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ask SCORE: The Need for and Creative use of a Business Plan
The Need for and Creative use of a Business Plan
By Richard Walton
Assistant District Director for SCORE
In my work at SCORE, I often counsel entrepreneurs about the need for a Business Plan as a precondition for obtaining financing for the new venture. In some cases the plans that I see are prepared with insufficient attention to creating and using this powerful tool not only for financing purposes but also for creating and operating the business. In this article, my first of the New Year 2013, I will present both a rationale for developing a well thought out Business Plan and how to use it for maximum effect in operating your business successfully.
RATIONALE FOR PLANNING-WHY MAKE A BUSINESS PLAN?
The first element of the Rationale for Planning is that no lender or for that matter investor or advisor will be able to evaluate your ideas without it. This means that if you are seeking funds or advice, you will be seriously handicapped in your efforts. A well-developed Business Plan can make all the difference for you.
The second element of the Rationale for Planning is the value that planning provides to you, the entrepreneur. Carefully thinking through the parts of a carefully crafted plan requires thought and decision making about structure, marketing, finance, operations and management practices and policies.
The third element of the Rationale for Planning is that it requires estimation not just of the desired outcomes you are seeking, but also the effort that will be required to create those outcomes. An outcome is a sought after goal, and the effort to reach that goal is what makes it happen. Both have to be estimated in detail.
But remember that a plan that does not constitute a roadmap to accomplishing your goals is little more than a wish list. The plan must be used on a daily basis to direct the efforts of personnel toward accomplishing the stated goals of the Business Plan. Here's how to do that.
USING THE PLAN TO OPERATE YOUR BUSINESS SUCCESSFULLY
The first element in Using the Plan to Operate Your Business Successfully is to list your goals both in the sort term and long term, in other words, the present and future business. (I first presented the idea of simultaneously managing the present and the future business in my December article in Picket News, page A2, December 7, 2012). For example, a long term goal of creating sales volume of $150,000 requires short term goals over the planning period that will add up to the long term future goal, if you are successful in reaching it. But you must have a dual focus on both short and long time simultaneously, in other words, the present and future business. You are, after all, creating the future now in the present.
The second element in Using the Plan to Operate Your Business Successfully is to carefully detail the effort that will be required to reach your stated goals. While goals typically are stated as gains, such as sales levels and/or market share, effort is typically stated as costs, and of course, to be profitable, revenue (income) must exceed costs (outflow). A major potential pitfall in any plan, whether short or long term, is the goal setting process that maximizes the value of the goals while minimizing the costs of attaining them. And always remember that costs are incurred in advance of learning the results (whether you have reached your goals or not), so real expertise is needed to know in advance what the costs will be to attain your goals. And once again, it is action in the present that will bring desired outcomes in the future.
The third element in Using the Plan to Operate Your Business Successfully is tracking performance and adjusting both income and expense estimations for the present and the future as a result of experience. This brings up one of the less well-understood aspects of the Business Plan, which is that it can and should be modified as new experience dictates.
How can an outdated plan be a tool for management when the basic assumptions and projections under which it was created become obsolete? The answer is that it cannot continue as an action guide when neither its goals nor the required effort to reach those goals are applicable under present conditions and previous experience. And remember as well, that revisions can be made upward as well as downward, when appropriate
SUMMARY AND CONCLUSIONS
While it is generally understood that a Business Plan is a basic requirement for funding it is less well understood that effective planning gives the entrepreneur a powerful tool for managing the business, both in the present and the future. This is so because plans are really statements of goals desired and the resources necessary to reach those goals. And reaching goals is a clear-cut statement of success, assuming of course that expenses are, as planned, lower than revenues. And given the fact that a Business Plan can and should be modified as conditions and experience dictates, the plan can remain a powerful tool for managing effectively in the present while creating the future business.
Mr. Walton teaches Financial Management, Operations Management, Corporation Finance, and Entrepreneurial Finance at Frostburg State University and is the assistant district director for SCORE, Western Maryland, and is president of ERMACORP, a Hagerstown based Management Consulting Firm. Call 301-462-9850 or him at Richard@ermacorp.com. Find him on Facebook(r) at "Small Business Life Cycle" for inquiries and an exchange of ideas on small business management, issues, resources, and experiences.