Business Planning Tips: The Basics

Plan to Become a Successful Business

When planning a new business or developing an existing one, it is useful to have a gut feel for the characteristics of a successful business. Here are some criteria against which to measure your business or its plan:

1. Sensibly financed (with prudent mix of equity and debt).
2. Strong cash position (with access to follow-on or contingency funds).
3. Offers above-average profitability (in terms of return on capital invested).
4. Aims for rapid growth in revenues (with profits lagging but in prospect).
5. Targets expanding, or otherwise attractive, market segments.
6. Develops a strong franchise or brand.
7. Devotes substantial resources to innovation (R&D, offerings or market).
8. Competes on non-price issues (e.g. quality, service, functionality).
9. Very close to customers and responsive to their needs.
10. Seeks specialist/leadership image with superior offerings.
11. Well managed with high-grade staff & good people-management.

Behind every characteristic there should be an explicit strategy designed to increase the chances of success and not simply aimed at reducing the likelihood of failure. For more help on setting strategies, see Developing a Strategic Business Plan, Devising Business Strategies and the free Online Strategic Planner for creating a 3-page strategic plan.

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When Planning a Business make Explicit Strategic Statements

When planning a business, be clear and assertive about the strategies to be followed. Don't fudge or say "On the one hand ...... and on the other hand .....". If sound groundwork has been done on the background issues relating to the business, market and SWOTS etc., many key strategies will suggest themselves. You can weave these together into explicit strategic statement(s) of intent. For example:

Any Inc's central objective is to become a full-line supplier. It will reduce its cost base through introducing new processes as result of licensing-in technology in parallel with broadening its distribution activities financed by retained profits and external debt.

Our aim is not to encourage planning by words but to illustrate the types of issues that might be considered when formulating explicit strategies. These can be applied equally to start-ups and established businesses. Of course, the big distinction is that the start-up is building strategies from scratch without the benefits of any market position, momentum or pre-existing strategies.

Any selected suite of strategies must be integrated and internally consistent, and in-line with the business's broader vision, mission and objectives (see Developing a Strategic Business Plan). There is little point in a business claiming to be technologically advanced if its R&D spend is sub-critical, or aspiring to become a leading brand if it has neither products, nor funds nor distribution to ensure this could happen.

Strategic statements can be defined as broad indicators of the direction(s) in which a business should be driven in order to fulfil its vision/mission while taking realistic account of its resources, constraints and opportunities. They also serve as the link between the a business's objective and actions plans and should result in a series of integrated sub-strategies and action programs with goals, budgets, timetables. The latter can be most effective when linked to specific functional areas within the business e.g. sales, marketing, operations and so on. Limit the number of sub-strategic (tactical) programs to what can be realistically achieved within a realistic time frame and, if necessary, prioritize them. It is possible that just one strategy is needed for each of the business's main main functional areas.

For more help, see Developing a Strategic Business Plan and Devising Business Strategies. You can also use the free Online Strategic Planner to create your own 2-3 page strategic plan.

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Marketing Strategies, Sales Plans & Projections

When preparing a business plan (or a marketing & sales plan), two critical sections stand out - Profiles of Target Markets and Marketing Strategies, Sales Plans & Projections. The latter should build on the market assessment (see tip on Sound market analysis is key to a sound Business Plan). In simple terms, marketing and sales plans should cover the 4Ps - Product, Price, Place and Promotion. The following issues need to be considered:

• How will your business market its products/services and sell them to customers? What are the key market entry/development strategies?
• Indicate plans and forecast costs for marketing, selling, promotion, advertising, representation etc.
• How will your products be presented to customers? Discuss packaging, physical distribution, sales support and product support and forecast the related costs.
• Explain pricing policies and credit terms (be realistic !). What discounts will apply and to whom? Will there be bad debts and what provisions should be made?
• What will be the end-user prices? Assess the competitiveness of your business's offerings in terms of price, quality, features etc. at the level of sales outlets or end-users.
• How will you deal with the competitors? How will they respond? What are the contingency plans in the event of sales targets not being fully realized?

Based on these marketing strategies and plans, you can compile detailed sales (volumes and prices) projections for your various segments and products/services. These projections should be monthly (for at least one year ahead especially if the business is seasonal) and either quarterly (much better) or annual thereafter.

