When I am asked why a small business needs a Business Plan, my answer is simple.
“Don’t you want to grow your business?”
It is that plain and simple.
While a Marketing Plan may grow your sales, a Business Plan directs the growth of your business your way. And it does this year by year.
But first, what do I mean by “the growth of your business your way”?
When you started your business, even if you didn’t think of this in any formal way and even if you still, today, don’t have a “Business Vision”, nevertheless, I bet you had a dream or an idea of what you wanted your successful business to be like.
When you started to think about starting your own business, you felt frustrated about something. It may have been a frustration with your former employers and how they did things – thinking, “if I had my own business, I sure wouldn’t do it that way, I’d do it like this…”
Or you were frustrated that a product or service you were looking for just didn’t provide all the answers to your problem and you thought “you know, if I had my own business I’d make sure that I provided…”
So, you probably then started thinking about the new way you would do business and how this would attract more customers who were as frustrated as you were. You thought about what it would take to produce this product or service, and how you could put it together. Somewhere along that journey you imagined a “perfect” way to do business.
This is the Vision that you may not even have articulated, and it is this picture of your dream or successful business that I mean when I say “your way”.
Even if you were successful in business, but not doing it in the way you dreamt of when you started thinking about it, you would not feel satisfied or fulfilled. That’s the “not-quite-there” feeling you get when you do something, as successful as it may be, without fulfilling your dream.
So, it is important for your emotional investment in your business and its success, to grow it in the way you want it to grow and not just any other way.
A Business Plan does that for you because you start with describing that Vision and then defining it in terms of measurable indicators of success.
Now, before I show you how it can grow your business, year by year, into that dream, let me first explain what a Business Plan actually is, and how it can direct the growth of your business.
A Business Plan is not a woolly set of quotable motivational sentences. A Business Plan is not a set of T-Do lists.
A Business Plan sets out exactly what you need to do to get to your Vision.
Now, if you want to take advantage of my offer of a FREE four-part video training on how to prepare your own Business Plan yourself without a huge time investment, read on!
Understand that a Business Plan is a document that you can refer to regularly, that sets out a series of measurable goals for a year, and a strategy to achieve those goals. The way it is prepared starts from knowing your long-term end-result; then what outcome you really want for your efforts during that year. This means that the Business Plan is clear about your direction to your ultimate Vision, setting a path forward for your business without unnecessary diversion into “interesting” ideas and other “possible” projects.
The process of preparing your Business Plan means that in setting these goals and strategies, you are actually travelling part of the way on a single strategic direction of growing your business toward your Vision. Preparing your Business Plan allows you to consider what you want at the end of the day, how far you can go to get there in a year, and trying out and then discarding any other alternative strategies. This means you do not waste time during the year having to make decisions about any other ideas.
To do this, the process of Business Planning follows a logical way of thinking.
First, you decide on your ultimate result – your long-term Vision of what your successful business is going to be like.
Then you look to understand where you are now, warts and all, to see what capacity and capability you have currently to get to that picture of success.
Steps one and two allow you to identify gaps between your current capacity and your future successful performance. So step three is to think about alternative long-term strategies to build the capacity and close the gaps, and then to choose the most appropriate strategy for you.
As you design your strategies, they will force you to think about long-term, medium-term, and short-term goals, and therefore give you an idea of what you can achieve in shorter periods of time, say a year, and these become the milestones in the longer-term strategies. If you can work your way in a year to those milestones, then you know that you are working your way, overall, to those ultimate long term goals.
Finally, you look at the one-year milestone goals and list all the detailed steps you need to take in the year to achieve those milestone goals.
As you implement your Business Plan, you can be confident that in achieving these short-term goals, you are working toward and not deviating from your long-term Vision. of what your ultimate successful business should look like.
This is how you can grow your business, your way, year by year.
To look at the year by year process more closely, let’s take the example of a new startup office fit-out business.
I will use this example to show you how:-
- A small business owner established his long-term objectives
- Having done that, how he was able to prepare a Business Plan for the year ahead
- Then how the setting up of his long-term objectives allowed him to pick up the thread every year and follow his long-term strategic direction year-by-year.
