The Business Plan: We Must Plan For The Future
I RECEIVED A CALL from an old friend, Rob Jenkins, who indicated he needed my opinion on a business matter and wanted to see me.
"Come on over," I said. About a half hour later, we met in the lobby of my office.
Rob, a young man in his early forties, wears a full beard, and was sporting a fresh tan. He is always impeccably dressed. Great taste, I thought to myself. Right out of a Gucci ad. We proceeded to my office, sat down, and started with our usual small talk.
When the small talk ended, Rob opened a Pandora's Box.
''My lawyer says I should take my company public," he said. "Frankly, I'm concerned that he may be giving me this advice because of the substantial legal fees involved. I need your objective opinion."
"How can you take your company public when you just sold off twenty-five locations?"
"No problem," he retorted. "We're buying them back."
Ouch, I thought to myself. Sell them, buy them back 'what's he doing?
"A year ago you indicated that you wanted to get smaller."
"Yeah, but now I want to make a killing. And besides, you know I've been unhappy with my partner for years, and this may give me the opportunity to get him out."
"Rob, you confuse me. Every six months you've changed your mind: expand and open more locations, franchise, don't franchise, sell locations, become smaller, sell out, merge, go public, make the big bucks, settle for a substantial living."
"Forget that," he said, "I know all about our previous discussions; what do you think?"
"Rob, your lawyer is probably giving you sound advice, but it's a real tumult and very expensive. What is your opinion? It's your company. Your future head aches, your decision."
Rob hemmed and hawed and concluded with his typical no decision decision. We ended our meeting, and off Rob went, I presume, to go public. We've had countless discussions of this nature over the past five years. Rob is hard to keep up with.
Larry Jacobs surprised me when he stuck his head in the door of my office. Larry just celebrated his fiftieth birthday and has been in the manufacturing business for twenty years. "Hi," I said, peering over the top of my glasses. "What's up?"
"I'm in deep trouble, and things are just terrible. A hope and a prayer is all I have between me and bankruptcy."
Good grief, I thought, twenty years in business and look where he's at.
One evening I was waiting for a table in a restaurant, when suddenly I felt a hand grab my shoulder. I whirled around and was facing Don Altman. "My God, I haven't seen you in months," I said. "How are you?"
"Fine. Just fine. Let me introduce you to my wife." His wife and I smiled. We both knew we had been formally introduced by Don on ten different occasions.
Don and his father had been in the retail business for years; 2003 and 2004 had been very tough years for them. Sales were down and stores had been closed. It must have been a nightmare. I asked Don if his business problems had settled down.
"You know, we shrank from ten to two stores, it's probably just a matter of time before we'll have to sell out. The administrative overhead is still killing us, and I can't get it any lower."
"Is Wally [Don's unproductive alter ego] still working with you?"
"Yeah, we're paying him about $140,000 a year to run our South Gate store. As you know, he's been with us for years; how can I let him go?"
"What good is loyalty if you are out of business?" I asked.
Lowering his head, he replied, "I know, I know. By the way, do you think you could reduce your fee? It sure will help."
I looked at him and said, "Here's some advice. Get rid of Wally. Bankruptcy won't help anybody."
A few days later, I was sitting in my office, feet propped up on the desk, and I was wondering what the hell was going on. Here was Rob Jenkins off and running with his company in several directions depending on his mood swings. The company's sales were down and profits had shrunk considerably. Yet he still couldn't make up his mind about where he wanted his company to go. Larry Jacobs turned down establishing a financial plan to sustain what resources he had left, and Don Altman watched his company get smaller and smaller with his $140,000-per-year sidekick.
Can't they see a hope and a prayer isn't the answer? They are lacking direction. They need a well thought out plan or guide to help manage their company's financial future. In good or bad times, seat of the pants planning doesn't work.
Jenkins, Altman, and Jacobs may appear to be extreme examples, yet they are the rule rather than the exception. Most small businesses have minimal, if any, concrete plans for the future. The planning process does not exist. Business is run on a hope and a prayer.
Most owner-managers of small companies have become so inundated with the day-to-day details and problem solving that when one mentions planning for the future, they throw up their hands and shout, "Who has time?"
My observation is that there is time, but planning for the future is such an abstract concept that people don't take the time to do it.
