Preparing the Business Plan – What’s the Point?
As a general rule, small firms do not have the resources needed to create and maintain a separate strategic planning function. Instead, the planning process will usually be handled by the founders and other senior managers. Obviously these people are typically overwhelmed with “doing,” as opposed to “planning,” and there will be a strong temptation to put off preparation of a formal business plan, even a short one, or outsource the project to a consultant or other outside party (e.g., a lawyer or an accountant). However, it would be a serious mistake for the founders and senior managers to avoid becoming personally involved and invested in creating the initial business plan for their company. While the primary goal of the business planning process is the end product—the tangible business planning document—the journey itself provides the participants with an invaluable opportunity to collect information and knowledge about the proposed business and grapple with and resolve the fundamental issues that need to be addressed in order to determine the best way for the company to operate and compete in its chosen markets. In fact, the process of drafting the business plan is the time to make sure that all of the members of the start up group are convinced about the validity of the business concept and fully committed to becoming the initial “investors” in the company ready to devote their full time and effort to executing the plan. Participation in the business planning process is also important for the following reasons:
The business plan will become the primary means of communication to potential investors, banks, advisors and other potential strategic partners who will be asked to provide some level of support to the new business. As such, it is essential for the founders and senior managers to devote the necessary time and effort to ensure that the plan is clear, complete and accurate and that it conveys the right message to obtain the needed support.
The process should lead to clear and specific goals relating to the operation and development of the business. While the ultimate dream of the start up group may be to create a multi-billion dollar global company the journey must begin with smaller incremental steps that will keep the company and its employees focused on what is needed right now to keep the business rolling and progressing. The planners should include near-term goals that are realistic and achievable and reach agreement on an objective basis for measuring progress toward those goals.
By compiling, analyzing and documenting the information needed for the initial business plan, the members of the start up group will get a good feel for the elements that need to be included in their permanent strategic planning function once the company grows to the size where it can afford to create and maintain a dedicated planning business unit. Put another way, the process should uncover the key data points for monitoring the business and the company can begin to take steps to make sure that the necessary data is continuously collected by the company’s information systems.
The lessons learned in the business planning process can be applied to other important activities and thus provide the founders and senior managers will tools that can be used to make informed business decisions about new projects and investment opportunities. For example, before aggressively courting a new customer the management team should prepare a “mini-business plan,” often referred to as a “business case,” for the proposed business arrangement that documents and analyzes the rewards and costs of doing business with the customer and evaluate the burdens placed on all departments with respect to servicing the customer. The business case can then be evaluated against the larger goals of the company laid out in the business plan and, if accepted, can be used as a guide for evaluating the customer relationship once it begins.
While the optimal situation, for the reasons listed above, is for some form of business plan to be in place when the company is formally launched, the reality tends to be that the strategies of many firms tend to emerge as the business develops. Even if that is the case the leaders of the company must at least have some general frame of reference regarding the issues that will need to be considered when determining which activities of the small start-up team must take priority. Absent a formal plan the soundest approach may be to follow the process outlined above—continuous analysis and evaluation of the environmental forces that will influence the scope and design of the company’s “organizational domain” and the strategies that the company will need to adopt to manage and mitigate these forces. At some point, however, attention will need to be paid to the basic elements of the formal strategic plan and related processes, which include not only a written business plan but also incorporates training and recruitment plans, external communications, relationships with customers (i.e., product and service plans) and other key business partners, and internal rules and procedures to ensure compliance with applicable laws and regulations and monitoring of activities against budgets and milestones that may be established during the planning process.
Strategies and suggestions for the preparation and content of business plans are abundant and there is no single correct way to proceed; however, it is fair to say that the group involved in preparing the plan will need to collect and organize the necessary information; perform an initial product and market analysis to understand the requirements of the company’s target base of customers; survey the competitive and technological environment in which the company will be operating; prepare a financial analysis, including budgets and projections; perform a risk analysis that includes testing of the key assumptions underlying the goals and objectives of the plan and identification of alternative strategies for dealing with unforeseen scenarios; and, finally, prepare the formal document in a way that clearly communicates to the anticipated audiences all necessary information regarding the company’s proposed business activities, including its products and services, and its strategies in key areas such as research and development, manufacturing, sales and distribution, finance and human resources.