Media Share 9/MEDIASHARE_09.ISO/business/mrkting.zip/WHYPLAN.TXT

Text File | 1993-01-21 | 15KB | 304 lines

Why You Need A Business Plan, Why You Resist Creating One

by Dr. Jeffrey Lant

Business plans are a lot like condoms. Everyone knows they're useful.
Fewer people actually use them. To remedy this situation, I sought out
Andy Bangs, author of one of America's premier business planning guides.
Over 150,000 small businesses are now using his planning methods.
Essentially I wanted to know two things: why someone in business ought
to plan and why most business people don't. The ebullient Bangs was
ready for me.

Why Bother To Plan?

Your business plan is primarily an operating tool. You use it to write
your company's objectives, assess whether these objectives are realistic or
not, and check your progress in reaching these objectives.

There's nothing mysterious about a business plan. Indeed, it may be the
most lucid and succinct document you ever write.

A business plan is straightforward and direct. It's composed of just two
major sections: information about the business you're in and financial data.

The Business Section

This section of your business plan helps first you and then others interested
in your business understand what you're trying to do and who else is doing
it.
It provides a snapshot of your activities and gives information about others
who are operating competiting kinds of businesses.

Thus, step one is to provide a description of your business. What is it that
you actually do? Seemingly a snap, this simple question perplexes a very
large
percentage of business owners. Not surprisingly, if you don't know what you
do,
how can you expect any one else to?

Go on to discuss the market for what you're doing. Who do you think is going
to buy what you're selling? How many of these people are there in the area
you're servicing? What is their need? How great is it?

When you've done that, complete the section on your competition. A lot of lip
service is given to understanding your competition. The sad fact is, however,
most people have only the most nodding acquaintance with what others in
their
industry are actually doing. However, Bangs rightly says that you've got to
know
these people as well as you do yourself. If you don't, you're at their mercy.

Then add details about the location of your business. How will this help you
reach your buyers? Why it is helpful, and (be honest!) what are its
drawbacks?
Where your business is located generally has an influence on the kinds of
products and services you can offer. The business plan forces you to think
about how your location impacts on what you're doing and your ability to
reach your customers.

The People Part Of Your Business Plan

This section of the business plan provides information on two groups of
people: management and personnel. Even if you're running a one-person
operation,
it's a good idea to consider each separately, despite the fact that in this
situation you're both! The reason is that even the smallest business needs
management and even the smallest business needs personnel. Each function
requires different skills.

Writing a business plan forces you to think about the management skills you
have and the management skills you need. It also forces you to consider the
kinds of personnel skills you and your business require.

The Effect Of Any Loan Or Investment You're Seeking

Most people think of business plans solely in relation to raising financing.
This is, of course, a quite erroneous deduction. Whether you're seeking
additional
capital or not, you need a business plan. If you are seeking such capital,
however, you need a section of your business plan to discuss what you will
do with the money you are seeking and what effect this money will have.
When you've written this section, you're half way through the topics you
need to cover in your business plan.

Total pages devoted to the subjects above? No more than 12 or 13 typed,
double-spaced pages. If you know what you're talking about, you can say it
concisely. If you don't, you can't.

The Financial Data You Need To Include In Your Business Plan

Despite the fact that there are more pages in the previous section than in
this one, for most people number crunching is the hard part. Start with
the easiest category: a listing of your capital equipment. Write down the
equipment you've got and its current value.

Then draw up a balance sheet as of today's date. This balance sheet should
list your current assets (including fixed assets) and your current and
long-term liabilities. The result is your net worth. (B. When you need
more detail, use Robert J. Wiley's more thorough techniques. They're
found in HOW TO EVAL'ATE YO'R NET WORTH: MAKING FINANCIAL
STATEMENTS WORK FOR YO'. See the Resource Box for further details.)

Now calculate your break-even analysis. Simply put, a break-even analysis
provides you with a sales objective which is expressed in either the number
of dollars or units of production at which your businness will be breaking
even. As Bangs rightly points out, RIf you know your break-even point,
you have a definite target that you can plan to reach by carefully reasoned
steps.S Most business people haven't the foggiest idea of how many units of
product or hours of service they need to sell before they begin to make
money. Do you?

The Other Financial Information You Need In Your Business Plan

There are four other kinds of financial information you need for your plan.

The first of these is a pro-forma income statement. This is also called a
Profit and Loss Statement. This statement simply documents what income
you
have made during a certain period of time. Often these statements are done
on a quarterly basis, usually for the period immediately passed. At the end
of any given year, such a statement is supported by a copy of your
company's
most recent tax returns.

Then there's the Pro-Forma Cash Flow statement. This shows how much cash
you'll need; when it will be needed; and where it will come from.

Finally, your financial statement will conclude with a list of all the sources
of income for your business and how these funds will be spent.

The financial data needed in your business plan should take up no more than
7 or 8 pages; the total length of your plan will be about 20 typed pages.

These twenty pages are among the most important you will ever write in
connection with your business. Instantly, aspirations are exposed as either
fatuous or realistic. Indeed, just the way in which you compile and present
this information can tell an experienced reviewer whether you know what
you're doing. Tight, concise business plans backed up by a track record
supported by hard financial data are irresistible. Take my word for it.
The last time I needed to borrow money for my business from my very
conservative, old-line bank, they took a look at my plan and supporting
financial data and gave me my loan without a nickle's worth of collateral.
Yes, plans are important.

So, Why Don't More Businesses Have Them?

Over the course of over 20 years helping primarily small business people
get their enterprises off and running, Andy Bangs has been keeping an
Excuse Register, the reasons people give him and themselves for not
bothering to write a buisiness plan. Here are some of the best of these
unfortunate reasons.

