The Business Plan -
More than Planning the Business

Last month's article, "Planning Your Business," was an introduction to basic elements to consider when starting your own business. This article delves into differences between “planning your business” and a “business plan.”

Business plans present every aspect of a business - what it is and does; how it markets, sells and delivers products or services; and the financial results of those activities. It includes staffing, spending, equipment, and other strategic and operational information.

There are several options to get you started on basic elements of your plan - books, on-line resources, and courses. Most of these options expose you to introductory concepts and requirements. Many walk you through the development of an initial feasibility analysis that lays out some of the most basic building blocks of the business plan’s foundation. However, few result in plans that get you to a full strategic, operational, and tactical perspective.

If you are funding your business yourself (possibly with the help of some very prominent “investors” - VISA, MasterCard, Discover, and American Express), then these resources may be enough to get you going. I’ve learned that many things that can significantly impact the “how” and “what” of the business aren't covered. These books and courses aren’t intended to specifically counsel you on the risks, structures, and specific needs of your business. They touch on a multitude of issues that impact your business, even some specifics. Overall, however, these resources do not replace experts who can give a complete look at legal, accounting, tax, budgeting, and other critical business dimensions impacting your business success.

As introductions, these resources rarely define transactional and technical specifics of operations. Educational programs can play an important role in clarifying your early business concept. (Caution: If you are planning a business based upon intellectual property - patents, copyrights, etc. - be cautious about what information you share. You don't want to impair or lose your intellectual property.)

With an understanding of some of the initial steps in writing a business plan - whether from classes, books, or on-line research and resources, it is time to understand the impact the purpose of the plan has on the degree of detail and “robustness” required. The amount of detail depends, in part, on who will use the business plan and for what purpose.

Detail and content vary based upon answers to key questions such as:

• How clearly are you able to articulate your business to someone else?
• Purpose
• Product/Service
• Target Market
• Financial objectives

When talking to a prospect, colleague, vendor, or another person, do they “get” what you do and are about? The more complex the business and its operations, the more critical it becomes to work on this element of the business plan, because your “audience” has to understand quickly in order to get them to buy, buy-in, or connect to your product or service. On the flip-side, if your business appears substantially the same as an existing business, then you need your differentiation spelled out.

• How are you planning to fund your business - now and later? From what sources?
• Friends, family and acquaintances
• Banks - loans, credit lines, factoring (“selling” your accounts receivable for immediate cash), etc.
• Investors - accredited individuals, angels, and venture capitalists

Part of the funding process usually includes having robust financial projections of what the uses and sources of funds will be. These “pro forma” financial statements are estimates or projections of operations and activities translated into numbers that indicate what the business is going to look like, do, and get in return. While these projections can be made by the business owners and managers, banks and other investors tend to look for financial “models” of the business that are prepared and reviewed by third party “experts.”

Their reasons include the need to capture business and financial assumptions accurately; to translate those assumptions and expected activities and events in a manner consistent with financial controls and methods - usually GAAP. [Note: GAAP -- Generally Accepted Accounting Principles, the ground rules for how accounting and business transactions are recorded, valued, and timed. These rules are applied to insure comparability and consistency of treatment across companies.]

The more robust your business plan and financial modeling processes, the more likely you will be able to identify and quantify the potential risks and opportunities in the business. The planning process enables you to lay a foundation for performance, before you ever open your doors.