Building a Business Plan is Critical to Reaching Your Goals

Some business plans start as odd scribbles on the back of a napkin, circles and arrows and boxes and code words jotted furiously by a suddenly inspired entrepreneur.

Others are highly detailed, a thorough point-by-point plan carefully reasoned and annotated after weeks, months or even years of contemplation.

Whether hand-scrawled on a coffee-stained napkin or professionally printed on fancy bonded paper – one page or 100 ®“ a business plan is the vital key to business success.

Think of a business plan as a road map, with a defined starting place and established destination, the instructions on how you plan to get from Point A to Point B. The destination need not be "final;" many brilliant business plans reach only for interim destinations, using them as building blocks to a greater ending.

And the "directions" do not need to be absolute. As in life, sometimes one path is blocked, and you’ll need to have a back-up route.

But think of how hard any long journey would be without the benefit of a travel plan. That’s your livelihood and legacy we’re talking about, and flying strictly by the seat of your pants no longer cuts it in today’s business world. Especially in the tire business.

Trying to run a business – with eyes set firmly on long-term success ®“ without a good business plan is a recipe for disaster. Some experts suggest it’s akin to picking your way through a dark room while wearing a blindfold. We’ve all heard many successful businesspeople say, "You need to keep your eye on the ball." That ball is not the intended result, it’s the business plan.

Nationally known accounting firm Coopers Lybrand says that fully one-third of fast-growing businesses have no written plan whatsoever. So why is a business plan important you ask? Well, according to a study of 150 start-ups, almost half did not achieve expected first-year revenues. More than half of those start-ups needed more capital than originally forecast. And, brace yourself, three of four beginning entrepreneurs earned a lower-than-expected standard of living.

In past articles, we’ve heavily discussed the ins and outs of obtaining financing, whether formal bank loans or lines of credit. In every case, you’ll need a complete business plan to take to your finance officer. No plan, no bucks.

With that said, we’ll walk through the key elements of developing a winning business plan, starting with the first steps: deciding what goes into the plan and how to create that plan.

What Goes Into the Plan

To determine what goes into your business plan, start by realizing that this is primarily a written description of your business’ future. The plan states what you will do and how you hope to do it.

The typical business plan is 15 to 20 pages in length, which is partially determined by business type – the more complicated the business, the more pages needed. Regardless of length, every plan should include your basic business concept, your way to implement that concept, a summary of your products and services, the markets you will pursue, the background of management and key employees, and your financing needs. The main thing is to have business projections and measurements.

In a way, a business plan begins with the ending. The opening is what you would normally consider the closing: the Executive Summary. This is a one- or two-page description of what the company is about. This summary may contain things not found elsewhere in the plan such as a vision statement, which declares your company’s mission.

Mainly the Executive Summary caps other sections of the plan which detail your product or service, the market, competition, management team and financial data. Also, if you need to raise money, this is where you should first mention how much is needed and how the funds will be used.

Reason for the Business

One of the most enjoyable parts of writing your plan is doing the description of your products or services, telling about your business’ reason for being. Here’s where you can use your enthusiasm to vibrantly, yet analytically, describe your products/services (a dealer’s "product" isn’t the tire, but the selling of tires and tire and/or vehicle service) including cost, features, distribution, target market, competition and production concerns.

A good business plan product description is like a cross between a flamboyant advertising brochure and a nerdy spec sheet. Here’s where you reassure the wary reader – usually a banker or other financial expert who has seen too many exciting "products" that proved impossible to get off the launching pad ®“ that you have a winner. If your product/service has features making it easy to create and distribute, detail them.

Not merely a listing of features, your product/service description has to highlight your most compelling advantages. Emphasize low cost or high quality or uniqueness or location or expertise or marketing – whatever you think will make your business stand out in a competitive market.

This is also where you make the case for what your business is about. Go ahead and brag about being faster, bigger, smaller, greater selection, lower price, more readily available, service during and after the sale, delivery, reputation, experience and wild cards such as guarantees/warranties, value-addeds, protected territories, etc. Also, this is where you mention the legal structure of your business, such as sole proprietorship, partnership, etc.