THE FIVE-YEAR PLAN: FORGET IT!
I recently had the opportunity to speak at UCLA as part of a business planning seminar. Fortunately, I was the last speaker at an all-day event. Can you imagine eight hours on how to prepare your business plan?
I arrived late, saving myself from the profound advice given by lawyers, underwriters, and other accountants. If it takes eight hours to learn how to prepare a business plan, we'll never do it.
The experts tell us that a five-year plan must be done. Yet who can worry about five years into the future when cash is short, sales are down, good employees are impossible to find, and interest rates are killing us? The future is elusive. It never comes.
First, let's get rid of the notion of a five-year plan. Don't do one. It's too abstract, difficult, and too time-consuming. Let's do it the easy way so we can develop some kind of a plan. What is needed is a written business plan that will allow us to measure our activities against established goals, and judge whether we are on the path to success or failure.
There are two kinds of plans needed in today's economic environment. The first, the subject of this chapter, is an operational plan to guide your company. The second, to be discussed in the next chapter, is a personal plan to protect your most important personal asset.
THE WINE AND CHEESE BUSINESS PLAN
To prepare your operational business plan remember, this is going to establish your company's goals we need five things: (1) a pencil, (2) a pad of legal size yellow paper, (3) a financial adviser, accountant, banker, lawyer, or anybody who has good business sense (we just eliminated the banker and the lawyer), (4) a package of cheese, and (5) a large bottle of wine: white or red, it makes no difference. I prefer a Chardonnay.
Once you have gathered the five items, it will be necessary to establish the proper setting. This can be your office, home, or anyplace that will be quiet and free from distractions. Your planning session should be scheduled after business hours when the phone has stopped ringing.
Follow these four simple steps, and you are on your way to experiencing your first wine-and-cheese planning session and establishing your company's goals and directions.
STEP 1 POUR A LITTLE WINE
Uncork the wine and pour a large glass, take a swig, and eat the cheese at will.
STEP 2 ASK QUESTIONS
Start to ask questions at random regarding various aspects of your business. This is a thinking-out-loud session with your financial adviser. As you ask the questions, write them down. Everything must be written; verbalizing is useless. You will never remember what you've discussed. By the way, don't forget to offer the adviser some wine and cheese.
One typical question you might start with is: What kind of business am I in? Sounds like a silly question, but it is one that should not be overlooked.
Boyd Reiter started his business by importing stereo equipment from Japan. Then he started to export stereo equipment to South America. When the bicycle craze hit he imported bicycles, then jeans. He started manufacturing fishing equipment in Korea and electronic levels in Hong Kong. When he was last seen, he was in New Jersey hiding from creditors. Hey, Boyd, what business were you in?
During this session, a major area to consider is your cash needs. How much cash will you need in the future? When will you run out of cash? Where will you get the cash? Bankers? Partner? Public? Profits? Or use your own? These questions lead to the need for doing cash flow fore-casting as we have previously discussed. Do not do your cash flow forecasting in this session. As we discussed, it requires a lot of details and should be prepared, with your input, by your bookkeeper, accountant, or anybody you trust with the information.
After you've had a couple of glasses of wine, you'll probably find the questions come easier.
STEP 3 WRITE DOWN YOUR ANSWERS
As you and your adviser toss questions and answers back and forth, jot them down. Don't worry about grammar and refinement of your answers, just write them down.
THE QUESTIONS
I have a series of questions to consider. One word of caution: After you've read the questions I have provided, you may be tempted to just write answers to these questions. Don't. The free-wheeling dialogue that can develop between you and your adviser will produce greater results.
There are numerous areas to cover during your wine-and-cheese planning session. You may choose to break them down into the following categories: production, marketing, personnel, facilities, and money.
WHAT BUSINESS AM I IN?
As I indicated earlier, this may seem ridiculous at first. However, it is not unusual to see some businesses going in several directions and not precisely defining what business activity they choose to emphasize.
