Though both my business partner and I have worked for several small businesses over the years, in various phases from start-up to established small businesses and have even been a General Manager for one, it was not until we started my own business that I had a true appreciation of what being an executive was versus the business owner. As a business owner, the buck stops with you and are responsible for the overall direction and financial profitability of the company. I had written many business plans for companies over the years, but like many business owners did not feel I needed to write a business plan because I understood my business.
In my first year of business, I began working with a variety of start-up businesses at various phases in different industry sectors. In each case, I would start talking to them about the importance of a business plan. Some had actually started a plan as they were looking for funding. In most cases, they had tried to write it themselves without ever have written a plan or with an understanding of what the government, a bank, or investor is looking for in order to provide a grant, loan, or investment. Many of the plans fell short as they were not able to articulate their market, provide detail on what value their product or service provided, show credibility of themselves running a business, did not have a marketing or sales strategy that showed how they would generate revenue, and in many cases had an independent accountant create financials without a full understanding of the business. There were a couple companies that felt they did not need a business plan as structure would be too confining on the entrepreneurial spirit. They felt they knew what they were doing and the goal was just making revenue. The fact was that each time you talked to them; they had a new business idea or had decided to change what their original plan was and were not producing any level of revenue. The truth of the matter is that anyone can find someone to buy something from them, but success is found in creating a business that is focused on generating repeatable business that is sustainable, is profitable, and depending on the business down the road is transferable.
As I looked at them with a level of confusion, I started looking at my own business. I in my own head was focused on a particular target market, knew what services I was offering, knew what my market pricing was, and as a marketing and sales person knew the type of marketing and the types of partnerships we needed to develop. I began doing serial contracts and began generating revenue. I got a website, started a blog, began networking, and doing all the “right” marketing tactics. As I started looking at one company that I was working and saw all of the pitfalls that happen when you are not able to articulate what you provide to the market concisely, it hit me that though I have a mission and a vision for what I do, and had generated revenue in my first year of business, I myself was still thinking as an executive and not a business owner.
I have written many business plans over the years and would actually say I excelled at understanding the business and articulating it well on paper. The difficulty came when I began writing my own plan. It was no longer knowing what was needed, but actually articulating to myself what kind of business I truly wanted to not just be today, but long term.
I recently stopped dead in my tracks and took the time to write a business plan for two reasons. I knew I really could not criticize others if I did not truly practice what I was preaching and knew some time this year I wanted to look for some funding for marketing and office equipment. I realized that though I was generating money, I did not have a plan outlining my long term goals and requirements.
My business partner and I decided over the holidays that we were going to create a business plan to help further define our business, what products and services we wanted to offer to our target market, determine what partnerships we were missing, and look at our short and long term financial goals. I started developing the outline for the plan. I then started investigating small business grants and loans available online. I filled in a form for information on a particular grant, which unbeknownst to me at that time started a time clock of when a business plan needed to be submitted, which gave me the push I needed to get it done. I had a deadline of 4 weeks, but what I found I was complete with the plan in 2 including research, detailed definition of business in required areas, writing and editing. Though it seemed some days to be an onerous task, when it was complete I truly felt more like a business owner as I truly had a grasp of the direction and focus of my business and what was possible. This plan helped us define a sustainable repeatable business model and gave us the confidence we needed that we can implement it and become profitable.
Since completing the plan, we have talked to several prospects and potential partners. At the end of the conversation, they said they truly understood our value proposition and what we were doing. They felt what we are looking to provide is unique and beneficial to small business owners. Of course it is going to be hard to abandon the first client asking us to do something that will make us money, but if what they are asking is not going to provide value to their overall business, now we can walk away knowing we did the right thing for them in the long run. They will most likely go hire someone to do what they believe they need, but when they uncover there was not any intrinsic value – it won’t be our company that they associate with the lack of value and we may get the client in the long run. Once we implement our long term strategy through our website and marketing materials, it will be obvious to potential clients where we will add value to their business versus just performing serial contracts based on just our ability to do it.
Though a business plan may seem confining or a difficult process, it is truly what defines and provides a roadmap for the success of your long term business. It is truly your game plan. It does not have to remain stagnant – it can be changed and updated as the market or your business changes, but it will provide clarity on where you are and where you are going. The plan does not need to be as large as the one that we developed to go after funding. It can be as small as a few pages and for internal use within your company to provide clarity of direction for everyone.
Be sure when you engage someone to write your business plan that you are going to receive a full business plan and not just a financial plan. A financial plan is key to the overall business plan but is not something that can really be done accurately until you have done due diligence on your overall business plan which includes: market analysis, company direction and history, have an understanding of your products/services, product strategy, pricing strategy, promotional strategy, sales strategy, operational strategy, and an overview of your management and personnel. The business plan outlines how you intent to generate and spend cash, the financial plan focuses just on just the results.
I guess I really didn’t know until recently that at times there was confusion by some business owners of what they were asking for until I started working with a few professional accountants. Many clients approach their external accountant and ask for a business plan. A professional accountant can provide you with the financials for your plan, but in most cases, they usually do not write all of the pieces that are associated with your business as they are external to your business. They will in fact need all the information from all of the other pieces of your business in order to provide you with the best and most accurate financial outlook.
