Business Information Bulletins - "Common business questions and answers"

Why do I need a business plan? 

A business plan is the description and commercial perception of a business at a point in time and assesses and plans its future commercial potential.  It is a living document and a blueprint for future growth.

Essentially, business planning seeks to answer five searching questions about a company:

1. What is the purpose of our business? 

2. Where are we now, and why? 

3. Where do we want to go, and why?

4. How do we get there?

5. How do we measure our progress towards our goal?

Thorough planning is essential to ensure current and long term commercial survival.  It focuses on today’s financial performance and health with the objective of building a more financially rewarding and healthy business.  The ultimate purpose is to create asset wealth for the owner and a financially secure company, such that growth is ensured and the business can be sold (or passed on), thereby producing a sound return on years of effort and capital invested.

A business plan becomes a blueprint that outlines specific activities and goals for a 12 month period (or more) and describes key developments and actions for the next 2 to 3 years.

The planning process identifies and examines strengths such as excellent customer service, a strong image or reputation, technological advantages and good management.  Good planning also examines weaknesses such as high the industry costs, no clear direction, poor staff training, low R & D and poor marketing.  The business plan addresses and ranks the weaknesses and provides solutions, while at the same time building on and exploiting strengths to produce a better financial performance and higher returns for the owner.

Planning needs to start at the top, and be part of the company culture.  If the drive and the focus doesn’t come from the top, it simply won’t happen!  Staff also need to become part of the process.  Getting ‘buy-in’ to changes in business direction or activity is essential to the acceptance of change.  Quality staff will have valuable contributions to make.

Are you prepared, at gut level, to adapt to, and take advantage, of the changes happening around you?  Answering “yes” to this critical question is one of the hardest parts of the planning process – acknowledging the need for change!

 “It’s not the biggest, the brightest or the best that will survive, but those who adapt the quickest.” – Charles Darwin, famous biologist and evolutionist.

The Planning Process

The process begins with the acknowledgement that preparing a business plan is the only way to ensure future commercial growth and survival. 

The first phase is the analysis and interpretation of as much relevant financial and commercial information as can be assembled.  This may require researching of company records and should also include a closer look at the market environment and current industry conditions.  The underlying economic factors must also be taken in account when viewing market performance dynamics.

Example of Company Situation and SWOT Analysis
(SWOT = Strength, Weaknesses, Opportunities, Threats)

Company:_______________________________  Date:______________________________

A list of contents for a comprehensive business plan should include:

• An executive summary – one page which summarises the entire process

• Commercial background/environment – establishes the ‘playing field’

• Product/service description – what you do, where you 'play'

• Management and personnel

• Market commentary and marketing – the strategic intent

• Tactical programmes/activities/initiatives

• Manufacturing or service supply process – end to end business chain

• Financial information – performance history and projections

• Risk factors – issues that could hinder progress

• Time-frames and benchmarks – measuring progress and success

• Appendix of supporting data and assumptions

The executive summary

 The summary should be written last and appear at the front of the plan.  It should provide a concise view  of –

·         Why the plan was written

·         A brief description your product/service, it’s market relevance and the benefits to customers

·         Management experience and strengths

·         Financial highlights

·         Expected financial performance and milestones

Background

 A brief company history outlining significant successes and milestones of the past and their relevance to the future.

Management view of commercial intentions and actions in the future.

Product/Service

A clear description of the product(s)/service offering, it’s purpose and any advantages that translate into consumer benefits.
Is it better, cheaper, any unique features, how competitive is it, how profitable is it, how does it compare with industry standards, what is the market’s perception?

Management and Personnel

The business plan must communicate management’s capabilities in creating the goals and delivering the objectives they have set.  Key management information should include:

·         Roles, age, experience and expertise

·         Track record and achievements and relevance to future plans

·         Ownership and relationship to employees

·         Key management positions, packages, contracts and future needs if different

·         Management information systems

·         Recruitment and training policies

·         Appropriateness of structure to future changes

Markets and marketing

Market description – current size, trends and growth potential.  Economic environment and impact on consumer purchase decisions.  How is the market defined geographically, economically, socially, technologically, financially?  Which segments can be defined, how do they interact and in which do you compete?

