March 2023 - Page 8 of 13 - BOLLYWOOD SURKHIYAN

The Three Levels of Planning

There are three levels of strategic planning: Corporate, business, and functional. Strategy may be planned at each level, but the plans for every level of an organization should align to insure maximum unity of effort. Without alignment, departments and functions will be working at cross-purposes, and the overall corporate strategy will be less effective. Here is how strategist view each of the three levels of strategic planning:

Corporate level: Planning at this level should provide overall strategic direction for an organization, sometimes referred to as the “grand strategy.” This is a concise statement of the general direction which senior leadership intends to undertake to accomplish their stated mission or vision. Corporate level strategy is usually decided by the CEO and the Board of Directors although other senior leaders will often contribute to the strategy formulation. Strategic options at the corporate level will likely require a commitment of a significant portion of the firm’s resources over an extended period, and the results will have a significant impact on the future health of the organization. Strategic planning at this level will usually include a robust analysis and identification of several strategic options based on the assumed future operating environment. In a multi-business firm, careful consideration will be given to the overall core competencies of the firm and where the boundaries lie between corporate and business level responsibilities.

Business level: Each business within an organization will develop a strategy to support the overall business within its specific industry. Business level strategy is reflects the current position of the firm within its industry, and identifies how the available resources can be applied to improve the position of the firm in relation to its competitors. There are a variety of ways that businesses will compete, but more often than not it is based on the USP (unique selling proposition) of the firm which distinguishes the company and its products from other competitors. If there are no differences between one firm’s products or services from other competitors, then the product or service becomes a commodity. Competition among firms that offer commodities is usually rooted in price competition, and the low-cost providers usually take over. On the other hand, businesses that distinguish themselves can compete on their unique selling proposition. If they can successfully demonstrate why they are different and how that difference can provide a better level of service or quality product, then the business can command a higher margin for the premium service or product. This is the “value” added by the firm, and the business strategy should focus on how the firm adds value.

Functional level: Functional level describes support functions of a business: Finance, Marketing, Manufacturing, and Human Resources are a few examples of the functional level. Strategies at this level should be defined to support the overall business and corporate level strategies. If the functional level leaders can describe their activities and goals in relation to the business or corporate levels, then everyone in the organization will be aligned and as such contribute to the overall goals and objectives for the organization. So for example, functional leaders for IT or HR must ask if the strategies for their functions match and support the overall strategic direction of the businesses they support or of the overall firm itself.

The best strategic planners understand how important it is for a firm to have alignment among the corporate, business, and functional levels of strategy. The overall corporate level strategies will not be effective if the supporting business and functional level strategies are inconsistent with the overall strategic intent of the senior leaders. Thus, it is not only important to pick the right strategy for the corporate level, but also equally important to make sure that the business and functional level strategies support the overall grand strategy for the organization.

9 Elements of a Successful Business Plan

A business plan is your road map to profitability and success. A well-conceived plan describes the vision you have for the business and the path you will take to achieve that vision. It also serves as a communication vehicle for employees, customers and potential financial resources. An effective business plan has nine key elements.

1. Executive summary. The executive summary outlines the plan’s key sections such as the company’s mission and goals, target markets, products and services, primary competitors, marketing strategy and financials. The summary should be one to two pages long and should convince the reader to review the entire business plan.

2. Company description. The company description provides a clear idea of what your company is all about, what it does, and how it will operate. In other words, it articulates your company’s mission statement, which is a brief, formal declaration that describes the specific purpose for your business.

3. Market niche. This section of the plan describes your target customers, the larger environment in which your business will operate and why this environment is viable. The key is to identify your desired niche and to explain why you can be successful. To do this, you must answer three questions:

Who do I serve (who are my customers, who are the people I want to have as customers)?

What value do I offer (what are my customers able to do because of me = value proposition)?

How do I help customers achieve this value (what goods and services do I provide)?

4. Competition. This section of the plan describes your primary business competition, including their strengths and weaknesses. The most important factor is the identification of your competitive advantages. You can effectively develop this section by addressing the following questions:

Who is my primary competition?

How does what I provide differ from these competitors (think about your value proposition)?

What are my competitive advantages and disadvantages?

5. Marketing strategy. The single most important step you can take as an entrepreneur is to effectively market your goods and services. You can have the best products in the world, but if no one knows about them, your business will fail. Creating a successful marketing strategy is all about addressing the 5 P’s:

Product – What are you selling?

Price – How much will you charge?

Person – What is your target market (i.e., market niche)?

Place – How will your goods and services be distributed?