At the end of the example I will offer you a FREE four-part video training on how you can write your Business Plan yourself, so read on!
In this example, we’ll call the owner Jim who is an experienced builder working for many years for big construction companies doing office fit-outs. He always thought that his employers should have design-and-construct capabilities so that they could offer their clients a one-stop-shop but they were not interested, being comfortable in the construction industry just offering a construction service, supporting architectural firms. However, working with clients directly he heard their frustrations about having to have duplicate meetings with both the architects and the builders and heard their complaints about architectural firms being too “theoretical” and wished for a simple drafting service to work with.
Jim’s “idea” was to start a design-and-construct company that employed a few talented designers who could draft construction plans and provide a flair for interior design. Jim would use a few smaller (and thus more flexible) construction companies to do the construction work. Using his contacts in the furnishing carpentry companies he would also offer the supply of office furnishing, specially built or off-the-shelf retail. He would supervise the work as well as act as the salesman because of his contacts with building owners and leasing companies.
In his “dream business” they would target the high-end clients in his city’s business CBD district, as well as large listed companies all over his city location – his business would be recognised as the premier office interior design-and-construct company in his city.
On starting his business, Jim prepared his Business Plan.
He first decided to formalise his “Vision”.
He did this by looking at his dream and his ideas about what he wanted in a successful business and why he wanted it.
His “Purpose” in having this business was to ultimately build an asset base for his family and allow them to retire in financial comfort. However, his Purpose in building the company the way he dreamt of, was to offer clients an all-in-one service where they only had to speak with him from the briefing phase to the designing, to the construction and implementation. He wanted to make sure that his business interpreted their needs practically rather than just built things according to plans.
This helped him write his Vision as “We are a small and flexible high-value office interior design company that offers all the services from designing to construction and furnishing. We work for premier clients that reflect our value. We give them efficiency and a practical interpretation of their needs and desires throughout the whole project.”
He decided that the critical success factors for his business to get to this Vision were:-
- A reliable and talented design team
- A network of flexible and reactive builders
- A network of carpenters and office furniture suppliers
- An efficient and timely project management system
- His networking skills
Jim then looked at his current position.
First, he decided to look at where his current capabilities were regarding his critical success factors.
- He knew a good designer but felt that he needed another, or at least build up to a bigger team so that he was able to grow and did not rely on only one person
- His network of builders was suitable for his plans for growth
- While he knew a lot of carpenters, they were often busy; and he did not have a big list of office furniture suppliers
- His previous employers had a good project management system, but this was expensive
- His networking would stand him in good stead for marketing for the first few years, but if he wanted to expand he needed someone else who knew the players in the industry
Overall, he decided that he had the following strengths:
- He had savings that he could use as capital and he could borrow on his house for more
- He has been in the industry for a long time and people liked dealing with him
- He was hard-working and willing to devote a lot of his time to build the business
- He knew a lot of leasing agents who had the leasing work for large CBD properties with premier tenants, could give him good leads
He decided he had the following weaknesses:
- He did not have a good administrative background
- He needed premises to also act as a showroom
- He was concerned his employers might attack him for “stealing” their clients
- He believed the economic boom (at that time) meant that tenants were changing and upgrading their office premises, giving him a great opportunity to launch.
He then identified the following gaps between what he wanted and where he was:-
- He needed more designers
- He had to find more available carpenters
- He had to find more high-end office furniture suppliers
- He needed an affordable project management system
- He would eventually need a dedicated salesperson
- He needed a good bookkeeper/administration assistant
- He needed to eventually find large enough premises for his team and to act as a showroom
- He needed legal advice on his situation with his previous employers
- He had to take advantage of the economic boom and really market to his leasing agent contacts
Taking each gap, he formulated short-term, medium-term and long-term strategies:
- He had to build up to employ up to 4 other designers in the next 6 years (long-term)
- Over the next 3 years, find 5 more carpenters who could do the work (medium-term)
- In the next 6 months, identify and negotiate with 3 more suppliers of high-end office furniture (short-term)
- Immediately find an affordable web-based project management system, but aim to purchase the expensive but known system within 4 years (medium-term)
- In 6 years advertise for an industry experienced salespeople (long-term)
- Hire a bookkeeper/personal assistant who could keep the books and look after the administration
- Rent a small office now as well as borrow floor space from a builder friend to act as a showroom, eventually, look for larger premises after 6 years (long-term)
- He should get legal advice about the situation with his former employers now (short-term)
He worked out what his first-year milestones should be in his medium and long-term strategies so that his short-term one-year goals were, and in addition, he added some financial targets for the first year.
