Business Planning - Creating Plans
STRUCTURING YOUR BUSINESS PLAN

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Creating Plans

STRUCTURING YOUR BUSINESS PLAN

Think of your business plan as a production line. What goes in at the start are raw material and unfinished assemblies. In our case, the raw materials include:

  • Talent and initiative from your employees
  • Capital
  • Market position
  • The company's creditworthiness
  • The firm's earning capacity
  • Assessment of changes in the marketplace
  • The unfinished assemblies include ideas and concepts that people want to try. These are the most valuable parts of the plan. They can take the company where it needs to go.

    As with most assembly lines, what goes in at the front end probably doesn't resemble the completed product. The planning process refines, changes, and adopts these original input items. It uses them all. During this process, we'll

  • Assess all your firm's resources: financial, technological, and human, to name a few.
  • Identify where your company needs to go in order to prosper.
  • Sometimes work backwards from a target to determine what specific departmental goals are needed.
  • In the end we'll have a workable business plan that's far more than just a written document. We'll understand the changes in property, plant, equipment, management, technology, financial structure, and capital resources needed to reach our targets. Everyone responsible for executing the business plan will know what's expected of him or her and when it's due. We'll establish milestones where we need coordination between different departments to accomplish a particular goal. We'll be able to see progress toward those intermediate goals-definite, quantified progress, reported regularly. We'll make midcourse changes in time to avoid jeopardizing the larger goals.

    The structure of this business plan is like nothing you've seen before. This one is a nuts-and-bolts, how-to-get-it-done-without-fail tool kit. We're going to grab your company and take it where it needs to go. You won't find much of the theoretical strategizing so many other planning books carry on about. That's fine for larger companies that can wait five years or more for results.

    Instead, what happens to your company during the next twelve months concerns us. If you can hit your short-range targets year after year, the longer term will take care of itself. Chapter 2 introduces the planning structure we'll employ for your company. It identifies the various techniques and methods used in the process. By the end you'll have an idea of how each part of the planning process builds on what went before. Further, you'll understand how the business plan ties all the various functions in your business tie together.

    ACTION PLANNING
    The way we structure this process, the action of planning is just as important as the written product (sometimes more so). The planning structure builds relationships between departments that did not exist before. The design and implementation of departmental goals cements communication between people and their departments. The need for coordination between efforts that appeared unrelated becomes obvious.

    A successful business plan requires the cooperation of each department in the company. Don't worry about resistance. There are some specific things we'll do to ensure the commitment of even the most diehard antiplanners.

    Demanding Results
    Our orientation in this action plan is results-driven. That's probably not a foreign concept for most small-business owners and managers. Their very survival depends on results-usually daily. But there's a twist. The results we're demanding come from your employees. These are the people responsible for implementing the business plan. For the company to prosper for any length of time, the group must commit to the plan's success. The group must understand the single thing that each person must do above all else to make the company successfully hit its targets.

    Finally, the group must be the body that evaluates its own performance and rewards or punishes its members. Peer influence is far more persuasive than any single reward offered by a manager. It's made even more potent when the group becomes a team seeking a set of common goals. Of course we'll demand results. Those results are concrete targets-mostly quantifiable, but always clearly understood by everyone involved. Assign specific individuals responsibility for attaining these results. Their commitment comes from their participation in establishing worthwhile goals that they're responsible for reaching.

    Let's walk through the structure of this hands-on, no-excuses way to hammer out and execute a business plan.

    ASSESSING YOUR CURRENT POSITION
    This probably requires the most soul-searching you've done in some time. We want an honest appraisal of your company's present status. Include each aspect of the company you deem critical to its success. Consider such things as

  • Products
  • Distribution channels
  • Market share and influence
  • Customer loyalty
  • Technological innovations and advantages
  • Management talent
  • Employee capabilities
  • Manufacturing capacity and equipment
  • Competition
  • Pricing
  • The role of each of these attributes in furthering our goals does not concern us now. Indeed, we haven't established our goals yet. Instead, we want an honest appraisal of where we stand today.

    Using this information and comparing it with the company's goals-once we establish them-we will see a gap emerging between where we are and where we want to be. It's that gap that much of our business plan deals with. Closing that gap is our goal.