Promotion – How will you let potential customers know about your goods and services?

6. Operations. The operations section describes how the work will be done. This is not a particularly detailed section of your business plan, but it should describe your company’s typical business activities.

7. Management and organization. This section identifies the key business managers and the organizational structure. This is a very important section when you have a staff. It is also critical when you are seeking capital. Investors will thoroughly examine the backgrounds of the management team in charge of your business.

8. Long-term development. This section of the plan describes how your business will grow over time. You should provide a specific timetable for the company’s development, including identification of the potential risks your business faces. You can begin this process by addressing the following questions:

Where do you want your business to be 1 year from now in terms of product, person and place?

Where do you want your business to be 3 years from now in terms of product, person and place?

9. Financials. The last section of the business plan outlines your financial projections for the first several years of the business. Ideally, this includes the production of several forms including an income statement (describes anticipated profits over a specified timeframe), a cash-flow analysis (estimates the movement of cash into and out of the business), and a break-even analysis (estimates the point at which revenue received equals the cost of generating that revenue).

Modern Financial Management Theories & Small Businesses

The following are some examples of modern financial management theories formulated on principles considered as ‘a set of fundamental tenets that form the basis for financial theory and decision-making in finance’ (Emery et al.1991). An attempt would be made to relate the principles behind these concepts to small businesses’ financial management.

Agency Theory

Agency theory deals with the people who own a business enterprise and all others who have interests in it, for example managers, banks, creditors, family members, and employees. The agency theory postulates that the day to day running of a business enterprise is carried out by managers as agents who have been engaged by the owners of the business as principals who are also known as shareholders. The theory is on the notion of the principle of ‘two-sided transactions’ which holds that any financial transactions involve two parties, both acting in their own best interests, but with different expectations.

Problems usually identified with agency theory may include:

i. Information asymmetry- a situation in which agents have information on the financial circumstances and prospects of the enterprise that is not known to principals (Emery et al.1991). For example ‘The Business Roundtable’ emphasised that in planning communications with shareholders and investors, companies should consider never misleading or misinforming stockholders about the corporation’s operations or financial condition. In spite of this principle, there was lack of transparency from Enron’s management leading to its collapse;

ii. Moral hazard-a situation in which agents deliberately take advantage of information asymmetry to redistribute wealth to themselves in an unseen manner which is ultimately to the detriment of principals. A case in point is the failure of the Board of directors of Enron’s compensation committee to ask any question about the award of salaries, perks, annuities, life insurance and rewards to the executive members at a critical point in the life of Enron; with one executive on record to have received a share of ownership of a corporate jet as a reward and also a loan of $77m to the CEO even though the Sarbanes-Oxley Act in the US bans loans by companies to their executives; and

iii. Adverse selection-this concerns a situation in which agents misrepresent the skills or abilities they bring to an enterprise. As a result of that the principal’s wealth is not maximised (Emery et al.1991).

In response to the inherent risk posed by agents’ quest to make the most of their interests to the disadvantage of principals (i.e. all stakeholders), each stakeholder tries to increase the reward expected in return for participation in the enterprise. Creditors may increase the interest rates they get from the enterprise. Other responses are monitoring and bonding to improve principal’s access to reliable information and devising means to find a common ground for agents and principals respectively.

Emanating from the risks faced in agency theory, researchers on small business financial management contend that in many small enterprises the agency relationship between owners and managers may be absent because the owners are also managers; and that the predominantly nature of SMEs make the usual solutions to agency problems such as monitoring and bonding costly thereby increasing the cost of transactions between various stakeholders (Emery et al.1991).

Nevertheless, the theory provides useful knowledge into many matters in SMEs financial management and shows considerable avenues as to how SMEs financial management should be practiced and perceived. It also enables academic and practitioners to pursue strategies that could help sustain the growth of SMEs.

Signaling Theory

Signaling theory rests on the transfer and interpretation of information at hand about a business enterprise to the capital market, and the impounding of the resulting perceptions into the terms on which finance is made available to the enterprise. In other words, flows of funds between an enterprise and the capital market are dependent on the flow of information between them. (Emery et al, 1991). For example management’s decision to make an acquisition or divest; repurchase outstanding shares; as well as decisions by outsiders like for example an institutional investor deciding to withhold a certain amount of equity or debt finance. The emerging evidence on the relevance of signaling theory to small enterprise financial management is mixed. Until recently, there has been no substantial and reliable empirical evidence that signaling theory accurately represents particular situations in SME financial management, or that it adds insights that are not provided by modern theory (Emery et al.1991).

