There is no such thing as a ‘final’ business plan…

Posted: December 26, 2011 by Chuck Matthews in Planning, Startup

“It is a bad plan that admits of no modifications.”   – Publilius Syrus (~100 B.C.)

In this fifth of five columns on the value of strategic planning, four additional questions are posed.  These 20 questions comprise a robust outline for a baseline business plan.  While it will enable your business to survive and thrive, make no mistake, there is no such thing as a ‘final’ business plan.  As the quote above from Publilius Syrus’ Maxims suggests, the most fundamental thing about planning is its on-going nature.

Today, the focus is on four core business needs. Managing: Do you have the management team in place to achieve your immediate, intermediate, and long-term goals?  Financing: How do you plan to finance your venture?  Marketing: How do you plan to promote your business? and Having a Back-up Plan: What are your contingency plans?

Managing is a team sport…

While the individual entrepreneur is rightly celebrated as the creative force, innovator, leader, and communicator of the core business idea, they are generally the first to credit their success to their team.  Having the right management team in place is critical on two fronts: the need for multiple levels of expertise and to fuel funding and growth.  When a new venture is just getting off the ground, one person, usually the founder, will wear many hats simultaneously.  It saves expenses and while relatively small, one person can usually get his or her arms around multiple tasks fairly easily.  On the other hand, if a new venture is founded on the need for specific or challenging technology or experiences the need for product and/or service development and more rapid growth, it will quickly exceed one person’s capacity.

Having a plan to put the right team in place in order to reach important milestones and benchmarks is critical to attracting funding.  For example, the founding team may or may not be the right team to take a new venture to the next level.  Investors look at the idea and the management team as part of their investment decision making process.  The late great management guru, Peter Drucker, captured this nicely in his famous quote, “Plans are only good intentions unless they immediately degenerate into hard work.”  It is the management team that ultimately executes the plan.  While you want an “A” plan and an “A” team, the business landscape is littered with great ideas that went nowhere because of a lack of a team.  Most investors will be betting on the team.

Financing…

Which raises the question, “How are you going to finance the venture?”  We will explore the intricacies of new venture financing in more detail in subsequent columns, but for the purposes of our baseline business plan, there are two types of new venture funding: debt and equity. It is essential to match the type and term of your financing needs to the most appropriate source and timing of capital.

Basically there are only two ways to raise the needed capital to launch a new venture: debt, borrowing funds at an agreed upon rate of return to the lender; and equity, giving up a percentage of ownership in your venture in exchange for funding.  New venture financing sources exist on a continuum from friends, family, and founders (funding 90 percent of all new start-ups) at one end; and angel and venture capital investors (funding less than one percent of all new start-ups) at the other end.

Entrepreneurs are generally not in a strong initial financial position due to high start-up costs, slow cash flow, and limited sources of capital.  The “burn rate” or expenses associated with developing your venture, such as a new technology or technology application, storefront or office remodeling, utilities, salaries, supplies, taxes, and more can overwhelm a new start-up quickly as revenue or income comes in more slowly than expenses go out.  On one hand, success is very simple: derive more revenue from the sale of your goods and/or services than the cost of producing those goods and/or services.  The problem is that initial burn rate means that there will be a need to borrow from friends, family, founders, banks, insurance policies, etc. and/or seek an equity investment from a qualified source.  Two things to keep in mind: 1) Match the term of the funding need with the term of the financing, short-term needs with short-term financing and vice versa. 2) Cash is king.  It sounds simple, but cash early is better than cash late.  Even a profitable business can go bankrupt if cash flow is jeopardized.  The day you don’t pay your most pressing creditor is the day your business fails.

Promote your business…

With a management team and financing plan in place, attracting customers to your venture is essential.  In addition to more traditional methods of promotion, including writing press releases, printing flyers, buying print, radio, or TV ad time, today the power of electronic media, such as planning and developing a web presence, Twitter, Facebook, and blogging are equally important.  It is a brave new world when it comes to promoting businesses and a business plan is more important than ever in this regard. For example, optimizing search engine listings, cross promotion, and cross selling are only three of the considerations a new venture needs to explore.

Always have a plan “B”…

While it would be great to say that answering these 19 questions will yield a bullet proof business plan, such is not the case.  Every good plan includes scenario analysis or “what-if” planning and contingency plans if things don’t go according to plan “A.”  Scenario analysis is greatly facilitated by spread sheets, where the impact of various “scenarios” or varying revenue and expense assumptions can yield valuable information to take timely and corrective action.  While it is human nature to want to commit to a primary course of action, having options is generally a good thing.  For example, what is the best course of action if a source of supply does not develop or fails to deliver?  Better to have an idea of alternative courses of action ahead of time than trying to improvise on the spot.

More to come…

Armed with your baseline business plan, you have increased your chances of success.  There is more to come, but every great (ad) venture begins with the first step on your entrepreneurial journey. You can find these planning questions and more on our web site at http://www.cincyentre.com/.  Till next time, Happy Holidays and all the best for continued entrepreneurial success!

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