    IDENTIFICATION OF COMPANY GOALS
    From the beginning we'll work to create clearly defined goals for your business plan. These goals begin at the top of the company and work their way down. Some are longer range-twelve-month time horizons. Other subgoals needed to reach the larger targets are intermediate range-say six months. Some are just three months out or even less. These are usually extremely critical things that must happen before work can proceed on the next step of a larger goal.

    Unlike those of some planning exercises you may have experienced, our goals are brutally precise. They are the product of the firm's planners recognizing the specific targets the company must meet during the next twelve months if it is to prosper. It's easier for those who implement the plan to communicate precise goals rather than fuzzy, broad goals.

    That's just what we want-clarity. Since our time frame is short, there's no room for anyone wasting time doing something that doesn't specifically help us get where we want to go. To this end, there are two questions we ask when establishing company goals:

  • Where do we want to go in terms of products, customers, profits, return on investment?
  • What changes do we have to make in each department to get us there?
  • Differences from Larger Companies
    The business planning needs of small companies are very different from those of their larger counterparts. First of all, small firms lack the resources and influence of large companies. Second, smaller companies worry more about survival today than conquering the world tomorrow. That's why our approach deliberately omits

  • Statements of philosophy and the mission of the company
  • Creation of a strategic plan that's consistent with management's philosophy

    These are of little use to us in guiding the company over the next year to a specific end point. Now, this isn't to say that we should stick our heads in the sand and ignore a longer-term look at our future. However, that activity is probably better done once we've gotten the firm under control and understand how to make short-term changes that enhance profitability. Certainly, if this is your first planning exercise, the approach we're using gets tangible results using real targets that are achievable. It's comparable to walking before trying to run.

    Attainable Goals
    Have you ever seen people give up before they start because the task intimidated them? That's something we don't want to have happen here. Recognize that there may be too large a gap between the goals you come up with and the firm's current position. There may come a time when you say, There's no way we can accomplish all that this year.

    It takes a smart manager to recognize that the chasm is too wide to jump in a single leap. Instead, he or she must reassess the goals, and maybe scale them back. A somewhat less ambitious set of targets results. However, they are realistic targets that everyone believes in. The outcome is greater commitment and higher probability of success than if you tried to ram unnecessarily burdensome goals down everyone's throat.

    The trick to setting attainable goals is to strike a balance between targets that represent a realistic reach and those that are so far out that they'll certainly cause failure. On the one hand, we've identified something worth shooting for, and we'll reward our team appropriately. On the other hand, people view impossible goals as negative even when they are sweetened with better rewards. People would rather have a reasonable chance of receiving a bucket that's 90 percent full than no chance of receiving one that's overflowing.

    RECOGNIZING FACTORS CRITICAL TO PLAN SUCCESS
    Once you've identified your current position and arrived at the targets for your company, it's time to figure out how to bridge the gap between the two. The technicians call this process reverse engineering. In essence, we're taking the end result and working backwards to determine the steps we need to get there.

    Analyzing Success Factors
    You'll find that your business plan leaves the foggy world of strategies and mission philosophy very quickly. Instead, what makes the company move toward specific goals interests us.

    Let's say that your firm's overriding target for the next year is to reach a 10 percent return on capital. There's nothing wrong with that goal. It's quantifiable. There's no question how to determine whether you've reached it (amount available for owner distribution / capital = return on capital). Even better, we can track progress toward it each month. Now, here's where the factors needed to reach this target begin to emerge.

    Let's say that two things need to happen if we are to reach our 10 percent target:

  • Sales must increase by $1,000,000.
  • Production costs must decrease by $500,000.

    The plan separates factors critical to each of these targets into a series of subgoals. In our example, the plan might spread the sales increase over several different products and among the quotas of different members of the sales staff. To decrease production costs, the firm might have to acquire some new machinery. Outright purchase would require more capital. That would take us in the wrong direction. Instead, the answer might be to lease the equipment. There are many other possible sales enhancements and production cost cutting measures, but you get the idea.

    See how concrete solutions begin to appear once we know exactly where we want to go? The road map to get there isn't difficult to create. Each step of the way we've identified specific targets and goals that we must meet by a certain time and assigned to certain people as their responsibility.

    Analyzing success factors is an exercise that consists of merely working back from a definite goal to see just how you're going to accomplish it.

    * Source Adams - All-In-One Business Planner
                  How to Create the Plan You Need To
                  Build Your Business. by Christopher R. Malburg, CPA, MBA

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