Keasey et al(1992) writes that of the ability of small enterprises to signal their value to potential investors, only the signal of the disclosure of an earnings forecast were found to be positively and significantly related to enterprise value amongst the following: percentage of equity retained by owners, the net proceeds raised by an equity issue, the choice of financial advisor to an issue (presuming that a more reputable accountant, banker or auditor may cause greater faith to be placed in the prospectus for the float), and the level of under pricing of an issue. Signaling theory is now considered to be more insightful for some aspects of small enterprise financial management than others (Emery et al 1991).

The Pecking-Order Theory or Framework (POF)

This is another financial theory, which is to be considered in relation to SMEs financial management. It is a finance theory which suggests that management prefers to finance first from retained earnings, then with debt, followed by hybrid forms of finance such as convertible loans, and last of all by using externally issued equity; with bankruptcy costs, agency costs, and information asymmetries playing little role in affecting the capital structure policy. A research study carried out by Norton (1991b) found out that 75% of the small enterprises used seemed to make financial structure decisions within a hierarchical or pecking order framework .Holmes et al. (1991) admitted that POF is consistent with small business sectors because they are owner-managed and do not want to dilute their ownership. Owner-managed businesses usually prefer retained profits because they want to maintain the control of assets and business operations.

This is not strange considering the fact that in Ghana, according to empirical evidence, SMEs funding is made up of about 86% of own equity as well as loans from family and friends(See Table 1). Losing this money is like losing one’s own reputation which is considered very serious customarily in Ghana.

Access to capital

The 1971 Bolton report on small firms outlined issues underlying the concept of ‘finance gap’ (this has two components-knowledge gap-debt is restricted due to lack of awareness of appropriate sources, advantages and disadvantages of finance; and supply gap-unavailability of funds or cost of debt to small enterprises exceeds the cost of debt for larger enterprises.) that: there are a set of difficulties which face a small company. Small companies are hit harder by taxation, face higher investigation costs for loans, are generally less well informed of sources of finance and are less able to satisfy loan requirements. Small firms have limited access to the capital and money markets and therefore suffer from chronic undercapitalization. As a result; they are likely to have excessive recourse to expensive funds which act as a brake on their economic development.

Leverage

This is the term used to describe the converse of gearing which is the proportion of total assets financed by equity and may be called equity to assets ratio. The studies under review in this section on leverage are focused on total debt as a percentage of equity or total assets. There are however, some studies on the relative proportions of different types of debt held by small and large enterprises.

Equity Funds

Equity is also known as owners’ equity, capital, or net worth.

Costand et al (1990) suggests that ‘larger firms will use greater levels of debt financing than small firms. This implies that larger firms will rely relatively less on equity financing than do smaller firms.’ According to the pecking order framework, the small enterprises have two problems when it comes to equity funding [McMahon et al. (1993, pp153)]:

1) Small enterprises usually do not have the option of issuing additional equity to the public.

2) Owner-managers are strongly averse to any dilution of their ownership interest and control. This way they are unlike the managers of large concerns who usually have only a limited degree of control and limited, if any, ownership interest, and are therefore prepared to recognise a broader range of funding options.

Financial Management in SME

With high spate of financial problems contributing to the high rate of failures in small medium enterprises, what do the literature on small business say on financial management in small businesses to combat such failures?

Osteryoung et al (1997) writes that “while financial management is a critical element of the management of a business as a whole, within this function the management of its assets is perhaps the most important. In the long term, the purchase of assets directs the course that the business will take during the life of these assets, but the business will never see the long term if it cannot plan an appropriate policy to effectively manage its working capital.” In effect the poor financial management of owner-managers or lack of financial management altogether is the main cause underlying the problems in SME financial management.

Hall and Young(1991) in a study in the UK of 3 samples of 100 small enterprises that were subject to involuntary liquidation in 1973,1978,and 1983 found out that the reasons given for failure,49.8% were of financial nature. On the perceptions of official receivers interviewed for the same small enterprises, 86.6% of the 247 reasons given were of a financial nature. The positive correlation between poor or nil financial management (including basic accounting) and business failure has well been documented in western countries according to Peacock (1985a).

It is gainsaying the fact that despite the need to manage every aspect of their small enterprises with very little internal and external support, it is often the case that owner-managers only have experience or training in some functional areas.

There is a school of thought that believes “a well-run business enterprise should be as unconscious of its finances as healthy a fit person is of his or her breathing”. It must be possible to undertake production, marketing, distribution and the like, without repeatedly causing, or being hindered by, financial pressures and strains. It does not mean, however, that financial management can be ignored by a small enterprise owner-manager; or as is often done, given to an accountant to take care of. Whether it is obvious or not to the casual observer, in prosperous small enterprises the owner-managers themselves have a firm grasp of the principles of financial management and are actively involved in applying them to their own situation.” McMahon et al. (1993).

