A good friend of mine called to tell me his daughter, aged 18, had just bought a dog grooming business. Hearing anyone’s story about their business always excites me. I asked him to pass on my congratulations and should she need any assistance, to let me know. Driving myself, I started to go through some ideas of what she may need. After a few minutes I stopped, pulling myself back to the golden rule of any new business- does she have a business plan?
There are many businesses that have set up and done great without needing a business plan. But we all know that the 80/20 Rule applies to business, where 80% of new businesses fail. We don’t set out to fail, but it happens for any number of reasons. So what is a business plan? A business plan in its most simplest form is a road map for your business.
How A Business Plan Is Like A Road Map
1. Written document– Planning a road trip involves working out a number of variables. The best way to plan and to record all these decisions is to write them down. A business plan is exactly that, a document outlining your goals, strategy and actions to deliver the outcome you want. I discussed the importance of working on your business in “Work On Your Business, Not Just In It!”. This goes triple for a start up business and should be done before anything else. Invest in research and writing your business plan to prove to you and potential investors/financiers that your idea for a business has commercial reality and you have a plan.
2. Destination– When we start a journey we always start planning with an end destination in mind. We should do the same thing for a business plan. This is our ‘Exit Strategy’. Look at what you want to achieve with your business and what you want to do when you get there. Do you want to sell your business after 5 years or after achieving turnover of $5m? Do you want to pass the business onto your family or sell out to existing partners? What if there is the unforeseen death of one owner and their share of the business is then owned by their spouse? Starting with this in mind can help plan for the day it happens. I just recently had a client being several partners who, as part of their business plan, are speaking with their solicitor about buyout agreements.
3. Fuel stops– At some point in time your business is going to need financial input to keep the business going. This could be as a personal contribution, loan borrowings from family and friends or third parties as a bank, share investment, or sale of assets etc. Knowing how much and when you need before starting out will ensure you can prepare and be ready for when you need to go looking.
4. Route to Destination– When we set out on a trip we have a planned way of getting there. But like all great plans, they are susceptible to changes and variations, such as roadworks and road closures etc. So we have to find an alternate route to get there. A Business Plan is no different. We may start out with an idea of how we are going to reach our destination but events occur that change our strategy and action. For this reason a business plan is something we must review periodically and reassess with changes in our circumstances. These could be our personal or economic changes. For this reason, a Business Plan is known as a living document. It is always open to change and variation and should always be reviewed and assessed periodically.
5. Resources– So an important resource for a road trip is a licensed driver and a car. What about clothes, fuel, a service before leaving, organising passengers who also help with the driving etc? A business will also need resources at start up and along the way. For example, a business structure, a business name, insurances, an advisor to assist with planning such as a consultant, accountant or solicitor, website, bookkeeper etc. All of these things need to be planned for and considered. As a result you may realise you cannot run the business on your own. You may need a business partner to do some of these things where you have neither the time, money, skill or expertise to do yourself.
6. Decide To Proceed– Finally, while you have the great idea to go on a trip, when you start to plan what is involved you may realise it is not realistic to do. We would all love that around the world year long trip but can we afford it both with our time and money? A business is the same. You may have a great idea but realise that it isn’t going to happen for any number of reasons. But you have worked this out in preparing your business plan and doing your research. You have lost some time and money but not nearly as much as you could have if you went ahead with it. Alternatively you may realise that the business has greater potential then originally thought and you can sell your idea with a business plan to investors to raise capital.
So a business plan should always be written down. We should always start with our exit strategy from the business. We need to work out how much money is needed now and later and what resources we need to make the business work. Finally, we then decide if we should proceed to start the business. Do you have an idea for a business you want to start? A business plan is a worth while investment isn’t it?
~ Damien Foley
Below is a link from the episode “South Park- Underpants Gnomes”. It brings to light some misunderstood ideas about business and the importance of a business plan.