PRODUCING THE PRODUCT
1. Do I know precisely what my product costs?
2. Will I need a cost accounting system?
3. What are the advantages of producing my own product?
4. What are the disadvantages?
5. What are the advantages of having others produce my product?
6. What are the disadvantages of having others produce my product?
7. Should I manufacture my product or go outside and have others manufacture my product?
8. Should I manufacture it domestically or abroad?
9. What processes do I eventually want automated?
10. Is my plant layout adequate?
11. If my plant layout is not adequate, how will I improve it?
12. Is my equipment obsolete?
13. If my equipment is obsolete, what new equipment do I expect to buy in the future?
14. Is the labor force in this area fulfilling my needs?
15. Are labor costs reasonable?
16. In what direction do I anticipate my future material costs going?
17. Is there an abundant supply of material available?
18. How can I control future costs?
19. Am I buying properly?
20. What can I do to take advantage of discounts?
21. How can I increase my gross margin?
22. Is the demand for my product strong?
23. How can I improve the production of my product or service in the future?
The questions listed above are only the beginning. The dialogue be-tween you and your adviser is needed to expand the scope of your inquiry. If the process is getting overwhelming, stop. Go out for a walk to relax. If your head is beginning to feel scrambled, that's a good sign. It indicates that you are doing creative thinking.
MARKETING
1. Where will I get future business from?
2. Will I stay local, regional, or become national?
3. Will I advertise?
4. Should I use an ad agency?
5. Should I hire a public relations firm?
6. Should I do media advertising-television, newspaper, radio?
7. How much money should I spend on marketing in the future?
8. Will I need a sales manager?
9. Are my distributors adequate?
10. Should I change distributors or hire additional distributors?
11. Will I need brochures, advertising products, samples?
12. When is the best time for me to do my advertising?
13. What results do I expect from my advertising?
14. Is my showroom adequate?
15. Are my displays adequate?
16. Are my window trimmings adequate?
17. Am I using proper methods for submitting bids?
18. Who is the best person in my organization to be meeting with pro-spective customers?
19. Are my sales personnel trained adequately in the process of sell-ing?
20. Are there trade associations I should join?
PERSONNEL
1. Are my personnel adequate for my future needs?
2. Am I training personnel properly?
3. Am I giving personnel adequate responsibility?
4. What training programs or training facilities will I utilize in the future to assist in the training of personnel?
5. Will I need to expand the number of personnel in the various departments throughout the organization?
6. What criteria will I use for determining who, when, and how to hire or fire?
7. Do I have adequate personnel manuals?
8. Do I have appropriate fringe benefits?
9. Are my salaries competitive?
10. Do I have proper recruiting techniques?
11. Am I following all the laws with regard to personnel?
12. Will I need a personnel director?
13. Will I need a greater level of expertise within our personnel?
14. How will I acquire this?
15. Are my personnel growing as the company is growing?
16. Am I capable of motivating personnel?
17. Do I display appropriate respect for personnel in my dealings with them?
18. Is there an adequate review procedure to keep personnel inÂformed of their progress within the organization?
19. Are the top levels of management able to function when I'm not around?
20. Do I encourage my employees to be creative and innovative?
21. As the leader of the company, am I accessible?
FACILITIES AND ADMINISTRATION
1. Are my facilities adequate for my future needs?
2. If they are not, will I buy or lease?
3. Where will I relocate?
4. When should I be planning for any future changes in location of facilities?
5. Will I need a purchasing agent?
6. Will I need a cost accountant?
7. Will I need a controller?
8. Is my accounting firm adequate?
9. Are my lawyers capable?
10. Is my rent reasonable?
11. How can I reduce my communication costs?
12. How can I reduce my administrative costs?
13. Do I need an office manager?
14. Are my plant and facilities well organized?
15. Am I using appropriate modern equipment?
16. Am I well insured?
17. What financial structure should I be?
MONEY
1. How much money will I need in the future? This question leads to the need for doing a cash flow forecast. (Refer to Chapter) No plan is complete without the answer to this question. Do not attempt to answer this question in your first session.
2. When will I run out of money? All small-and-medium-sized businesses will run short of cash during different times in the business cycle. Preparation in advance for this inevitability is a must. (Refer to Chapter???)
