that will bolster your bottom line, not bankrupt it. Plus, having a tangible document allows you to easily share your goals and values with employees, which keeps everyone on the same page.
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