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Plan to Avoid Business Failure

Business failure is a distinct possibility for many businesses, especially for start-ups during the so-called three-year "valley of death". A key to getting through these years is to avoid the obvious mistakes. Generally speaking, businesses fail for significant and substantial reasons which are often very evident to outsiders. Insiders often fail to see them because of their closeness, determination and so on. Areas where failure is most likely to occur include finance. markets/sales, offerings, management and operations. See a detailed listing of possible reasons for business failure.

Clearly, there are very many reasons as to why businesses fail. The key point is that causes are usually very apparent (especially with hindsight) and the trick is to anticipate them by executing appropriate tactics and strategies from the outset. Three examples:

• Use market research to confirm demand and assess suitability of proposed offerings.
• Create a management team to offset any gaps in experience or expertise.
• Raise equity to reduce exposure to interest rate changes, reduce gearing etc.

Given that reasons for failure are often both simple and clear, it should (in theory) be possible to reduce the possibility of failure through prior experience, forethought and effective planning.

For more information, see Devising Business Strategies, Developing a Strategic Business Plan and Writing a Business Plan. Also look at and/or participate in the online poll on Strengths & Weaknesses of Businesses.

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Sound Market Analysis is Key to a Sound Plan

The Market Analysis section of a business plan is very difficult to prepare especially for start-ups or established businesses diversifying in new (to them) markets. These difficulties will be compounded, due to an absence of any reliable data or evidence of likely demand, for businesses entering completely new markets or launching radically new offerings. Nonetheless, this section is critical as it underpins the business plan and demonstrates that the promoters have done their homework and know their marketplaces (at least as well as the incumbent players or other new entrants). If this section is unclear, vague or superficial, it begs the question as to whether there might be any real, sustainable demand for the proposed offerings.

Use this section to profile target markets based on market sizes, segments, trends, competition and user/customer profiles. Allow about three-six pages for this most important part of your plan. In most cases, it is very desirable that all detailed market research (field and/or desk) and analysis be completed before this section is written. If research reports or detailed findings are available, refer to their detailed findings in appendices or include them as annexes to the plan.

You will need to analyze the market in fair detail to dig down to your actual target market segments which you can then explore in depth. You will also need to consider competition, customer/user categories and so on. Create simple tables to show how market sizes, segments and shares are likely to move in the future after your entry/growth.

Avoid at all costs generalized statements like "we aim to achieve xx% of the xx market within three years". Instead, build up your projections from sound analysis/research and detailed assumptions (number of outlets, customers, consumption and so on) based on clear marketing and sales plans.

For more information and insights, see Profiles of Target Markets and Marketing Strategies, Sales Plans & Projections within our detailed Business Plan Guide.

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Get a Vision & Mission before you Plan

Before starting to write a business plan, you must have established a clear vision and direction for the business. Without these, your detailed plan will lack focus and it will roam around in whatever direction your latest idea or your keyboard (or pen) takes you. Instead, you need to start with some serious strategic thinking about a vision and mission.

First, you need to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see (or sense)?" Consider its future products, markets, customers, processes, location, staffing etc. Here is a fictitious vision:

AnyBiz will be operating from a xxx sq. ft. unit near xxx Town. It will have annualized sales of $xxx and be profitable. It will employ xxx people mainly engaged in R and D, marketing, support and admin. AnyBiz will offer xxx core products and provide added-value services to a large customer base throughout the xxx market segments and in xxx countries overseas. AnyBiz's offerings will be technically advanced and offer many clear-cut advantages and improvements over competitors' possible offerings. AnyBiz will continue to expand through organic growth and acquisitions in related technology/market segments. It will have recently received mezzanine finance prior to a public offering.

Next up is a Mission statement. This indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas". A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Here is a fictitious mission statement:

AnyBiz designs, develops and markets advanced systems for specialist data capture and transaction processing management. These web-based systems work with specialist hardware supplied by major integrators. They are sold to small, medium and large-sized companies within the xxx industries for a range of specialist applications. AnyBiz's systems are distinguished from competition by their sophisticated interfaces, scalability and ease of modification and are extensively patented. Sales are made directly and through major distributors/OEMs in the home market and overseas.

