Ask SCORE: Every organization requires a business plan
Every organization requires a business plan
Whether a start up entrepreneurial effort or an established firm
Here's why and how to do it
By Richard Walton
Assistant District Director, SCORE
Monthly Contributing Writer
Every business whether a start up entrepreneurial effort or an established firm with a long track record should embrace planning as a tool of managerial expertise and a foundation for success. Yet it has been my experience over the past decade as a volunteer for SCORE that many entrepreneurial startups lack a sound Business Plan, and in some cases even those which have a Business Plan show very unrealistic sales and profit projections, while paying scant attention to the cost and effort to make those good outcomes really happen.
Likewise established firms, caught up in the problems of survival in a recession, declining profit margins, stalled sales, and increased operating costs are loath to take the time necessary to review their operations and administrative plans and thus fail to regain their footing and reestablish profitable operations.
To address these issues and provide ideas on how planning can help both types of organizations, I will review the planning situation from both the perspective of the newly established firm, and also the going business, with the thought that we can develop effective planning for both which will lead new as well as established firms on the pathway to future success. In order to do this, I will address several of the problems that beset the organizational planner, and offer constructive ideas on how they can be overcome.
Issue 1-We don't need a plan. Everybody knows what they have to do.
Everyone thinks they know what they have to do, and it is usually based on a routine that has been followed in the past. There are no set objectives or guidelines other than to get the work done. This is especially true in the newly established business, since normally everyone and everything is 'new', and the myriad of tasks that need to be done take all the time and resources available. This is precisely why a plan is so necessary, and it has to be geared toward the meeting the firm's objectives, not merely handling 'busywork'. Therefore the answer is: first you need objectives, and second you need a plan to reach those objectives. Absent either the objectives or the plan, there is likely to be chaos in the firm's daily operations. In the established business, everyone is working on something, but it is not necessarily the right thing. Businesses need plans and they need to communicate the importance of meeting the plan's goals and objectives to everyone in the organization. Effective and continuous communication can ensure that the plan receives top of the mind attention by all employees.
Issue 2-We have a plan, but we rarely refer to it. There's just too much to do.
Having a plan, whether it is a start up Business Plan or an ongoing Marketing Plan that doesn't get acted upon is a double waste of resources and opportunity. First, the effort that went into developing the plans was wasted, and second, what is it that the firm is working on if not the plan? Having so much to do and yet having nothing to do with the long term plan for the business is a serious managerial misjudgment or misallocation of resources. The bottom line is that if you have a plan, you (and everyone else in the organization) should work toward the attainment of the plan's objectives. If you are not working to reach the plan's objectives, then it is necessary to re establish the plan as the center piece of operational activity by everyone. It is crucial to make certain that everyone understands the importance of working according to a plan to reach specified objectives, and that everyone is doing so.
Issue 3-How can you plan when things are in such a turmoil?
Planning is more important in chaos than in tranquil times, precisely because reactions are needed to unforeseen events, and planning can establish the system response to unpredictable events. A start up firm may have its initial assumptions about market growth and profitability completely upset by events unforeseen at the time the plan was being developed, but there is no substitute for having a plan around which the firm can rally its resources in reaction to new events which call for new tactics. Established firms should have plans made for varying 'states of nature', that is 'very good times', 'normal times', and 'very bad times'. A response planned in advance for each of these outcomes will enable the firm to re deploy its resources as conditions warrant, rather than operating in a crisis mode without any coherent plan to address the situation
Issue 4-We are not a company of planners. We can't afford a planning staff. So who plans?
The startup firm's success is going to be based largely on its ability to plan an approach to its business based upon available resources, market opportunities, and the expertise of its managers in utilizing resources to exploit opportunities. This should not be a matter of guess work. Rather, it should be carefully thought out and presented as part of a start up Business Plan. And you don't have to be a master planner. You do have to know what it is that you want to do, and how to do it, but that is not as much planning skills as it is managerial expertise. The established business may or may not have available a planning staff, but planning is a necessary managerial activity whether there is someone on staff or not who has expertise in that field. Businesses need long term objectives toward which the efforts of everyone in the firm must in some way be directed..
Types of plans for Start Ups and Ongoing Businesses
A start up firm usually needs a Business Plan as a precondition for its search for financial backing, either in the format of a loan or equity capital from an investor. In addition, it should provide a roadmap for the management daily operations of the firm. The Business Plan should contain the following: Executive Summary, Industry Analysis, Company Description, Products and Services, Market Description, Marketing Strategy, Operations Description, Staffing Description, Financial Projections, Capital Needs, and Milestones. Each of these aspects of the plan must be thought through and presented as part of the total plan. And remember that you can get help in developing a plan by accessing the SCORE website (www.score.org) or by contacting your local SCORE office and asking for advice.
Similarly, existing businesses can and do seek mentoring from volunteers at SCORE. There may be a need for capital investment planning, or market planning, budgeting (budgets are financial plans), and special projects, such as setting up training programs or International Operations. Plans are always an essential ingredient for any business.
Tools such as ratio analysis, breakeven calculations, and cash flow management systems are crucial aspects of an ongoing operating plan, and can provide valuable insight and new opportunities for goal attainment and business success.
Remember that failing to plan is the same as planning to fail. Carefully developed and expertly implemented plans whether for the brand new start up business or the long established firm can be the most important ingredient for success.
Mr. Walton teaches Financial Management, Operations Management, Corporation Finance, and Entrepreneurial Finance at Frostburg State University. He is also Assistant District Director for SCORE, Western Maryland, and the President of ERMACORP, a Hagerstown based Management Consulting Firm. He may be reached at 301-462-9850, or by email to Richard@ermacorp.com.