Prior to going out on my own, I was used to working with the CFO in small businesses on business plan and I myself assumed that most external accountants wrote full business plans as well. This was until l I was contacted by professional accountant who was looking to write a business plan for a company who was looking to acquire another business. He asked if I would work with him on the business plan to provide him with an understanding of what would be required from a sales and marketing perspective. The company was going to require new channels to be created and a separate business model from their current environment. I would first work through what was required in that area and then I would supply all of this information to him in order to do the financial piece. In working with him and several other professionals, I understand they are approached by many of their clients wanting someone to write a business plan for their business without them having all of the pieces of the puzzle.
A full business plan will be required if you are applying for grants/loans for a new business, are looking for investors, are looking to acquire a business, or are looking to be purchased. You need more than just the financials and in order to an accurate assessment of your go forward outlook, one will need to understand all of the parameters from the business that affect the financials. The financials are there to support your business plan and are actually final section in the business plan.
If you are a current business that has a relationship with a financial institution or lender where your business is known or understood, a financial plan will definitely suffice. For example if you are just looking to expand your building or you are asking for funds that are not tied to the success of what you are doing in your business, you may not need a business plan.
Hopefully this will provide some help to people who are confused as to when they require and business plan or when they just need a financial plan. A business plan is a living document that you should update. It is road map of how you plan to operate your business.
If you are looking for a full business plan, make sure the person helping you is coming in and spending time with you to assess and understand the pieces of your business and are asking you the right questions before they put pen to paper and are not just asking you for your financial statements and providing you the required documents for a financial plan.
I met with a potential client that was referred by the local bank who was looking to have their business plan assessed before submitting it to the bank for a small business loan. They had found a company online that only developed business plans and sent me a copy. The client had already spent over $1K on the plan and owed $1K more. The plan was poorly written and did not even include the required sections a bank will look at in order to determine credibility of the business. The numbers in their financial plan did not add up and supposedly they had an accountant develop them. I am shocked at how many times that this happens. If you think you are getting a good deal on a business plan - then it falls under it is probably not. I am not even sure if this client's business plan would have made it past the branch.
The issue with most start-up businesses is they have a concept for their business, but are not aware of the detail that has to go into a business plan or what the bank or investor is looking for. This was a highly sophisticated business model and there was no marketing plan, sales plan, or operations plan. The company spent more time embedding graphical pictures in the document and even one of the charts was illegible because the font was white on pale grey.
I provided a copy of my own business plan to the client to give them an idea of what would be required by the bank. They were in shock and when they talked to the company that wrote the plan outlining what was included in my plan - the business plan company told them that was a strategic plan, not a business plan. If they wanted this kind of plan - that would cost them 10K. These business plan companies exist everywhere and are truly taking advantage of small businesses and start-ups who are not aware. In this case, even if the client had all of the necessary pieces for their business plan and the company was just providing writing - this was still a travesty.
There are some businesses that have all of the pieces for a plan and are just looking for someone to write it, and then there are others that need a business plan written but are not sure what is required. In both cases - if you are just going to a company that writes business plans and does not have people on staff that are business people to go through it and provide feedback and help, then you are most likely going to spend a couple thousand dollars and have a mound of paper that you can use for a paper weight.
Something also to make sure of when finding someone to develop your business plan - make sure they know what is required for your type of business. The layout of a business plan for a retail store, a web company, and a manufacturing company are very very different and if they are providing one size fits all - this will land you in a mound of hurt. You need to be working with someone who understands your business model and what the bank or investor will require.
Even for a company that writes a business plan, if they are going to provide you with adequate service - they should have some level of template/questionnaire that they have you fill in about the required sections of a business plan. If as a business, you are not able to provide the information - they should send you back to someone who can help you develop the plan, as they are just taking your money without any regard of whether you will get financing or not. If you are looking to have your business plan developed from scratch - then there should be a consulting engagement at the beginning to review your business and find out what areas need to be developed. This company should either have people on staff to provide consulting to help with this or refer you to someone that has this level of experience and expertise.
So many companies I talk to are looking to a bank or an investor to provide them with $100's of thousands of dollars, but yet they are looking to scrimp on the one document that lies between them and the funds. If you are already an established business and have a record with the bank then this is a different story - in many cases you are looking to add funds for a particular reason (equipment, renovations ...etc) - then we are talking a business case versus a full plan. If you are a start-up and you have never had funding and the bank, lender, or investor is not familiar with your business and you are looking for over $50K , if you pay less than $3K for a business plan for most businesses - then you will get exactly what you paid for. The more sophisticated the business - the more detailed the plan especially the financials. You also want to make sure that the person that is helping you develop the financial model has experience or is working with an accountant. This can either be one they work with or your own. It the plan does not support the financials - you will not get your funding.
A good business plan does not ensure funding, as the bank, investor, or lender has to feel secure in the idea and that they will get their money back or see a see a return on their investment. On the other hand, a poorly developed and written business plan will ensure you do not get the funding, even if you have a viable idea. If you are not able to portray this in your business plan - you have lost your one shot with that bank or investor.
RK Fischer & Associates