Your Target Market

Include an industry analysis in your business plan to demonstrate to potential investors and your management team that you know "the market." Perhaps your dealership is on a fast-growth track with few established competitors and sizable potential. Great! Or you may be entering a slower-growing market where competitors have lost touch and are leaving the door open for rivals. Your analysis will paint a clear picture of the market and your proposed place in it.

Your analysis and outlook should include total industry-wide sales volume, trends in that volume, description of the major competitors, the main marketing methods of the industry and your competition, the effect of consumer taste changes, any recent demographic trends, and sensitivity of the industry to seasons and economic cycles. Much of the data is available from industry trade associations and major suppliers.

Here, too, is the place to state your target marketshare. Analyze the competition, identifying current and potential competitors, discussing their strengths and weaknesses. Finally, this analysis should include key financial measures of your industry – i.e. average profit margins, cost of sales, etc.

Do a SWOT Analysis

At this point, do a SWOT analysis, recommends Jack Phillips, vice president of credit and financial services for American Tire Distributors. He identifies SWOT as Strengths, Weaknesses, Opportunities and Threats.

Strengths would include being well thought of by customers, having proven management, access to economies of scale (such as with multiple locations), and offering much-desired products/-services.

Weaknesses might include lacking strategic direction or suffering cash flow difficulties. Opportunities, Phillips says, could lie with adding a new product/service, or business expansion. Threats might include new competitors eyeing your market or a slowing of market growth.

Who’s on the Team

After you’ve described your business and applied a SWOT analysis, now you must answer the "Who" question. Regardless of how impressed a potential investor may be with the glowing description of your outstanding product/service and lush market conditions and opportunities, the key question is who will be driving the bus.

This might just be a simple paragraph indicating you alone will be the only executive, with a description of your background. Or this could be a major section with an organization chart describing interrelationships between every department and manager, plus bios of all key executives and managers.

Some financiers say: "I don’t invest in ideas; I invest in people." Some might even say they prefer good people with bad ideas (they can readily improve the ideas) to bad people with good ideas (people are much harder to improve than ideas.)

Plan readers want to know key details about you and your managers, such as education, earlier employment, skills, unique abilities or knowledge, accomplishments and personal matters. Also helpful is a bit of job description for each manager.

Finally, the Money

And now comes the money part, which decides if the business will even get off the ground (if it’s a new business) and/or how it will progress in the future (new or existing). Regardless of the audience for your business plan, the final judgment always rests on the bottom line.

While this section usually appears near the end of a business plan, it often gets the first look. The financials in this section should provide an accurate picture of your company’s current value, plus its ability to pay the bills today and earn a profit going forward.

This is not a place to fudge the truth and try to paint an unreasonably rosy picture. Numbers don’t lie. At the same time, you can’t always take numbers at face value alone. There may be mitigating factors or new opportunities that could shine a different light on seemingly weak financials. Don’t be afraid to explain the situation – even add outside comment or analysis from industry or market experts ®“ and put a positive spin on things. Just don’t lie.

The usual documents in this section are a cash flow statement, an income statement and a balance sheet. These three are inter-linked with changes in one altering the others. This is a good time to get your accountant involved.

Best place to start is with the income statement. This one adds up all your revenues from sales and other sources, subtracts all costs, and comes up with a net income figure. In other words, the "bottom line." Income statements also are called profit and loss statements (P&L) or earnings statements.

The balance sheet shows what you’re worth as contrasted with the income statement showing what you’re earning. It reveals valuable assets that don’t show up on the income statement and may prove that the firm is profitable though heavily in debt.

Finally comes the cash flow statement which monitors the flow of cash over a period of time (a year or a quarter or month) and shows how much cash you have on hand at the moment. This one report describes where your cash came from and how it’s being used, and is divided into two parts: sources of funds and uses of funds.

‘Marketing Smarts’

Those are the basic elements of any business plan, but there are some great extras. For instance, a section can and perhaps should be devoted to "marketing smarts." Here’s where you address distribution plans, location considerations, and advertising and promotion strategies.

