Small Business Blog

In most cases over the years, I find that many of the articles I have written revolved around a topic or issue that a prospect or client was having, which inspired me to write an article. My thought was that if one business owner had the issue, then others did as well, and an article would help the masses.

This time isn’t any different but was not an issue a client had, but a misunderstanding of expectations that lead me to believe that many more new entrepreneurs may have the same misunderstanding. Before a business owner engages a professional to develop a business plan, they should understand what a business plan is and is not.  It is also important that one understands what the requirements are of the business owner versus the consultant.

The Case Study
We were contacted by an immigration consultant who was looking to have a Business Plan developed for their client who was looking to move to Canada under one of the current immigration programs. In Ontario, there is a OINP (Ontario Immigrant Nominee Program), which allows foreign workers with the right skills to apply for nomination for permanent residence in Canada.  One of the streams under this program allows Entrepreneurs to open a business in Ontario, which will generate jobs for Canadian residents and citizens as long as they meet a certain criterion.  Depending on where they plan to open a business in Ontario will determine how much money they must bring into the country and invest in the business.

We develop business plans for financing regularly, which are similar to the requirements by the government with a few subtle differences, so we decided to move forward.

We prepared basic questions about the business as well as those required by the government about the business. The client wanted to start a trucking business in Ontario but had not investigated the industry, did not have an understanding of the costs of vehicles, and couldn’t even tell us what type of trucking business they wanted to run.  This situation is a very common scenario we find with many who want to open their own business and gain financing through a bank.

The immigration consultant was frustrated as he thought we would develop the actual business for them and supply the answers to the questions from the government, which pertained to knowledge of the industry, the number of employees, asset spending, and even the background of the applicant. I am not sure if they expected us to create a fictitious business that we would open or not. 

A business plan is not a writing exercise, and it is one where you ask the owner the questions about their particular business that will give you the information to put together to apply for a loan.  A bank nor the government is going to grant you money or entry if you do not know your business. It is not the job of a consultant to develop your business for you. Otherwise, the consultant would be the one granted the money or entry.  A business plan documents the implementation plan for your business strategy, and if do not have a business strategy or a basic understanding of the business you plan to run, it is very difficult for someone to write a plan.

A business plan focuses on being able to achieve the projected 5-year financial statements outlined in the financial section.  The rest of the plan supports those financials. The market analysis has to support there is a market large enough, and there is enough room for an additional entrant in the market to make money.  If there is a limited market – that is a large risk and a lender or the government questions whether you can deliver the financials. The potential business owner’s background and experience plays a role as well. Just because you love food, may not mean you can succeed with running a restaurant. One has to be able to show how sales are made and do you have a marketing plan that supports that level of revenue. It would be best if you had the right staffing in place and operations to support the business. The bank or government is taking the risk in you, not the company that developed your plan; otherwise the consultant would start the business.

If you are going to start a business, you need to spend the time and effort to investigate what it takes to run the type of business you want to start.  It is up to you to do the research or pay for research is out there about your industry. You do not wait until you need to have a business plan developed for this.  It is up to you to know the costs you are going to incur in opening the business and have a general understanding of the inner workings. If you cannot tell someone how you are going to generate revenue for the business, how can you expect a lender to give you the money or the government to let you in the country?

Develop your business strategy before you think about having a business plan written, especially for financing.  If you are not sure how to start, there are consultants, coaches, and agencies out there that can help you do just that, but do not expect it to be priced into a business plan engagement. We provide that service to clients, but not at the same price as development of a business plan.

Developing a business strategy is not something you do in a couple of days. It is a process that you go through to set goals and objectives for your business and determine how you will meet the goals and objective. Your business plan is the implementation plan of how you are going to do just that. This exercise should be done by every potential business owner every 3-5 years. If you are a start-up, then you have to have one before you start your business. Existing businesses may not have full-blown strategy, but they do have a history and a background. They also have revenue and some level of experience, and they can answer questions about their business.

For start-up businesses, there are plenty of services out there available to help you until you can afford the external services of a consultant or coach. In Ontario, there are the Small Business Enterprise Centres that have courses, mentoring and programs to help you get started. Some will be for free, and others are offered at a reduced rate.
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Once you have an understanding of the business, you are going to open, and you can then engage help for developing a business plan if you require financing, or a grant, or even entry into an Entrepreneur Immigration Program.