For more help on preparing a strategic plan, see Developing a Strategic Business Plan, Devising Business Strategies and the free Online Strategic Planner for creating a 3-page strategic plan.

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SWOT before Planning your Business

A SWOT analysis is an assessment of the Strengths, Weaknesses, Opportunities and Threats facing a new or established business. It should always be conducted prior to the compilation of a detailed business plan. A realistic and unbiased SWOT analysis could form the basis for the strategies to be followed throughout the plan. A failure to determine SWOTs could result in a plan which is unclear, misguided and lacking focus and direction.

Strengths and weaknesses are essentially internal to the organization and relate to matters concerning resources, programs and organization in key areas.The objective is to build up a picture of the outstanding good and bad points, achievements and failures and other critical features within the company. If a startup is being planned, the strengths and weaknesses are related mainly to the promoter(s) - their experience, expertise and management abilities - rather than to the project.

The threats and opportunities are external to the company and relate to the industry and marketplace in which the business operates; changes or trends in competition, technologies and so on.

Once the SWOT review is complete, the future strategy may be readily apparent or, as is more likely the case, a series of strategies or combinations of tactics will suggest themselves. Use the SWOTs to help identify possible strategies as follows:

If the business is seeking significant growth, it is important to fast-forward and assess SWOTs as they might exist a year or two hence. This will help ensure that strategies are ambitious and robust and that emerging issues are anticipated. Have a look at the discussion on SWOTs and related matters in Developing a Strategic Business Plan (and especially Sections 1.3 to 1.5).

The resulting strategies can then be filtered and moulded to form the basis of a realistic strategic plan - see Devising Business Strategies for further insights into the development of strategies and the free Online Strategic Planner for creating a 3-page strategic plan. Here is a sample strategic plan compiled using the planner. A plan along these lines should be incorporated into a business plan and it would, in effect, become the foundation for all the assessments, actions, projects and programs detailed throughout the plan.

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Quotations to Inspire Better Business Planning

Here are some quotations to motivate and inspire the planning and development of your business:

• Rise early, work hard, strike oil. (J Paul Getty)
• The person who doesn't scatter the morning dew will not comb grey hairs (Irish proverb)
• A chicken doesn't stop scratching just because worms are scarce (Grandma's Axiom)
• A wise man turns chance into good fortune. (Thomas Fuller. Gnomologia, 1732)
• A great fortune depends on luck, a small one on diligence. (Chinese proverb)
• Luck is a dividend of sweat. The more you sweat, the luckier you get (Ray Kroc)
• I'm a great believer in luck and I find the harder I work, the more I have of it. (Stephen Leacock)
• Success is more attitude than aptitude. (Anonymous)
• If, at first, you don't succeed, try again. (Proverb)
• If, at first, you do succeed, try to hide your astonishment.(Los Angeles Times Syndicate)
• There is nothing more difficult...than to take the lead in the introduction of a new order of things. (Niccolo Machiavelli)
• If you want truly to understand something, try to change it. (Kurt Lewin)
• Do not follow where the path may lead. Go instead where there is no path and leave a trail. (Ralph Waldo Emerson)
• You cannot travel on the path until you become the path itself. (Gantana Bouddha)
• There is no top. There are always further heights to reach. (Jascha Heifetz)
• For the wise man looks into space and he knows there is no limited dimensions. (Lao-tse)
• It is not best that we should all think alike; it is a difference of opinion that makes horse races. (Mark Twain)
• It's not because things are difficult that we dare not venture. It's because we dare not venture that they are difficult. (Seneca)
• It is a myth, not a mandate, a fable not a logic, and symbol rather than a reason by which men are moved. (Irwin Edman)
• Great spirits have always encountered violent opposition from mediocre minds. (Albert Einstein)
• Every wall is a door. (Ralph Waldo Emerson)

For more quotations, see this list.

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How to Assess New Business Ideas

Having built up a moderate list of new business ideas, these must be evaluated so that a short-list of preferred options with the greatest potential and lowest risk can be assessed in greater depth.

One way of evaluating ideas would be to use a simple scoring system using gut-feel with a limited number of criteria such as personal fit, degree of risk, funding need and so on - see a comprehensive list of factors at Getting New Business Ideas.