3. Where will I get money to cover future needs?
A. Bankers?
B. Partner?
C. Investor?
D. Go public?
E. My own money?
F. Other financial institutions?
4. What will I need to prepare for a financial presentation to a prospective financier? The answer to this question is simple. You will need the following:
A. A business plan.
B. Reviewed or audited financial statements of the company.
C. Personal financial statements.
D. A forecast covering future earnings and proposed activity.
ONLY THE BEGINNING
All of these questions are only the beginning. This kind of planning and thinking out loud is a must to get your company moving forward.
STEP 4 THE NEXT DAY
When you have completed the session, two things will have occurred. One, you are probably feeling no pain (too much wine), and two, you've actually worked out a business plan. This plan will provide goals and direction for you and your company.
After you have taken two aspirin, start thinking about what you've prepared. Do the questions and answers make sense?
If you conclude that you've set the right direction and the process is meaningful, bring in others from within your company to seek their input and ideas. Not only should you get some valuable ideas from them, but this could be the start of a new method of dialogue between you and your staff leading to the development of a stronger management team.
Begin to rewrite or restate the questions you've discussed.
Define the answers with the input of others and lay out the plan in logical sequence. Develop a tentative time frame for the implementation of each phase.
Once you have satisfied yourself that your plan is complete, give a copy to all the personnel in your organization. This will give those involved with the company a better understanding of where your company is going and a greater sense of participation in the company's future.
THE BUSINESS PLAN FOR RAISING CAPITAL
The wine-and-cheese operational business plan is to be used for setting goals and directions for your company. These goals can be used by management for measuring short-term results and for providing short-term guidance for the decision-making process.
Often, companies need to develop a broader business plan that gives long range goals and ideas to convey the overall philosophy and direction of the company. These plans are used to secure capital through loans, private financing and/or venture capital.
A WELL-PREPARED BUSINESS PLAN
helps management delineate objectives, directions, and strategies.
OUTLINE OF A BUSINESS PLAN
The following outline of a typical business plan is intended only to serve as a skeleton guide. There is no such thing as a typical company; therefore any standard outline must be adapted to your specific needs.
When preparing a business plan, carefully identify and describe the characteristics which make your company different. Highlight those characteristics, and be realistic.
The heart of the business plan is a set of financial projections showing the bank or investor how effective you will be with their money.
THE COMPANY
Your outside accountants can be helpful in the preparation of this section.
Include a short, concise statement listing risks to be considered.
USE OF PROCEEDS
If the business plan is to be used to acquire capital (e.g., sales of stock or bank loans), show a schedule of major areas of proceeds uses, followed by a brief textual discussion of each major use. For example, list uses for:
PRODUCTS OR SERVICES
MARKETING
Describe your marketing plans. Your marketing consultants may be able to assist in the writing of this section.
Note: Although projections may be the last item in the package, they are the heart of the plan. They should be highlighted and referred to frequently in the text of the business plan.
I RECEIVED A CALL from an old friend, Rob Jenkins, who indicated he needed my opinion on a business matter and wanted to see me.
"Come on over," I said. About a half hour later, we met in the lobby of my office.
Rob, a young man in his early forties, wears a full beard, and was sporting a fresh tan. He is always impeccably dressed. Great taste, I thought to myself. Right out of a Gucci ad. We proceeded to my office, sat down, and started with our usual small talk.
When the small talk ended, Rob opened a Pandora's Box.
''My lawyer says I should take my company public," he said. "Frankly, I'm concerned that he may be giving me this advice because of the substantial legal fees involved. I need your objective opinion."
"How can you take your company public when you just sold off twenty-five locations?"
"No problem," he retorted. "We're buying them back."
Ouch, I thought to myself. Sell them, buy them back 'what's he doing?
"A year ago you indicated that you wanted to get smaller."
"Yeah, but now I want to make a killing. And besides, you know I've been unhappy with my partner for years, and this may give me the opportunity to get him out."
"Rob, you confuse me. Every six months you've changed your mind: expand and open more locations, franchise, don't franchise, sell locations, become smaller, sell out, merge, go public, make the big bucks, settle for a substantial living."
"Forget that," he said, "I know all about our previous discussions; what do you think?"
"Rob, your lawyer is probably giving you sound advice, but it's a real tumult and very expensive. What is your opinion? It's your company. Your future head aches, your decision."