​There is so much more to a business plan than the right template or format.  A template is nothing more than an outline but together by those who understand what is needed in a business plan and they provide the headings and few sentences on each section.  It is actually the content itself that is most important along with understanding what the bank, grant provider, or investor is looking for in a business plan.  Many entrepreneurs are able to articulate the overall premise of their business to you when asked, but many have a problem when asked to put pen to paper and provide the detail that is needed in a business plan.

A business is so much more than just an idea and selling a product or service and many times all of the pieces of the business have not be thought through completely and this is uncovered if a business plan is done correctly.  In many cases, this has to do with the business owner being great at certain aspects of their business, but not always having the expertise in others that could be just as important. An entrepreneur that is a sales/marketing expert may know how to market and sell a product but may not understand the operational side of the business and what is required to retain an existing customer, as their focus is new customers.  An entrepreneur who is an engineer has expertise in the product he/she developed, but may not have a clear understanding of what it will take to market and sell the product.  The saying build it and they will come is not true.  The ultimate key to success is building the right team with the expertise required across the board, as one individual cannot be an expert at all aspects of their business.

The same is true when putting together a business plan. Your banker or investor is looking at the overall picture of your business and whether you have the right pieces in place to warrant loaning money or investing in your business.  What many businesses do not understand is that a poorly written or articulated business plan can itself cause you to be turned down.  Most businesses do not understand the importance of their business plan until this happens.  This is not to say that if you do not have a viable business overall and have a well written plan, you will get money.  Everything has to make sense.  For example:  If you say you have 2 sales reps and the sales cycle is 6 months with an average sale being forty thousand and you say you are going to make revenues of a half of million in your first year – it is easy for anyone ready to see this is not possible.

I have found that is sometimes a lack of understanding of what the bank or an investor is looking for in your business plan that causes the greatest confusion.  In general, they want to see that you have a grasp and a handle on all of the component areas of your business and your financials make sense.  They need to feel comfortable that you have the background and experience in your business area, and this is particularly the case in start-ups.  They want to see that you have staffed or plan to staff appropriately for areas where you lack expertise. They usually want to see that you have invested in your own business and some grants and loans from the government require matching of funds.  They need to know that your business and/or you personally have good credit.  They want to see a plan that provides a complete assessment of your business in the following areas:  Financial, Human Resources/Management, Sales, Marketing, and Operations.  If you are a technology or manufacturing company, you will probably need to break out Engineering & Manufacturing separately.

Usually when a business is told they need a business plan, they begin their search on line for the “free” template.  The question that you need to ask yourself is whether the one you found is relevant to your particular business and whether that template covers all the relevant information needed for your business as most are very general.  Are you able to fill in all of the sections thoroughly about your business?   The marketing section will cover market size, target market, SWOT analysis, Online Plan, Branding and the list goes on.  Making up a mission and vision statement for a plan on the fly is not the way to go just to fill in the blank. Do you understand and are you able to articulate all of those areas about your business to show the growth you are predicting in your financials?  The financial side will want details on your forecasts, gross margins, assets, costing and such over the next 3-5 years.  If you are a start-up business and do not have existing financials with a run-rate, are you able to give a fair financial assessment of this?  The financials you provide need to make sense and be able to show when you will return a profit for your particular business, not the imaginary company in the template.

If you are asking an lender or investor to give you five hundred thousand dollars, are you going to decide to write your first business plan utilizing a free template without understanding whether it is complete or suitable for your business.  Once you are turned down, you are now done and because even though you know your business you were not able to articulate what was required to the lender or investor.  You can go to another lender or investor, but now your credit rating is going to suffer and the question to ask yourself is how cost effective was scrimping on your business plan.

A business plan is the “cookbook” for your business to follow in order to achieve success and if you look at it this way versus a quick document to get financing – you will have a great chance of success. If you spend the time creating a plan for your business to follow for the next 3-5 years, and modify as your business changes or you try different tactics and determine new paths, you have a guide to follow.  Though a living breathing document, it truly is not much work involved and probably only needs to be looked at a couple times a year.

If you are not sure what information you need or what you might not know about your business today to provide someone who is going assess your business, then consider spending a few dollars to do it right the first time and increase your chances of success. This is not only true with an investor or lender, but also long term in running and growing your business.  If you uncover a couple holes now and fix them now before applying for future financing, think how much more cost effective that would be.  The key is not to wait to do a business plan when you are under the gun and are doing it just for financing.