I don't need one

People in this category say things like, RMy business is unique; or I
haven't got any competition, or In my business you can't plan ahead.
You have to take things a day at a time.S Bangs and I agree: these excuses
are entirely erroneous and often downright stupid.

Planning is more important in a small business than a large one. Citicorp
will survive writing off billions of dollars from their fantastic miscalculation
of loaning money to Brazil. But most small businesses are severely shaken by
the loss of even $10,000.

Plans not only prevent mistakes. They prevent small business people from
doing what most avoid only with difficulty, namely projecting success based
on
nothing stronger than their wish for it.

Sure, I've got a plan. It's in my head!

How many times have you heard this! I hear it daily. A bunch of ideas
hastily written on the backs of envelopes does not a plan make. You need
to know precisely what you're doing, precisely how you expect to finance
what you're doing, precisely who you're selling to and precisely who else
is selling to these same people.

You cannot keep this information in your head. It's impossible. To say you've
got it stored in the cranium is merely to say you have no business plan at
all. Stop deceiving yourself.

I'm so busy running my business, I don't have time to plan.

This is another stunner! RPutting out fires,S says Bangs adamantly, is
It's the leading reason small business owners never have enough time to get
the really important things done and often is a sign that bankrupcy has
become a distinct possibility for your enterprise.

Planning gives you the surest handle on your business you're ever going to
have. It tells you where you've been and whether what you did worked.
It suggests where you should be going and lets you know whether you have
the resources to get there. Nobody would ever take a trip into the middle
of the Sahara without giving travel gear and preparation some thought,
but millions of people think nothing of launching a business that is supposed
to provide them with current income and meet the expectations of a lifetime
with only the barest thought of what to do. Astonishing, isn't it?

I'm bad with numbers.

I love this one! I'll tell you something. Back in school, I was bad with
numbers, too. They bored me. But the trouble was, those numbers didn't
have any bearing on my life. Now that they do, I'm a whiz! And you will
be, too. Moreover, as Bangs rightly points out, the hard part of the business
plan is not the numbers but the directional thinking, the where am I going?
part. Once you've got that straight, other peopleQlike accountants and
bookkeepers can help with the numbers.

I'm not ready yet.

Plans start from day one of any business. No matter how small your
enterprise
is, it will be stronger with a plan. Yet many people are afraid to write their
plan now. They fear that because they are small they will either a) be
laughed
at or b) they'll disappoint themselves. Too, they worry that things will
change
and that what they write today will change tomorrow. Well, I've got news
for
them.

Most businesses start off small. The ones who didn't want to stay that way
planned. Furthermore, only a clod (but please note they do exist) will
snicker at a small enterprise. There will be would-be employees and
bankers who will scoff because you aren't General Motors after ninety
days. The world isn't fair. But you have feet, don't you? So, walk away
from them. As for change, of course your business plan will need to be
updated. Today's projection becomes tomorrow's reality. Then, in an instant,
it's history. You can plan on it! The fact that what you write today will
be outmoded tomorrow as a plan is no excuse, none whatsoever, for not
writing it in the first place.

Let the accountant write the plan.

Americans, formerly the great do it yourself nation, now have a love
affair with Rlet somebody else do it.S But that simply won't work with a
business plan. The primary purpose of your plan is not to raise finance
capital. Not at all. It's to force you to think through where you are going,
how you're going to get there, and what competition is nipping at your heels
along the way. No accountant can tell you this and write the plan.

Your accountant is the servant of your business. He can tell you the best
alternatives to use once you tell him where you're going. But, not being the
master of events, he must not be allowed to determine your business
strategy.
You cannot delegate the business planning function to an accountant. But,
once
you've determined on the direction to take, you can use him to supply
crucial
tactical information on how to succeed in reaching your objective.

Bangs has logged other excuses, too: I'll do it tomorrow; I know what I'm
doing, so why bother to plan?; and Why write a plan? I'm not going to be
borrowing any money. When he hears them he knows that here is yet
another
self-deluded business owner. The result of these excuses is business
uncertainty,
slow growth, lack of direction and, all too frequently, bankrupcy and the
despair
that inevitably accompanies it.

Remember: four out of five businesses still fail within the first three to four
years of operation. Most of these failures could have been predicted, and
many
avoided, had their owners bothered to take the three or four days that it
takes to write a realistic business plan and make realistic projections based
on their findings.

If you're not anxious to swell these grim statistics, create the necessary
written plan that'll help you avoid such an unhappy result.

____________________________________________________________________
__________
Resource Box

Andy Bangs' 122-page B'SINESS PLANNING G'IDE is concise and easy-to-
read.
It tells you what to do and offers examples of how to do it. If you haven't
got a written business plan, you need this key resource. Soft cover. $19.45
postpaid.

For more information on determining your net work, use HOW TO EVAL'ATE
YO'R NET WORTH: MAKING FINANCIAL STATEMENTS WORK FOR YO' by
Robert
J. Wiley. 248 pages. Hard cover. $22.45 postpaid.

Get both from The Sure-Fire Business Success Catalog, 50 Follen St.,
Suite 507, Cambridge, MA 02138. Or call [phone] with your
MasterCard or Visa.  Don't forget to ask for your free copy of this
unique business-solutions catalog!

===============================================================
Dr. Jeffrey Lant is author of many books, including his newest, MONEY
MAKING
MARKETING: FINDING THE PEOPLE WHO NEED WHAT YO''RE SELLING AND
MAKING
S'RE THEY B'Y IT and TRICKS OF THE TRADE: THE COMPLETE G'IDE TO
S'CCEEDING IN THE ADVICE B'SINESS. Each is $32.50 postpaid from The
Sure-Fire Business Success Catalog, 50 Follen St., #507, Cambridge, MA
02138.
Ask about his new copywriting service for more persuasive marketing
materials.