Some researchers tried to predict small enterprise failure to mitigate the collapse of small businesses. McNamara et al (1988) developed a model to predict small enterprise failures giving the following four reasons:

– To enable management to respond quickly to changing conditions

– To train lenders in recognising the important factors involved in determining an enterprise’s likelihood of failing

– To assist lending organisations in their marketing by identifying their customer’s financial needs more effectively

– To act as a filter in the credit evaluation process.

They went on to argue that small enterprises are very different from large ones in the area of borrowing by small enterprises, lack of long-term debt finance and different taxation provisions.

For small private companies, these measures are unreliable and textbook methods for judging investment opportunities are not always useful in organisations that are privately owned to give a true and fair view of events taking place in the company.

Thus,modern financial management is not the ultimate answer to every business problem including both large and small businesses.However,it could be argued that there is some food for thought for SMEs concerning every concept considered in this study. For example it could be seen (from the literature reviewed )that, financial records are meant to examine and analyse corporate operations. Return on equity, return on assets, return on investment, and debt to equity ratios are useful yardsticks for measuring the performance of big business and SMEs as well.

Create Your Own Business Plan Competition

You still remember a few years back where you asked a few of your school mates to be part of a team to join a business plan competition organised by your university. It is so vivid in your mind about the dedication, persuasiveness and analytical skills that got your team to the finals with a lot of offers to take your business plan to initial public offering (IPO). You feel that your entire team has matured and become more focused in the quest for success.

Now you have decided that you do want to create a business-plan competition as a way of giving back to society. However, you start to realise that it requires a lot of planning, strategizing and focus because this business plan competition can also be the launch-pad of an unknown startup. This is the magic of being part of a business plan competition. You feel the immense feeling of a big achievement already.

Here are some tips that will help you along this path.

Your purpose:

Before you even start to create your own business plan competition, you have to be very clear about what separates yours and a host of other business plan competitions globally. How do you measure the success of your business plan competition?

The prize:

The prize need not be all in cash. It can also include free administrative support or even the matching to a venture capitalist.

Judging Criteria:

The judging criteria has to be clear and constructive to participants so that they know what to emphasise during their group presentations.

Sponsorship:

Start getting sponsors early. It is essential that you have a detailed meeting with potential sponsors and understand how your business plan competition can give their organisation more positive publicity and mileage.

Judging panel:

Ensure that you get a big pool of judges who are considered as subject experts and have no vested interest in any of the teams and are unbiased and fair in their judgement. Organise a meet-up where you can brief all judges about the judging criteria and how they must adhere to the agreement of non-disclosure and confidentiality.

The more experienced judges can be offered the opportunity to be judges for the finals and must have the ability to do Q&A and articulate about what made them offer certain points.

Mentors:

For a more hands-on group of professionals, you can offer them the opportunity to mentor the participating teams. This may give your judges the opportunity to continue to be part of the startup even after the end of the business plan competition.

Media Publicity:

Every startup participating in your competition desires to get as many people to know about their product or expertise. Thus you have to ensure that your business plan competition is accorded the most positive publicity as possible.

This is especially important for startups that may not have won the competition but are very eager to get more potential customers to learn and use their products or services.

Any form of publicity can be put to advantageous use.

Publication:

Consider choosing a few finalists to be part of a book to recognise how they have gone beyond just being startups. This book may give them more credibility on a global platform.

You can also create a directory listing the product or services of all your participating teams and you may obtain a commission once there is a good match.

Technical Writing – How to Write Project Justification Documents

As part of building the overall project scope a technical author will first need to lay out the justification documentation. This document which can also be considered a “business case” lays out the fundamental reasons for implementing the project. Here’s a simple guide on creating a project justification.

State the Problem

Businesses don’t carry out projects for fun; they perform them in order to solve a specific issue or issues. You need to describe the problem clearly and accurately at the start of your document so that you can then present the solution to that problem.

For example if you intend to implement a new HRMS (Human Resource Management System) your problem may be; “The HR team currently spends nearly 80% of its time on non-productive administrative tasks, reducing the effectiveness of the function dramatically.”

State the Solution

This should be a simple statement to define your project. This enables your reader to understand what it is you’re proposing.

“We intend to implement an automated HRMS system to reduce manual administration by half.”