Rob hemmed and hawed and concluded with his typical no decision decision. We ended our meeting, and off Rob went, I presume, to go public. We've had countless discussions of this nature over the past five years. Rob is hard to keep up with.
Larry Jacobs surprised me when he stuck his head in the door of my office. Larry just celebrated his fiftieth birthday and has been in the manufacturing business for twenty years. "Hi," I said, peering over the top of my glasses. "What's up?"
"I'm in deep trouble, and things are just terrible. A hope and a prayer is all I have between me and bankruptcy."
Good grief, I thought, twenty years in business and look where he's at.
One evening I was waiting for a table in a restaurant, when suddenly I felt a hand grab my shoulder. I whirled around and was facing Don Altman. "My God, I haven't seen you in months," I said. "How are you?"
"Fine. Just fine. Let me introduce you to my wife." His wife and I smiled. We both knew we had been formally introduced by Don on ten different occasions.
Don and his father had been in the retail business for years; 2003 and 2004 had been very tough years for them. Sales were down and stores had been closed. It must have been a nightmare. I asked Don if his business problems had settled down.
"You know, we shrank from ten to two stores, it's probably just a matter of time before we'll have to sell out. The administrative overhead is still killing us, and I can't get it any lower."
"Is Wally [Don's unproductive alter ego] still working with you?"
"Yeah, we're paying him about $140,000 a year to run our South Gate store. As you know, he's been with us for years; how can I let him go?"
"What good is loyalty if you are out of business?" I asked.
Lowering his head, he replied, "I know, I know. By the way, do you think you could reduce your fee? It sure will help."
I looked at him and said, "Here's some advice. Get rid of Wally. Bankruptcy won't help anybody."
A few days later, I was sitting in my office, feet propped up on the desk, and I was wondering what the hell was going on. Here was Rob Jenkins off and running with his company in several directions depending on his mood swings. The company's sales were down and profits had shrunk considerably. Yet he still couldn't make up his mind about where he wanted his company to go. Larry Jacobs turned down establishing a financial plan to sustain what resources he had left, and Don Altman watched his company get smaller and smaller with his $140,000-per-year sidekick.
Can't they see a hope and a prayer isn't the answer? They are lacking direction. They need a well thought out plan or guide to help manage their company's financial future. In good or bad times, seat of the pants planning doesn't work.
Jenkins, Altman, and Jacobs may appear to be extreme examples, yet they are the rule rather than the exception. Most small businesses have minimal, if any, concrete plans for the future. The planning process does not exist. Business is run on a hope and a prayer.
Most owner-managers of small companies have become so inundated with the day-to-day details and problem solving that when one mentions planning for the future, they throw up their hands and shout, "Who has time?"
My observation is that there is time, but planning for the future is such an abstract concept that people don't take the time to do it.
THE FIVE-YEAR PLAN: FORGET IT!
I recently had the opportunity to speak at UCLA as part of a business planning seminar. Fortunately, I was the last speaker at an all-day event. Can you imagine eight hours on how to prepare your business plan?
I arrived late, saving myself from the profound advice given by lawyers, underwriters, and other accountants. If it takes eight hours to learn how to prepare a business plan, we'll never do it.
The experts tell us that a five-year plan must be done. Yet who can worry about five years into the future when cash is short, sales are down, good employees are impossible to find, and interest rates are killing us? The future is elusive. It never comes.
First, let's get rid of the notion of a five-year plan. Don't do one. It's too abstract, difficult, and too time-consuming. Let's do it the easy way so we can develop some kind of a plan. What is needed is a written business plan that will allow us to measure our activities against established goals, and judge whether we are on the path to success or failure.
There are two kinds of plans needed in today's economic environment. The first, the subject of this chapter, is an operational plan to guide your company. The second, to be discussed in the next chapter, is a personal plan to protect your most important personal asset.
THE WINE AND CHEESE BUSINESS PLAN
To prepare your operational business plan remember, this is going to establish your company's goals we need five things: (1) a pencil, (2) a pad of legal size yellow paper, (3) a financial adviser, accountant, banker, lawyer, or anybody who has good business sense (we just eliminated the banker and the lawyer), (4) a package of cheese, and (5) a large bottle of wine: white or red, it makes no difference. I prefer a Chardonnay.