Also, before you just pay a writer to have your business plan professionally written, ask yourself whether you are sure you have all the information to give them or might you want to have someone work with you as a business advisor to help ensure you have what you need before anyone begins writing a plan.  If you have a current business plan, you might want to get an assessment especially if your business has changed since it was first written or you are considering applying for financing and want to make sure everything is covered.

I recently saw a statement on a question/answer board from a consultant outlining why so many start-up businesses fail and have to admit I was not surprised by what was said.   An example given was an internet business that failed because they did not have the funding to support the pull marketing that is required for the business. What was listed was the symptom of why the business failed, but not the reason of actually why.  Another example was a technology company that the “reason” for failure was attributed to not being able to afford the development for all the features that their customers wanted.  Having come from the high-tech industry – that excuse just does not hold water – as that is development/product management 101. Unfortunately this is not unusual as many entrepreneurs try to analyze and figure out why their business failed and not the business down the street and do not want to admit that the failure was due to improper business planning and financing on their part.

The real reason the most businesses fail usually has nothing to do with the excuse that is decided after they go out of business.  They are documenting the “excuse” for the failure in most cases to justify why they were not successful when there are businesses offering similar products and services that are flourishing.

If we step back, the main reason that start-ups and small businesses fail is lack of a well thought out business plan that takes into account all of the parts of the business along with what is required from a financial point of view to grow and sustain a working business.  The great thing about entrepreneurs is that they are fearless and willing to take risk, but why take on risk when you do not have to.  I am not saying that every business that has a sound business plan and proper financing will not fail.  There are always factors that business owners cannot foresee like a downturn in the economy where their products and services may be the first ones that people put on hold to buy, or a particular market can take a dive like the telecom market did a few years back.  It is hard for anyone to foresee or survive this type of occurrence.  But the businesses who say they failed because they had bad sales reps, lack of funding for marketing, the right management team, or many of the other reasons that could be avoided by proper business planning and financing are just creating excuses.  These situations would have been accounted for in a business plan and in risk management.

Early on, business owners who have an idea and do not have a background in running a business or have self-financing may have to give up a portion of their business to get the right financing and management support for their business.  An idea is only as good as the plan and the ability of the people around you to execute on your plan. It is also important to know that anyone providing financing whether a bank, government grant, private investor, or other financial options such as angels and venture capital will expect to see that you have invested in your business yourself and have a stake in the success.  Unless you have experience in Finance, Human Resources, Sales, Marketing, Operations and in many cases Development, you are going to need others to help you make your business successful.  If there are those that are willing to provide sweat equity up front to help you get going, you need to make sure to reward them for the efforts they provided you and not be greedy.   I watch the Dragon’s Den and Shark Tank and chuckle when an entrepreneur asks seasoned business people with experience and contacts for millions of dollars in financing for a business that has not made revenue for a low stake.   The question to ask yourself is whether the decision now to be hard headed is going to hinder your success in the future.  Your idea is worth nothing if you cannot execute a plan.  I would rather have 20% of 100M dollars versus 100% of nothing.

If you are down the road with your company and you do not have a business plan and you are in need of financing – you do not have to throw up your hands and shut the door – it is not too late to push the restart button before you get to that point.  Almost all of the excuses you would have if you let the business close can truly be resolved and a plan put in place of how to address them one by one – it is not futile – but you have to be patient.   

The internet company that did not have enough money for spending on marketing to get the pull they needed could turn things around and get the financing they need if they have a solid business plan and the business makes sense.  The high technology company that cannot afford to do the development for the “features” their customer needs to learn how to manage their development and product management and set up a pricing model that can support the development with release management.  The part that may be missing and the owners may not have realized was the business was not a viable one from the start because due diligence was not done up front and proper financing was not obtained to support their business plan.  

If you are a business owner and you are having a struggle and are wondering if you should throw in the towel – before you do – consider pushing the restart button.  Look at having a business plan developed taking into account the past and what needs to be done to move forward and look at all of your financing options.  There are grants, loans for small business from the different financial institutions, and alternate funding from investors you might know or angels and venture capitalists.  In some cases, you may need more than just the financing and require the expertise of those who have a background in your industry and have the contacts to get you back on your feet.  You may have to give up a stake in your business to find success, but you will still benefit in the long run from this decision.   The key is to act before you have to throw in the towel and create an excuse like the ones above that you know in your own mind and heart could have been resolved if you developed a plan and had the financing and expertise to make the business successful.

Be the one in ten businesses that will succeed, not one of the nine that end up failing.