Supply Supporting Information

The problem and solution aren’t going to justify your project to the stakeholders and decision makers, so you need to provide the right level of information to enable them to support your recommendation.

Examples of the kind of information you should use:

Market Demand – Not always the strongest argument, but if you can show that all your competitors are implementing similar systems, it certainly suggests that it may be worth considering in your organisation.
Business Need – In this example the business need is clear, the HR team are spending the majority of their work time on non-specialist tasks and that costs money.
Customer Demands – what is it that your customers are screaming out for? Don’t forget to include internal customers as well as external ones.
Technological Progression – what’s going on in the world around you, is there are compelling case to be told in terms of the way IT and systems are developing?
Legal – Don’t forget the all important obligation to the law, if you can show that your project brings compliance or makes it easier to comply with those requirements you have a stronger case.

Writing a business case or project justification is an essential part of the larger project scoping process. Ideally you should write this early in the lifecycle of your project to help you obtain funding and support. You will also then be able to clearly identify the objectives of your task so that team members have a clear message to take away.

Build a Successful Marketing Plan – 15 Key Business Success Factors

Every marketing plan needs to include an industry analysis. Why? Because it is of critical importance to understand the industry you operate in, and to identify and track your performance to key business success factors (KSFs) for your organization.

Understanding your industry and identifying your KSFs will help in building a successful marketing plan; one that is based on measurable progress and results. A key success factor is an element of a whole that affects your business’ ability to do well in your market.

Most businesses focus on between three and five of the most important (to their business) success factors. From time to time, or year to year, these key success factors may change, as the industry or the market changes.

15 Examples of Key Business Success Factors (and this is not a comprehensive list) are:

Number of new customers per year;
Number of lost customers per year OR the number of customers retained (it is important to understand and measure the potential customer lifetime value for each customer on a regular basis);
Hire and retain excellent employees (measured by employee turn-over, job vacancies, customer satisfaction);
Successful new product introductions (measured by sales and costs);
Successful promotional programs (measured by sales and costs);
Good/healthy financial indicators: for example, working capital, acceptable ratios (in particular debt to equity ratios), profit margins, cash flow, receivables and more;
If in the manufacturing industry, high operating capacity utilization;
Strong supplier network;
Strong distribution network or channel;
Successful product positioning;
Low cost structure;
Niche product/service – track the number of competitors entering and/or leaving the niche. Is the cost of entry into the market high or low?
Market leader or follower or challenger, and is your relative market position and why? Are you able to support that position if under ‘attack’?
Product differentiation: Do you have technology or service advantages that others can’t easily copy? How unique and differentiated is your product or service?
Time to market: is your product or service able to be delivered quickly and easily; from the first point of contact to the time shipped and subsequently invoiced?

Once you have identified your specific KSFs, build strategies around those factors and integrate those strategies into your marketing and business plans to ensure business success. Develop measurement programs to help you track your progress against your success factors. You also need to assess your competition and see if your competitors’ key success factors are similar or different than yours (depending on your strengths and weaknesses and your marketing and business strategies, they might be very different). One way of comparing and assessing is to do a competitive strength analysis; find out what your competitors’ strengths and weaknesses are and build your competitive strategy accordingly. (A sample swot analysis can show you how to analyze the strengths, weaknesses, opportunities and threats that your business faces.)

For example, if retaining your existing customers is a key success factor, your business objective must be to grow sales with your existing customers. How do you do that? First, do a customer satisfaction survey to assess how satisfied your existing customers are (or aren’t). Then determine what needs to be changed and what you need to focus on. Make sure that you understand how your customers chose between competitors: is it price, service, quality, knowledge, reliability, relationships, or all of these factors? What product or service attributes are most important to your customers? What is the unique difference between your product or service and your competition’s product or service (from your customer’s perspective)?

Once you have identified your key success factors; built measurement devices to track them; assessed and compared your competitors’ KSFs – and the industry’s; built your strategies and objectives into your marketing and business plans(phew!); you need to act! Build your business on these key success factors.

The Essentials of How to Write a Business Plan

As long as you have the key facts figured out, getting your business plan on paper need not be such a challenge.

Industry experts agree that the most common reasons why b-plans head straight for the shredder are because of the small things that give it away as an amateur production: unrealistic claims about competition or risk, spelling, punctuation, and grammatical errors, content and formatting errors, incomplete or vague information and so on.

Considering that your business plan is the first ever impression of your business, a sloppy piece of work is not going to be read through seriously – especially if its being read by angels and VCs who have to choose among several businesses vying for their attention.