Once you have gathered the five items, it will be necessary to establish the proper setting. This can be your office, home, or anyplace that will be quiet and free from distractions. Your planning session should be scheduled after business hours when the phone has stopped ringing.
Follow these four simple steps, and you are on your way to experiencing your first wine-and-cheese planning session and establishing your company's goals and directions.
STEP 1 POUR A LITTLE WINE
Uncork the wine and pour a large glass, take a swig, and eat the cheese at will.
STEP 2 ASK QUESTIONS
Start to ask questions at random regarding various aspects of your business. This is a thinking-out-loud session with your financial adviser. As you ask the questions, write them down. Everything must be written; verbalizing is useless. You will never remember what you've discussed. By the way, don't forget to offer the adviser some wine and cheese.
One typical question you might start with is: What kind of business am I in? Sounds like a silly question, but it is one that should not be overlooked.
Boyd Reiter started his business by importing stereo equipment from Japan. Then he started to export stereo equipment to South America. When the bicycle craze hit he imported bicycles, then jeans. He started manufacturing fishing equipment in Korea and electronic levels in Hong Kong. When he was last seen, he was in New Jersey hiding from creditors. Hey, Boyd, what business were you in?
During this session, a major area to consider is your cash needs. How much cash will you need in the future? When will you run out of cash? Where will you get the cash? Bankers? Partner? Public? Profits? Or use your own? These questions lead to the need for doing cash flow fore-casting as we have previously discussed. Do not do your cash flow forecasting in this session. As we discussed, it requires a lot of details and should be prepared, with your input, by your bookkeeper, accountant, or anybody you trust with the information.
After you've had a couple of glasses of wine, you'll probably find the questions come easier.
STEP 3 WRITE DOWN YOUR ANSWERS
As you and your adviser toss questions and answers back and forth, jot them down. Don't worry about grammar and refinement of your answers, just write them down.
THE QUESTIONS
I have a series of questions to consider. One word of caution: After you've read the questions I have provided, you may be tempted to just write answers to these questions. Don't. The free-wheeling dialogue that can develop between you and your adviser will produce greater results.
There are numerous areas to cover during your wine-and-cheese planning session. You may choose to break them down into the following categories: production, marketing, personnel, facilities, and money.
WHAT BUSINESS AM I IN?
As I indicated earlier, this may seem ridiculous at first. However, it is not unusual to see some businesses going in several directions and not precisely defining what business activity they choose to emphasize.
PRODUCING THE PRODUCT
1. Do I know precisely what my product costs?
2. Will I need a cost accounting system?
3. What are the advantages of producing my own product?
4. What are the disadvantages?
5. What are the advantages of having others produce my product?
6. What are the disadvantages of having others produce my product?
7. Should I manufacture my product or go outside and have others manufacture my product?
8. Should I manufacture it domestically or abroad?
9. What processes do I eventually want automated?
10. Is my plant layout adequate?
11. If my plant layout is not adequate, how will I improve it?
12. Is my equipment obsolete?
13. If my equipment is obsolete, what new equipment do I expect to buy in the future?
14. Is the labor force in this area fulfilling my needs?
15. Are labor costs reasonable?
16. In what direction do I anticipate my future material costs going?
17. Is there an abundant supply of material available?
18. How can I control future costs?
19. Am I buying properly?
20. What can I do to take advantage of discounts?
21. How can I increase my gross margin?
22. Is the demand for my product strong?
23. How can I improve the production of my product or service in the future?
The questions listed above are only the beginning. The dialogue be-tween you and your adviser is needed to expand the scope of your inquiry. If the process is getting overwhelming, stop. Go out for a walk to relax. If your head is beginning to feel scrambled, that's a good sign. It indicates that you are doing creative thinking.