Customers –

·         Who are they?

·         Where are they?

·         Why do they buy?

·         When do they buy?

·         Who makes the buying decision?

·         How do I reach them?

·         What is your customer mix in relation to sales, profit, product type?

·         What are the ultimate influences on customers buying behaviour?

Competition –

·         Who are they?

·         Where are they?

·         How big are they and what market share do they have?

·         What is their potential,  - strengths and weaknesses?

·         How do you compete against them?

·         How will they react to your market initiatives?

Marketing activities –

Product/service pricing policy

Sales and after sales support

Credit terms

Advertising and promotion plans –

• Advertising and customer communications programmes/budgets
• Public relations
• Sales incentives
• Trade shows
• Sponsorship
• Promotional literature
• Market audit information – research, benchmarking
• Market measurement system

Distribution, delivery costs

Sales force – location, size, experience, compensation packages

Current sales forecasts and target

Manufacturing or Service Supply Process

·         A brief step-by-step description of your production and distribution process, or service delivery mechanism

·         Facilities available – type, sites, location

·         Capacity – now and for the future

·         Material/product supply – suppliers, terms and costs, sources, availability

·         Quality control procedures

·         Technological advantages

·         Skilled labour needs and sources

·         Prime costs/COGS rate/gross margins

·         Government policies to industry

Financial Information

Latest annual accounts [3 years], performance reports, management information and operating trends, sales forecasts and other Key Performance Indicator ratios and history.

Important ratios should be recorded for successive years, on a monthly basis   - e.g. return on assets, current ratio (liquidity), debtor/creditor trends, gross profit, expense and operating profit trends.

An explanation of the current performance and forecasts should be simple and realistic, showing both positive and negative impacts on revenue, costs and profits.

Significant time-frames and events should be highlighted and their effect on both profit & loss and balance sheet statements noted for business valuation.

Cash-flow forecasts are an important measure of business liquidity and show the generation and use of funds.

Key finance sources and obligations must also be made apparent.

Risk factors

The most common method of balancing risks and financial rewards is to complete a “SWOT” analysis for the company.

This is a method of objectively assessing a company’s INTERNAL STRENGTHS and WEAKNESSES and its EXTERNAL OPPORTUNITIES and THREATS.  It is a candid way of preparing a quick, easy-to-use tool for sizing up a company’s overall situation and potential.

The key here is to identify those strengths, weaknesses, opportunities and threats that are RELEVANT AND RELATED to the current strategy and structure.

It is important to RANK each item in each section, as some strengths may be critical in the market place while some weaknesses may be commercially terminal.  Others may be easily remedied.

Timeframes and Benchmarks

 “WHAT GETS MEASURED, GETS DONE!”

 The only way to determine whether or not you are meeting your objectives is to measure results at regular intervals and specific points in the business operation.  Timely measurement can help you:

·         Identify problems areas before they get out of control

·         Separate profit-enhancing from non-profitable outputs

·         Provide up-to-date information for timely business decisions

·         Determine what is working well and replicate it elsewhere

·         Identify and isolate areas for cost reassessment

It is critical to decide what to measure and how often.  It is obviously difficult and time-consuming to measure everything, therefore those performance indicators that have the most immediate impact on the business should be considered first.  Also, it is important to decide exactly how long any key indicator should be measured for, and at what point the “optimum score for the business” has been reached.

Remember, there is no one key performance indicator that spells success or failure (other than perhaps liquidity i.e. no cash = no business), most KPIs are inter-related – i.e. changes in one can often directly impact others.

For example, phone response times and verbal behaviour can influence customer enquiries, which could lead to more orders or quotes – BOTH positive and negative.

Changes in selling price or manufacturing cost can lead to an increase or decrease in sales revenue.  Distribution costs will affect distant delivery locations and therefore margin recovery or selling price.

Supporting information

Any key industry, product or company information, which has been used to validate assumptions you have made or produce information included in your plan, should be included as an appendix.  This increases the credibility of your plan and shows that you have used data from a variety of relevant sources, such as;

·         Product literature

·         Market surveys

·         Industry performance data - benchmarks

·         Organisation charts

·         Financial/economic forecasts

·         Annual accounts

·         Third party references

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