The most detailed business plan usually results from a desire to raise funds, either initial capital or new financing. However, the plan will be important even if you’re going to be a one-man band with your own funding. Remember, a business plan is a road map that tells you where you are and where you can go. The drive will be a lot easier when you have a good map.

Write It Yourself, Hire an Expert

You have two choices confronting you in doing your business plan. Doing it yourself will save money and put you into the process so you understand it better. Or you can have it professionally prepared. There are scores of services available, and we list some in the box above.

The easiest way is to turn to the Web, contacting some of the professional sources. Best to get some referrals before making a final selection. Ask around among colleagues, bankers, accountants and attorneys about whom they’d recommend. Try for a fit by finding a service experienced with companies and industries similar to yours. Avoid general business experts, however.

Ask for work samples from professional plan writers and show these to your banker or accountant or whoever can help you determine quality. Professionals usually can prepare a business plan in two to four weeks for fees of about $2,500 to $5,000.

But maybe you prefer to write your own business plan. Besides saving the fee, doing it yourself will guarantee the plan is really particular to your business. Also, you’ll understand the plan better from having been involved every step of the way.

If you’re going to write the plan yourself, you should look for writing help at the library, on the Web or through trade associations. There are even software programs available that walk you step-by-step through the process. Help may also be found locally at your chamber of commerce or your bank.

There even are business plan writing competitions run by colleges for students. More than three dozen in the U.S. alone, these competitions provide fame, experience and some prize money for the winners. Best known is the Moot Corp. competition sponsored by the University of Texas. Entries come from distant points, including Australia, and top prize is $15,000.

The best paying contest is run by the Massachusetts Institute of Technology with a top prize $30,000 and then $10,000 each to the next two finishers.

Among the best of books to help you write your own plan are these two: Business Plans Made Easy (Entrepreneur magazine) and Business Plans for Dummies. Both are very detailed but simply and clearly written so even the rank amateur can write an intelligent plan.

A Road Map and Trip Log

First step in writing your plan yourself is to realize that it is a road map showing you where you intend to go and a trip log showing how to get there. The second step is to determine the paramount aim of your plan. Are you pursuing investors? Partners? Bank loans? Or merely establishing a series of business goals for yourself and your team?

Target your plan to the goal, writing with the reader in mind. Investors want to hear about profits, but a banker is more interested in your ability to repay a loan.

Think competitively as you write the plan. Certainly, you will have serious competition no matter where your business is, so you need to identify how you will do things differently or better that your competitors.

Start writing the easiest parts first, describing your business and your product or services. Focus on the market you’re targeting, or particular market segments and sub-segments you may emphasize.

If you get hung up in one part, skip to another for awhile. It’s probably best to leave the financials until the last since they are the most complex part of any plan.

When it comes to financial projections, remember that there is the likelihood and danger of overestimating sales projections. Always forecast conservatively, even if you fear that the result may not be attractive to investors or lenders. Don’t let your plan try to fool them or, worse, fool yourself.

Have a firm outline for the plan before you ever start writing and, at any point in the writing process, get a professional appraisal of the plan. Turn to your banker, your accountant or a colleague for an outside look at how you’re doing. Finally, be your own harshest critic by stepping back and eyeing the plan like an outsider.

Not Set in Concrete

Once you have your plan, that’s not the end of it. Not even the best plans should be set in concrete. Times change and so there will be changes within your company, the industry, your customers, technology, products, demographics. Therefore, expect to adjust your plan periodically. Some even do it annually.

Of course, you will always do some analysis at year-end, pouring over the P&L and related statements. This would be a good time to adjust not just your figures but some of the strategies and methods outlined in the plan. The key here is to always plan ahead, which requires a forward-looking mindset.

As you set out, now a wise entrepreneur armed with a solid business plan, there’s a bit of advice from the song by cowboy balladeer Roy Rogers: "Happy Trails to You." While the trail (plan) is very important, he adds, "It’s the way you ride the trail that counts."