Success does not happen by accident
A business is a homologous mix of operations, finance and marketing and it is important to consider that a successful and profitable business does not happen by accident!
There are a few adages commonly quoted, but the two most common I use are:
- “failing to plan is planning to fail”; and
- “it is as important to ‘Work on the Business’ as to ‘Work in the Business’ ”
There are two equally important components to setting up and operating a sound and resilient business, outside of ensuring there is sufficient working capital for efficient and unimpeded operations. These are the strategic plan and the business plan. The strategic Plan is the “Where Do I Want to Go?” and the Business Plan is “How Do I Get There?”
The strategic plan
The strategic plan is a high level holistic view of your business. It can be likened to a structured “wish list”.
Development of a “statement of purpose” provides a short and concise view of the business and aids in development of the strategic plan. It also serves as a benchmark/gauge for any strategic business decisions. (Does this fit with my current strategic direction?).
To aid in development of the statement of purpose and development of the strategic plan, there are several fundamental questions which need to be asked, as the answers to these will affect your thinking and the ultimate strategic strings developed within the plan, which in turn affects the content and implementation of the strategic strings.
Your current size and perceived direction will determine what these questions are. The higher level questions require answering by the business owner and/or shareholders/Board of Directors. Ownership of the strategic plan must start from the top of any organisation. Some of these questions are:
Why am I in this business?
- Do I want to work for myself?
- Do I want to reap the rewards of my efforts and not pass these on to an employer?
- Do I have a unique offering I think is best provided by me alone?
How big do I want to grow?
- Do I wish to keep the business small and provide me with a sustainable income?
- Do I want to grow the business to provide me with a very comfortable income?
- Do I want to build a legacy to provide security for both me and my family?
What is my target market?
- What am I offering?
- What specialties will I offer?
- Where do I think my specialties fit?
- What am I comfortable in offering?
- What demographic do I wish to target?
What is my exit strategy?
- I wish to run my business, and will just close it when I retire?
- I wish to run my business and sell it when I retire?
- I wish to build my business and bring partners on board?
- I wish to build my business for sale at any time?
While some of these are common questions, there may be others more relevant to your business and situation.
Once the higher level questions have been asked, and answered, it is important to involve staff at lower levels in the process of developing the statement of purpose and strategic plan.
Beginning with a “brain storming session” to determine the businesses reason for being, and to establish the values which are important to the business, we will arrive at the statement of purpose.
Development of a SWOT (strengths, weaknesses, opportunities and strengths) analysis, by using the “statement of purpose” as a reference will provide an outcome, which once collated will highlight areas which need to be addressed to strengthen or protect the business. From these the strategic strings are developed to provide the forward direction for your business.
The complexity of your strategic plan is very dependent on the size of your company or organisation, and will influence the answers to the questions above.
For small companies a bullet point list can suffice, while for larger companies a more structured and detailed plan is required.
The strategic plan is usually developed as a rolling three-year plan. It is important a timeframe and person responsible for implementing the strategy is assigned.
It is not possible to implement all parts of all strategic strings during any one year. The strings need to be prioritised, and the top three to five strategies identified for implementation during the year.
The strategic plan is a “living and breathing” document. It is not set in stone. It is your tool to give you your vision, and as a consequence needs to be reviewed a minimum of twice annually.
These reviews are generally timed to check progress during the year, and at the end of the year. The end-of-year review needs to be set far enough ahead of your financial year balance date, to allow for inclusion of new strategies into the business plan and budget for the new financial year.
The business plan
A business plan is a detailed, costed and resourced plan, where the execution and implication of the strategic strings are expanded for operational purposes.
It defines exactly how the business is to be conducted, what resource is required to develop, sustain and grow the business and includes financial budget and forecasting for business and projects.
The business plan should address business profile, marketing, operations and finance. It should provide a snapshot of your business, so that your bank or a prospective investor will have enough information on your company from one document.
For a start-up business, the plan needs to be very detailed, enough to take to the bank to secure a loan or overdraft facility.
Within the operations section the plan needs to describe the product/service being offered, what plant/equipment is required to provide this, where the operation is located, staff skills required and the number of staff required, processes systems and controls required.
The complexity of this analysis varies greatly depending on the size and complexity of your business and the products/services being offered.
For a start-up business this needs to include detailed analysis of systems required for initial and ongoing operations. The operational strings from the strategic plan need to be addressed and expanded on within this section.
The marketing section needs to contain market analysis and business analysis, which includes the Key Performance Indicators (KPI’s) and Key Ratios which are used to determine the effectiveness of the marketing initiatives. For a start-up business this needs to be a very detailed market analysis. The marketing strings from the strategic plan need to be addressed and expanded on within this section.
The financial section, like those above, requires a lot of thought in addition to the mechanics of business operation. It combines elements from the two sections above, and puts a value and/or cost on these.
This is where current and projected revenues and expenses all meet. This is where the income and expenditure forecast is developed, the cash flow planning is derived, and the balance sheet formed.
There is a lot of work in this section, but it is very important to make this as accurate as possible based on historical data and data derived for the new projects being planned. These projections need to encompass the strategic strings out for three years in line with the strategic plan. For a start-up business, the need to include detailed financial business modelling and forecasting for three years is more difficult, as the entire forecast is based on conjecture, albeit educated.
A company which has been operational in a stable manner for two to three years and has good and timely reporting systems in place really should consider a three-tier budgeting format – conservative (normal), stretch and fall back.
The conservative is based on the level of revenues and expenditure for normal operations, where all operations are flowing along, and in a profitable mode.
If the revenues or margins need to be increased or the company is in a growth phase a stretch budget should to be developed and run as the main operational budget. These are normally very aggressive, but can reap rewards.
Every company needs to have a planned fall back budget which can be quickly adopted if reporting shows there is a change in the “health” of the financials.
A business plan needs to incorporate well considered risk analysis and profiling.
Changes in any one or more of a number of parameters within a company can adversely affect the operation and viability of a company in a very short time. It is important these risks are identified in the business plan, along with the remedial actions required to mitigate or reduce the impact of these events.
I am a firm believer every business needs business advice – a sounding board. This can be in the form of a personal business advisor/mentor, company business advisor, advisory board, governance board/board of directors.
This is a brief resume on business planning. It is not as daunting as many think, but it is a very useful process to work through. It allows you to understand your business and take control.
Martin Morrissey, firstname.lastname@example.org, is a business consultant with Blue Gum Consulting Ltd and a business mentor with Business Mentors New Zealand.
Last updated on the 17th March 2016