Most plans are divided into standard sections to discuss the business proposition, the management, the market and unique strategies for marketing and operations. The most critical information should be presented upfront rather than buried deep inside the pages, and sections should be well-balanced and inter-related.

Having said that, there is no fixed format for a business plan – sections are put together depending on their relevance to who is going to be reading the plan. For example, a plan for investors is quite different from one put together for internal purposes only.

Presentation is key so that the content is not unnecessarily complex or overly simplified – the plan should be easy to read and build up excitement from logical reasoning and facts (not hot air). Along the way, a clearly emergent SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) should become evident.

The executive summary at the beginning can make it or break it, so it needs to receive as much attention. Together with the investor presentation, it should do a nice job of summing up your entire plan so even though it is the first chapter, it should be written last.

Financial projections that can be supported by actual market facts and data will make sure the nuts and bolts are in place since a lot of investors might read nothing more than the executive summary and the financial projections (though all the other sections need to be there for reference and due diligence once your business is short-listed).

No matter what level you are at, a proper business plan is ideally never written by one person alone – there are bound to be some gaping holes you somehow overlooked in all your excitement.

Business plan software and templates give you some broad areas to discuss, but you should spend your time on more focused responses. Rather than ‘filling in’ sections using a hammer and chisel, try to find answers to specific questions your potential investors will be asking you.

Business consulting firms are usually far more useful than software or templates that are one-size-fits-all, and can help you write a solid plan that gets results.

If you can come up with good answers to questions the consultants put forward, you do not have to worry about the presentation, since the documentation of your responses (with added value) is the responsibility of the consulting firm. The Q&A sessions will also help you build confidence when you actually talk to investors.

Services provided typically include writing, market research, financial modelling, proof-reading, editing and review. For a slightly larger budget, a serious firm will even provide consulting to develop your business strategy. However, you should make sure the consultant works closely with you so that the end result is no less than what you bargained for.

In case you are not in for the additional investment for acquiring these services, make sure your plan receives a good sanity check from your cohorts and is looked over with a critical eye by at least one person external to your business. And don’t forget to spell-check and watch your grammar.

The Structure of Your Business Plan

Your business plan is vital to establish the structure of your business, its aims and objectives, strategies, products and staffing. It is used to plan and manage your business, apply for funding or show to potential investors. It has ten main parts and these are:

1. Cover and index

Sounds a little silly, but a great cover to your business plan will show the professionalism and care that has gone into its production. It is also the ideal place to include your company logo and contact details. If appropriate, include photos of your products.

Vitally you should also include your company name and number as well as your contact details such as address, website, social media accounts and email and phone number of your relevant director. You will surprised at the number of people that forget this feature.

To help potential investors to navigate around, the index must include all the points of the business plan with the corresponding page number. Make it as complete as possible so that the reader has a clear idea of what the document contains.

However producing the index also gives you, the writer a great planning tool to ensure that you include all the points and information you need to include.

2. Executive summary with the needs and objectives of your business

In the first part of the document you must make a descriptive summary of the idea that includes the following points:

• The opportunity in the market

• The product or service and its advantages

• The management team

• Financial summary the financing needs and expected profitability

By writing the executive summary first, your put all the information down that is in your head. You can always come back to it at the end of your wiring of the main body.

Remember, you need to capture the attention of investors in approximately two pages where you will summarise the most important points of the text. You must also take into account several things:

• Vitally you must define the need or problem that your business intends to solve.

• You need to define the fundamental objectives of the company.

• You need to tell the investor at what stage your company currently is. Whether you are pre-production, starting to expand or in profit for example.

3. Plan out your business

Here is the point where you get your scrap paper out.

• You must describe the mission of your business – that is what you hope to achieve. Then you need a list of actions that your company needs to get to this point.

• Next you need to work out how you will solve the business problems you have identified.

• Now describe what your product or service is, what customers will get with their purchase and what their weaknesses or inconveniences are.

• Discover what price point your potential customers will be comfortable with.

• Lastly you need to discover how you can find these customers.

Often this can all be defined by the use of a business model canvas and this is the subject of another of my articles. You can purchase consultancy to produce this model.

Usually there are already companies that are working for the same goals. Identify them and ask yourself: How am I going to differentiate myself from my competitors?

4. Explain the structure of your business

Making a business plan involves examining the strengths and weaknesses of your competition, once identified you can justify why your business is unique. You must distinguish yourself from the crowd to increase the investment opportunity. That is, refer to the following information:

• Describe what you will be selling to whom and at what price point.

• Introduce your branding concepts – are you going to be a luxury company for example or pile it high and sell it cheap kind of company?