MARKETING
1. Where will I get future business from?
2. Will I stay local, regional, or become national?
3. Will I advertise?
4. Should I use an ad agency?
5. Should I hire a public relations firm?
6. Should I do media advertising-television, newspaper, radio?
7. How much money should I spend on marketing in the future?
8. Will I need a sales manager?
9. Are my distributors adequate?
10. Should I change distributors or hire additional distributors?
11. Will I need brochures, advertising products, samples?
12. When is the best time for me to do my advertising?
13. What results do I expect from my advertising?
14. Is my showroom adequate?
15. Are my displays adequate?
16. Are my window trimmings adequate?
17. Am I using proper methods for submitting bids?
18. Who is the best person in my organization to be meeting with pro-spective customers?
19. Are my sales personnel trained adequately in the process of sell-ing?
20. Are there trade associations I should join?
PERSONNEL
1. Are my personnel adequate for my future needs?
2. Am I training personnel properly?
3. Am I giving personnel adequate responsibility?
4. What training programs or training facilities will I utilize in the future to assist in the training of personnel?
5. Will I need to expand the number of personnel in the various departments throughout the organization?
6. What criteria will I use for determining who, when, and how to hire or fire?
7. Do I have adequate personnel manuals?
8. Do I have appropriate fringe benefits?
9. Are my salaries competitive?
10. Do I have proper recruiting techniques?
11. Am I following all the laws with regard to personnel?
12. Will I need a personnel director?
13. Will I need a greater level of expertise within our personnel?
14. How will I acquire this?
15. Are my personnel growing as the company is growing?
16. Am I capable of motivating personnel?
17. Do I display appropriate respect for personnel in my dealings with them?
18. Is there an adequate review procedure to keep personnel inÂformed of their progress within the organization?
19. Are the top levels of management able to function when I'm not around?
20. Do I encourage my employees to be creative and innovative?
21. As the leader of the company, am I accessible?
FACILITIES AND ADMINISTRATION
1. Are my facilities adequate for my future needs?
2. If they are not, will I buy or lease?
3. Where will I relocate?
4. When should I be planning for any future changes in location of facilities?
5. Will I need a purchasing agent?
6. Will I need a cost accountant?
7. Will I need a controller?
8. Is my accounting firm adequate?
9. Are my lawyers capable?
10. Is my rent reasonable?
11. How can I reduce my communication costs?
12. How can I reduce my administrative costs?
13. Do I need an office manager?
14. Are my plant and facilities well organized?
15. Am I using appropriate modern equipment?
16. Am I well insured?
17. What financial structure should I be?
MONEY
1. How much money will I need in the future? This question leads to the need for doing a cash flow forecast. (Refer to Chapter) No plan is complete without the answer to this question. Do not attempt to answer this question in your first session.
2. When will I run out of money? All small-and-medium-sized businesses will run short of cash during different times in the business cycle. Preparation in advance for this inevitability is a must. (Refer to Chapter???)
3. Where will I get money to cover future needs?
A. Bankers?
B. Partner?
C. Investor?
D. Go public?
E. My own money?
F. Other financial institutions?
4. What will I need to prepare for a financial presentation to a prospective financier? The answer to this question is simple. You will need the following:
A. A business plan.
B. Reviewed or audited financial statements of the company.
C. Personal financial statements.
D. A forecast covering future earnings and proposed activity.
ONLY THE BEGINNING
All of these questions are only the beginning. This kind of planning and thinking out loud is a must to get your company moving forward.
STEP 4 THE NEXT DAY
When you have completed the session, two things will have occurred. One, you are probably feeling no pain (too much wine), and two, you've actually worked out a business plan. This plan will provide goals and direction for you and your company.
After you have taken two aspirin, start thinking about what you've prepared. Do the questions and answers make sense?
If you conclude that you've set the right direction and the process is meaningful, bring in others from within your company to seek their input and ideas. Not only should you get some valuable ideas from them, but this could be the start of a new method of dialogue between you and your staff leading to the development of a stronger management team.
Begin to rewrite or restate the questions you've discussed.
Define the answers with the input of others and lay out the plan in logical sequence. Develop a tentative time frame for the implementation of each phase.
Once you have satisfied yourself that your plan is complete, give a copy to all the personnel in your organization. This will give those involved with the company a better understanding of where your company is going and a greater sense of participation in the company's future.
THE BUSINESS PLAN FOR RAISING CAPITAL
The wine-and-cheese operational business plan is to be used for setting goals and directions for your company. These goals can be used by management for measuring short-term results and for providing short-term guidance for the decision-making process.
Often, companies need to develop a broader business plan that gives long range goals and ideas to convey the overall philosophy and direction of the company. These plans are used to secure capital through loans, private financing and/or venture capital.
