10/ 17/ 2007
by Pamela Mills-Senn
As we approach the end of the year and the fresh start of a new one, there's no better time for small-business owners to revisit and refresh their business plans. But wait—you may not even have a plan. According to Charlene Andersen, owner of Kamigo Marketing in Nottingham, N.H., most small business-owners know they should have one, but even so, many start their companies without one.
"Or if they do have one, it's often poorly developed," says Andersen, whose firm handles marketing for small "green" businesses.
"For example, they'll just take a book and put one together from that," she continues. "These books are a good guide, but they typically don't go into enough detail. Also, every business is different, and these books are rather general since they're designed for the mass market."
One reason small-business owners avoid putting a plan together is that the entire prospect seems overwhelming, Andersen says. And then there's the issue of time, says Alan Bayham, president of Bayham Consulting, LLC, a business consulting and coaching firm based in Madisonville, La.
"Many owners or managers tell me they do not have the time to develop a business plan because they are too busy doing ‘real work,' " Bayham says. "I find these are the same people who react to situations instead of being proactive and developing long-term and short-term goals and objectives."
Or, he continues, they may be laboring under the mistaken idea that if they're not seeking out a business loan or trying to attract venture capital, a plan is unnecessary. While it's true that business plans are certainly essential when trying to land funding, they should be looked at as a long-term map to guide your business and take it where you want it to go.
There are other errors small-business owners, especially new entrepreneurs, commit when it comes to business plans, says Lisa Gold, president of Long Beach, Calif.-based Gold Consulting. Gold, whose consulting company specializes in small-business startups, says painting too rosy of a financial picture is one of them.
Take, for example, showing a profit in the first year of operations, she says. "Unless you have letters of intent that can reasonably lead to closed sales for a product, it may not be reasonable to expect to turn a profit in the first year."
Gone are the heady dot.com days when brash young businesspeople could scribble out a plan on the back of a napkin, Gold says. In today's competitive environment, where investors have gotten far more skeptical about which companies they're going to fund, a well-crafted and thorough business plan is more essential than ever. It could spell the difference between an idea that gets attention (and capital) and one that dies from indifference; or a company that continues its growth or stagnates into oblivion.
While every plan will differ somewhat depending upon the kind of business it's written for, there are some general commonalities. According to Bayham and Gold, business plans should contain the following:
- An executive summary. As it implies, this summarizes what is contained in the plan, such as the company's mission, objectives and the key elements, Bayham says. The summary allows investors to learn about the company without having to wade through the entire business plan, Gold says.
- The financials.
- The company's products and/or services.
- The company summary. This section addresses the legal composition of the company (LLC, nonprofit, corporation, etc), Bayham says.
- A description of the management team.
- The target market and competition.
- The company's marketing strategy and how it plans to implement this strategy.
- The company's strategy and plan of execution.
How far ahead should business plans look? Andersen recommends no more than three years because circumstances can change so much. She also says business plans should include contingency plans, especially in the case of a sole owner. Investors will want to know how the company will continue operations should something happens to the founder, Andersen explains.
The content of business plans hasn't changed radically over the years, although Andersen notices that companies are thinking more deeply about their mission and why they're in business. However, the scope of the plans has changed, increasing "exponentially," Bayham says.
"The Internet has not only broadened the ways that sales and marketing materials can be distributed, but has also allowed mom-and-pop businesses to compete internationally. [Consequently] the geographic area they identify and their market and the marketing media and techniques they use have broadened as well," he explains.
Along with using consultants to assist in developing the plan—something that, not surprisingly, these experts advise doing—there are others who should be involved in the effort, such as key employees and lenders, Bayham says. He also suggests using SCORE volunteers. (This nonprofit organization partners with the U.S. Small Business Association and bills itself as "Counselors to America's Small Business." Find it online at www.score.org)
Once written, a business plan should undergo regular review, at least quarterly, but some experts like Bayham prefer monthly. This will allow for closer monitoring of actual-to-projected performance, goals, etc. Plans should certainly be reviewed if the business is experiencing any changes, such as the addition of products or services, new competition, unexpected downturns, or when seeking additional funding. This is particularly important in the latter case, Gold says.
"It's a turnoff to hand a plan to an investor and apologize that it doesn't reflect the current realities," she explains.
What is essential is to keep the plan an active participant in your company, Bayham says.
"I like to recommend that small-business owners use the tasks and the calendar in Microsoft Outlook to set deadlines for specific activities and objectives," he says. "Additionally, the recurring features of these tools allows for setting the frequency of monitoring the various goals, objectives and activities of the business plan. There are very powerful tools within Outlook that don't require proprietary software."