• Describe how you will fulfil an order – in other words, the whole process from purchasing the products yourself to actually delivering them to your customer and offering after service.

• Clarify how you will cover the main areas of production, sales, marketing, finance and administration.

• Include management, sales, stock control and quality control accounts.

• Define how you will sell your products and analyse, if necessary, the location of the company and the advantages and disadvantages of this situation.

Make sure that you solve the following investors’ doubts: What are the products of your competition and how do they create them?

5. List the characteristics of the market in which you will develop your business

You will have to analyse the market conditions: how big it is, how fast it is growing and what its profit potential is. Explain how you are going to investigate your audience and with what tools.

Know the target of the market in which the business will be developed and direct marketing strategies towards that target. If you do not have a working marketing strategy you will lose time, effort and money.

Answer the following question: Where are you going to find your customers?

6. Devise promotional strategies

This is where the marketing plan of your business should be included. It is perhaps one of the most relevant steps when making a business plan. Promotional and marketing strategies could determine the success or failure of your company. Try to answer several questions:

• How are you going to position your product or service? This is where you want the 4 Ps of marketing: Price, Product, Promotion, and Place.

• Compare features such as price, quality and customer service with your competitors.

• How are you going to sell to your customers? Phone, web page, face to face, agents?

• How will you identify potential customers?

• How are you going to promote your business? Advertising, public relations, email marketing, content strategy, social media etc?

• What benefit will each part of your business achieve?

• Why is someone going to abandon your current competitors to buy in your business?

• How are you going to attract them to your company and its products?

• What is a fair estimate of the number of customers you will achieve each year for the first three years?

• What will be your estimate of the cost of attaining each new customer?

• What is the estimate of the cost of retaining each customer?

7. Define your source of income

This is where you put down all the information about what your company will be selling and where the source of income will come from.

• The products and services you will be providing.

• Any advertising fees, commissions, membership fees etc. you will receive.

The analysis should include: price structure, costs, margins and expenses.

Include details of your anticipated cash flow over the first three years. Cash flow is a major consideration. In web based companies it is referred to as the burn rate.

8. Your team

Here is where you wax lyrical about the strength of your directors and major staff. Include their experience in similar posts and what they can do for your fledgling company. Include basis resumes for each of them and state their responsibilities. If you have a particularly renowned supporter, mentor or director here is where you mention it.

9. Your financials

When you reach this point when making your business plan you should start translating everything you have said into numbers. That is, analyse the financial forecasts of your business. Also include your financial strategy – how you will manage your cash flow, vital for any new company. If don’t have a plan, the business could suddenly sink or fail. If, on the other hand, you receive unexpected success, your goals may suddenly change and you will need a new business plan. Therefore, you should assess the risks of your business, identify areas where something could go wrong and explain what you would do in that case. You should include any other investments you have or are going to receive. Details of your share allocations, particularly large percentages, should be included.

9. What you are going to do with the investment

Very importantly, include what you are seeking the financing for and how and when you intend spending the investment. It is vital that the potential investor sees that the company will be vastly improved from the investment.

State how soon and how often the potential investor will see a return for their investment. Also include the offered shares as well as their potential involvement with the company after they have invested.

It is vital that they are offered an exit strategy so that they can have a healthy return on their investment and then move on to the next new company.

10. Annexes

It is very possible that after making the business plan you need to give additional information to complement it. For example:

• Market research data that you have used.

• Resumes of the team that will form your company. This is very important if you are seeking high levels of financing.

• Technical specifications of the product or service (you can include photographs).

• The names of some potential customers.

Creating a business plan involves writing many pages with attractive, dynamic and precise texts that capture the attention of very demanding people. It should attract the attention of investors, who despite having read hundreds of them must find something unique in your business plan.

Fatal Flaws in Your Business Plan

A business plan is the blueprint that guides aspiring entrepreneurs as they build their new business ventures. From 2008 – 2010, I taught a 20-week business plan writing course at an SBA-affiliated women’s business development organization. We met for three hours each week and students wrote their plans week by week, guided by the lessons.

When evaluating a business concept, unrealistic expectations or flawed thinking could creep in and undermine the planning. Excitement about the idea might distort one’s ability to see potential obstacles. What follows are scenarios that entrepreneurs-in-the-making should beware.

Unrealistic expectations

While it is sometimes true that using yourself as the ideal customer is a smart idea, since you understand the value and availability of that product or service, you might misinterpret the size of the market and the traction that can be achieved beyond a select group of true believers.

Insufficient information

Confirm the need for your products or services when you research and verify the number of potential customers who have the money and motive to buy from you.