A WELL-PREPARED BUSINESS PLAN
helps management delineate objectives, directions, and strategies.
- helps company officials reach a consensus about the company's future.
gains the confidence of existing and potential investors. - shows major suppliers your ability to pay.
- persuades potential customers to place orders by showing your ability to deliver.
- convinces bankers, investors, and other capital sources that your company has planned for its financial success.
- is prepared or reviewed by outside parties (such as a CPA, management consultant, or attorney).
- shows projected financing and how it will work for the company.
- contains a well-written narrative and a set of financial projections showing the company's projected financial condition, net income, and cash flow.
- is prefaced by a concise summary, which serves as an appetizer for the reader to continue reading.
- provides a tool for later comparison with actual operating results.
- contains all essential disclosures necessary for the reader's decision about your company.
must be adapted for the specific company. - is recognized as a dynamic planning tool, subject to change.
- is well written for the potential investor or creditor who is not familiar with the company's past or future operations.
OUTLINE OF A BUSINESS PLAN
The following outline of a typical business plan is intended only to serve as a skeleton guide. There is no such thing as a typical company; therefore any standard outline must be adapted to your specific needs.
When preparing a business plan, carefully identify and describe the characteristics which make your company different. Highlight those characteristics, and be realistic.
The heart of the business plan is a set of financial projections showing the bank or investor how effective you will be with their money.
THE COMPANY
- This section wets the reader's appetite and should be short and concise.
- Incorporation and location (indicate number of employees, etc.)
- Describe products and current stage of development.
- Summarize activities to date.
- Briefly outline the unrealized potential of the company. Be honest. Be realistic.
- Required financing. Be realistic.
- Use of the financing proceeds. Show where the money will go.
- Return on investment.
- Licensing or other agreements of value.
Your outside accountants can be helpful in the preparation of this section.
- Include a synopsis of the company's operating results to date.
- This section should include a summary of the results of projections of the future operations of the company, if the financing plan being proposed is successful.
Include a short, concise statement listing risks to be considered.
- If the company is just starting operations, then a brief narration of its limited operations should be discussed.
- Transactions entered into by the company and related parties should be disclosed, i.e., sales with shareholders, loans to shareholders, etc.
- Operational losses to date (if appropriate).
- Conflicts of interest.
- Applicable government regulations.
- Restrictions on stock transfers or the ability to trade equity securities.
- Loan covenants.
- Dependence on key individuals.
- Requirements for additional financing.
- Potential dilution of interest, because original promoters invested at lower per share amounts.
- Other uncertainties and risks.
- Competition in the field.
USE OF PROCEEDS
If the business plan is to be used to acquire capital (e.g., sales of stock or bank loans), show a schedule of major areas of proceeds uses, followed by a brief textual discussion of each major use. For example, list uses for:
- Marketing
- Website development
- Research and development
- Working capital (breakdown by accounts receivable, inventory, etc.)
- Advertising and promotion
- Equipment and facilities
- Retirement of debt
- Expansion of operations
- Other important uses
PRODUCTS OR SERVICES
- Describe in detail products manufactured or sold to date by the company.
- Show the historical expansion of product lines and other key operational activities.
- Summarize your intended expansion of product lines.
- List any license agreement related to products.
MARKETING
Describe your marketing plans. Your marketing consultants may be able to assist in the writing of this section.
- Outline your company's economic base. Who do you serve and want to serve (by age, sex, industry, etc.)?
- Describe the image of your products and service in the eyes of users.
- Summarize marketing and promotion strategy to date.
- Show how marketing has been performed to date (in-house, dealers, distributors, etc.).
- Discuss briefly the market trends and other market data used in marketing decisions.
- Note any intended changes in marketing and promotion strategy.
- Show anticipated benefits of changes in marketing and promotion strategy.
- Name competitors (on a national, regional or local basis) and the advantages or disadvantages you enjoy, and will enjoy, after carrying out marketing plans.
- Show reaction of customers.
- List the officers and directors of the company.
- Describe their backgrounds, highlighting their experience in related fields.
- Historical operations
Note: Although projections may be the last item in the package, they are the heart of the plan. They should be highlighted and referred to frequently in the text of the business plan.