The goals for his first annual Business Plan were:-
- To employ 1 more designer
- To find 2 more self-employed carpenters to add to his list
- To add 3 high-end office furniture suppliers to his supplier list
- To implement an affordable project management system capable of being converted to the expensive system later
- To hire a bookkeeper/personal assistant
- To negotiate with the friend to use their premises as a showroom
- To find a small office to rent in the CBD
- To get legal advice on a possible lawsuit from ex-employers
- To bill $450,000 in sales in the first year, pay himself a $100,000 salary, and achieve a net profit of 20% of sales
He knew that if he achieved those one-year goals, he was on the way to build the business described in his Vision.
However, having looked at his long-term Vision and his strategies to bridge the gaps he found during planning, he was also confident that he knew what to do year after year.
He knew that, on top of any new goals that might be required in the next few years that arose because of changing circumstances, he already had the following goals, which were the milestones of his medium and long-term strategies:-
In Year 2:
- To find another 2 self-employed carpenters to join the list
- To grow sales to $600,000, pay himself $110,000, and achieve a net profit of 20% of sales
In Year 3:
- To employ a third designer
- To find another self-employed carpenter to join the list
- To grow sales to $800,000, pay himself $125,000 and achieve a net profit of 20% of sales
In Year 4:
- To purchase the expensive project management system and convert current files
- To move to larger premises with a showroom attached
- To grow sales to $1 million, pay himself $150,000 and achieve a net profit of 20% of sales
In Year 5:
- To employ a fourth designer
- To grow sales to $1.1 million, pay himself $150,000 and achieve a net profit of 20% of sales
In Year 6 (subject to review):
- To employ the fifth designer
- To hire a dedicated industry experienced salesperson
- To grow sales to $1.4 million, pay himself $165,000 and achieve a net profit of 20% of sales
He knew that it was sensible in Year 5 to review his overall long-term strategies and start the cycle of planning again.
In this way, having first established his long-term Vision and the gap between where he was now and that Vision, he was able to identify long-term strategies and then break them down into annual milestones which acted as annual goals. From then on, every year he could pick up the thread of where he was in his strategic journey to his long-term Vision and work out his annual Business Plan on a year-by-year basis.
If circumstances changed, he may change the timing of some of his goals, but basically, they would remain the same goals if he wanted to get to his ultimate Vision over time, just the timing would change to meet certain circumstances.
This meant that year by year he was growing his business in the direction and the way that he wanted to from the very beginning. In turn, this meant that each year, he did not have to consider what to do next – he had set up his targets in advance, along the road to his ultimate Vision.
And in turn, this meant that as other potential projects and opportunities came up in the future, he could always measure those ideas against his long-term strategies. Were they new ideas that could get him to his Vision faster? Or were they merely distractions that could be ignored?
He had set up his business to grow in the way he wanted.
This example shows that a small business does need a Business Plan so that the business can grow in a predictable and deliberate way, toward the successful business that the owner started up to achieve. The Business Plan is a combination of long-term thinking and shorter-term action-planning.
Without a Business Plan, our office design company owner would simply be moving from one “good” idea to another without any consideration of how it would all end up. Such an approach could take him much longer to get to his Vision because it would meander without purpose or strategic direction.
This is why when I am asked if a small business really needs a Business Plan, I answer “Don’t you want to grow your business?”
Yes, you do need a Business Plan.
Learn more about Business Planning by signing up for my FREE video training on how to write your own Business Plan. Don’t let the opportunity to get organised now slip by!
See you next week!