Furthermore, make sure that you understand the buying process. Who green-lights the sale? What is the sweet spot price range? Lastly, where do potential customers obtain these products or services now?

Access to customers

Access to customers is everything and some industries or target customers seem impenetrable. You may identify the right customers, understand how your products or services fit their needs and know how to price and deliver. But if potential customers do not have the confidence to work with you because you lack an endorsement from a trusted source, you’ll starve.

Overestimating cash-flow

Usually, businesses won’t achieve desirable gross sales and or show a net profit in the first year of operations. Businesses that require high start-up costs especially will require long ramping-up periods. The business plan must acknowledge the potential for negative cash-flow and demonstrate how fixed and variable expenses will be met during that time. One must know how inventory will be financed, payroll will be met and office rent will be paid.

When writing your business plan, conservative financial projections are strongly advised. Customer acquisition may take longer than expected and the size of their purchases may initially be small. Moreover, it’s possible for a venture to be profitable on paper and still suffer from cash-flow problems, if customers do not pay on time.

Underestimating start-up costs

Developing a reasonable estimate of how much it will cost to get the venture up and running is essential. You must be prepared to meet the cost of all permits, equipment, inventory and staffing necessary to conduct business. If you plan to hire employees, it’s important to have a good idea of your minimum staffing needs up front (you can hire more as revenues increase).

“Magical thinking” business model

The business model illustrates how your venture will become profitable. Well thought-out interactions between marketing, financial and operations processes will promote and sustain profitability and you must map out how these will occur. The business model describes the core functions of the venture.

Likewise, the value proposition of your products or services must be articulated. The overall marketing strategy and selected tactics and resources that will promote the value proposition—intellectual property, patent rights, key relationships, or capital—will be accounted for. Sales distribution channels will be detailed.

Getting to Plan B (2009), by Randy Komisar and John Mullins, details the key business model components and advises business plan writers to segment their models into sub-headings:

The Revenue Model, to describe what you’ll sell, your marketing plans and how you expect to generate revenue
The Operating Model, to detail where you’ll do business and how day-to-day operations will function
The Working Capital model, meaning the business cash-flow requirements. Understanding cash-flow helps you know when money will be available to meet expenses like rent and payroll (it is distinct from revenue). A business can generate adequate revenue (sales) and still suffer from cash-flow problems.

Your business model will keep you organized and your priorities realistic. Matters such as quality control, collecting accounts receivable, inventory management and identifying strategic partners will mean much more than your number of Facebook followers, for example. Best of luck to you and your new business!

Thanks for reading,

Kim

Woodworking Business Plan

Starting a woodworking business can be a highly profitable enterprise with a lot of flexibility however it is important that you plan it carefully. Having a woodworking business plan will allow you to borrow funds from investors or the bank in order to get you started. In this guide you will learn what you need to have in your woodworking business plan.

Executive Summary

Your business plan should start with an executive summary. This will outline the purpose of your enterprise, for example to sell handcrafted wooden furniture, and how you will achieve this goal. It should be brief and to the point.

Basic Business Information

Here you will list basic information about your business. This should include the hours of operation, how long you have been in business, your contact details such as your phone number, email address and website. This does not need to be extensive but should cover the essentials of your business operation.

Products or Services Offered

Here you will give a summary or the products or services you will be offering. For example if you were producing hand crafted wooden jewellery boxes you might describe the wood that is being used in the construction as well as the techniques that you use to produce these boxes.

Management and Organization Details

This is where you will list who the management is for your business. If you are at this point the only person involved in the company then this will simply be you. If you have others working in the company detail the organization structure of your enterprise. Below this list the ownership structure of the business. This is whether your are running a sole proprietorship, partnership or a limited liability company.

Marketing Plan

This is where you include how you are going to get your customers. This is one of the most important parts of your woodworking business plan because without customers you don’t have a business. For example if you are going to have a mail order side to the business you might include direct mail as a marketing method. If you are going to advertise in home and garden magazines this could be another marketing method. List these in bullet point form so they are easy to understand.

Plan of Operations

Think of this as how you are going to spend a day at your business. How will work get done, from taking orders through to delivery? This can really help you to understand how your business will work and any potential problems or room for improvements.

Financial Projections

If you are planning on borrowing money then this is a very important section. If you are already in business and have a track record of earnings you can include that here. You can then extend out to the future based on your previous growth.

The key to a successful business plan is to include all of the information that is pertinent but no extraneous information. It should be clear and to the point so that even someone who is not familiar with the woodworking industry can follow it.