Before scoring individual ideas, run through the criteria and set what you feel should be minimum desirable scores for each. The resultant total could be used as your overall minimum threshold. If some ideas don't achieve satisfactory scores, drop them and look for better ones.

Once your short-list has been developed, you will need to start devoting substantial time to assessment, research, development and planning. For a start, you could pursue the following tasks:

1. Discuss products/services with prospective customers
2. Assess the market using desk & field research
3. Analyze your competition
4. Consider possible start-up strategies
5. Set ball-park targets and prepare first-cut financial projections
6. Prepare a simple action plan
7. Critically examine ideas from all angles

For more insights into these tasks, see Getting New Business Ideas.

Bear in mind that the incubation period for a new business can easily last several months or even years. Don't rush into the first feasible idea without letting it incubate or develop in your mind for a reasonable period. There might be a tendency to get all fired up and enthusiastic such that your heart is starting to rule your head. Instead, stand back and think!! Do not be afraid to seek external assistance from professional advisers or from enterprise support organizations which are virtually everywhere. These include SBDCs in the US, Enterprise Agencies & Business Links in the UK, County Enterprise Boards in Ireland, EC BICs throughout the EU and so on...... For help with converting your preferred business idea into a business plan, see Getting New Business Ideas and How to Write a Business Plan.

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Use Strategic Planning to lay a Plan's Foundation

Entrepreneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a business is much more likely to fail.

A strategic plan should not be confused with a business plan. The former is likely to be a (very) short document whereas a business plan is usually a much more substantial and detailed document. A strategic plan can provide the foundation and frame work for a business plan. For more information about business plans, refer to How to Write a Business Plan, Insights into Business Planning and Free-Plan: Business Plan Guide & Template.

A strategic plan is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan which is likely to be shorter term, tactical, focused, implementable and measurable. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters).

A satisfactory strategic plan must be realistic and attainable so as to allow managers and entrepreneurs to think strategically and act operationally - see Developing a Strategic Business Plan and Devising Business Strategies for further insights. Use the Online Strategic Planner to create your own 2-3 page strategic plan.

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Resolutions for Better Business Planning

Here are some suggested resolutions for better business planning applicable to any established business:

• Maintain a tight grip on cash flows. For help, see the Checklist for Improving Cash Flow and Cashflow Plan. To get started, circulate the checklist and hold a meeting of key staff to explore the options.
  
  
• Update (or create) a strategic plan for our business. For help, see Devising Business Strategies, Developing a Strategic Business Plan and the free Online Strategic Planner. To get started, use the online planner to prepare a first-cut plan as the basis for discussion with senior management.
  
  
• Compile an updated financial plan or budget. Use Exl-Plan.
  
  
• Take time out from day-to-day operations to plan at least one new initiative every month to reduce costs or expand the business.

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Looking for New Business Ideas

When looking around for business ideas, bear in mind that these could be based on any of the following approaches:

• A manufactured product where you buy materials or parts and make up the product(s) yourself.
• A distributed product where you buy product from a wholesaler/MLM, retailer, or manufacturer.
• A service which you provide.

You should narrow your search to specific market or product areas as quickly as possible. For example, the "food business" is too broad a search area. Do you mean manufacturing, distribution or retailing, or do you mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It is better to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specifics and proves impossible to research and evaluate. Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuing ideas which involve any prospect of price wars or are very price sensitive; of getting sucked into short-lived fads; or of having to compete head-to-head with large, entrenched businesses.

Observe consumer behavior:

• What do people/organizations buy ?
• What do they want and cannot buy ?
• What do they buy and don't like ?
• Where do they buy, when and how ?
• Why do they buy ?
• What are they buying more of ?
• What else might they need but cannot get ?

Look at changing existing products or services with a view to:

• Making them larger/smaller, lighter/heavier, faster/slower
• Changing their color, material or shape
• Altering their quality or quantity
• Increasing mobility, access, portability, disposability
• Simplifying repair, maintenance, replacement, cleaning
• Introducing automation, simplification, convenience
• Adding new features, accessories, extensions
• Changing the delivery method, packaging, unit size/shape
• Improving usability, performance or safety
• Broadening or narrowing the range
• Improving the quality or service.

For further suggestions and tips, see the white paper on Getting New Business Ideas.

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