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Business Planning For Recession Survival and Recovery

The New Basics of Business

With unemployment continuing to rise, home prices falling due to a surplus of inventory, and small business lending at a standstill, this recession doesn’t seem likely to end soon. The recovery will be slow and Americans will certainly not enjoy the prosperity of a few years ago for a long time to come. It’s not just economists who think this way. “Half the population in [a] new ABC News poll thinks both job security and retirement prospects in the years ahead will remain worse than their pre-recession levels.” (“Poll: Less Job Security is the ‘New Normal,’” ABC News The Polling Unit, June 15, 2009, analysis by Gary Langer) This confidence, or lack thereof, is an integral part of an economic cycle. The analysis goes on to say, “Those diminished expectations – plus the pain of the current downturn – are fueling retrenchments in consumer behavior that could fundamentally reshape the economy.”

Basically, consumers are hunkering down to limit spending, save money, conserve resources, and change the way they’ve been living. The major influence on the health of an economy is the psychological state of its consumers. When there exists a broad belief that spending beyond necessity is unwise, people will change their habits and as a result, some businesses will have to close their doors. The economy is molting into a new, leaner animal. Rather than react in desperation to avoid doom, firms should interact with the current situation with innovative and forward thinking actions.

No matter the economic slump, increasing profits is typically the number one goal of any business. To ensure profitability, a company must demonstrate a competitive advantage over others in its industry, either by cost leadership (same product as competitors, lower price), differentiation (same price, better services), or focusing on an exclusive segment of the market (niche). For long term maintenance of competitive advantage, a firm must ensure that its methods cannot be duplicated or imitated. This requires constant analysis and regular reinvention of competitive strategies.

A recession is the optimal time to reinvent competitive advantage because the pressure of a feeble economy will separate the strong businesses from the weak ones, with the weak falling out of the game entirely. Your business will be strong if you have a plan of action based upon a little industry research, an analysis of what you have and what you want, and continuous monitoring of the results of your plan. This kind of innovation is not only a necessity right now, but it is an opportunity to improve the quality and efficiency in the way you do business.

The three basic actions for growing a business in any economic climate are: improve efficiency (maintain output while reducing inputs, such as time and money); increase volume (produce more in order to spread fixed costs); reorganize the business (change goals, methods and/or philosophy). If you plan to implement one of these, you may as well plan to implement them all. By focusing on one of the above strategies, you will find a ripple effect that causes a need to address the others. This is a good thing.

Right now, growth may sound like an unattainable goal as businesses are grappling just to survive, but hey, “flat is the new up.” If a business can keep its doors open and lights on, then it’s doing better than many others. But lights and open doors don’t make sales, so making changes that attract business is in a sense, striving for growth. It won’t be this tough forever, but for now, putting some growth strategies into action may be what keeps your business alive, if not thriving.

Every Business Needs a Plan

Without a plan, there is little hope for growth, let alone survival. As my small business development counselor, Terry Chambers says, “If it’s not written, it’s not real.” That doesn’t mean it’s unchangeable, but it does show that you mean business. In order to accomplish your strategies of improving efficiency, increasing volume, and reorganizing your business, you’ve got to examine what you have, what you want, and how you plan to get there.

Sometimes it takes a significant event or change in existing conditions for a business to create a written plan. I think it’s safe to say that the state of the economy is a significant change that should prompt business owners to alter the way they’ve been doing things. If you already have a business plan, it’s time to get it out and revise it. Make sure your plan includes answers to these questions:

  • What do I want to accomplish?
  • What do I have to work with?
  • How have I done in the past?
  • What might I do in the future?
  • What will I do now?
  • How will I do it?
  • Is it working?

A business plan can be used as a vehicle for accurate communication among principals, managers, staff, and outside sources of capital. It will also help to identify, isolate, and solve problems in your structure, operations, and/or finances. Along with these advantages, a business plan captures a view of the big picture, which makes a company better prepared to take advantage of opportunities for improvement and/or handle crises.

Essentially, the three main elements of a business plan are strategies, actions, and financial projections. In order to cover all of the principle elements, you will engage in other types of planning:

  • Marketing plan: Includes analysis of your target market (your customers), as well as the competition within that market, and your marketing strategy. This plan is usually part of the strategic plan.
  • Strategic plan: Asses the impact of the business environment (STEER analysis: Socio-cultural, Technological, Economic, Ecological, and Regulatory factors). Includes company vision, mission, goals and objectives, in order to plan three to five years into the future.
  • Operational planning: With a focus on short-term actions, this type of planning usually results in a detailed annual work plan, of which the business plan contains only the highlights.
  • Financial planning: The numerical results of strategic and operational planning are shown in budgets and projected financial statements; these are always included in the business plan in their entirety.
  • Feasibility study: Before you decide to start a business or add something new to an existing business, you should perform an analysis of its strengths, weaknesses, opportunities, and threats (SWOT analysis), as well as its financial feasibility, then asses its potential sales volume.

The process of business planning does not end when the written plan is complete. Business planning is a cycle, which includes the following steps:

  1. Put your plan of action in writing.
  2. Make decisions and take action based upon the plan.
  3. Gauge the results of those actions against your expectations.
  4. Explore the differences, whether positive or negative, and write it all down.
  5. Modify your business plan based upon what you learned.

President of Palo Alto Software, Inc. and business planning coach Tim Berry says, “Planning isn’t complete unless you’ve planned for review.” Review is the fundamental action that initiates putting your business plan into action. In his blog at Entrepreneur.com, Berry lists some insightful strategies to making good use of your plan review, a few of which include keeping the review meetings as brief as possible and an emphasis on metrics as key to effective review.

Write your business plan in sessions. Don’t think that you have to produce a business plan before go to bed tonight or you won’t be able to open your doors for business tomorrow. I like Tim Berry’s Plan-As-You-Go method of business planning. The practice of planning is an effective way to really get to know your business and you might end up discovering some important things about your company and about yourself.

There are various strategies and outlines available that will guide you in choosing the appropriate format for your business plan. Check out the collection of sample business plans for a variety of businesses at Bplans dot com. Every business is different, therefore every business plan will be structured differently, but for the purposes of this white paper, I will present the fundamental elements that make up strategic, operational, and financial planning. Here is a basic outline, thanks to NxLevel® for Entrepreneurs (2005, Fourth Edition):

General Business Plan Outline
Cover Page
Table of Contents
Executive Summary

Mission, Goals and Objectives

General Description of the Business
Stage of Development
General Growth Plan Description
Mission Statement
Goals and Objectives

Background Information

The Industry
Background Industry Information
Current/Future Industry Trends
The Business Fit in the Industry

Organizational Matters

Business Structure, Management and Personnel
Management
Personnel
Outside Services/Advisors
Risk Management
Operating Controls
Recordkeeping Functions
Other Operational Controls

The Marketing Plan

Products/Services
Products/Services Description
Features/Benefits
Life Cycles/Seasonality
Growth Description (Future Products/Services)
The Market Analysis
Customer Analysis
Competitive Analysis
Market Potential
Current Trade Area Description
Market Size and Trends
Sales Volume Potential (Current and Growth)
Marketing Strategies
Location/Distribution
Price/Quality Relationship
Promotional Strategies
Packaging
Public Relations
Advertising
Customer Service

The Financial Plan

Financial Worksheets
Salaries/Wages & Benefits
Outside Services
Insurance
Advertising Budget
Occupancy Expense
Sales Forecasts
Cost of Projected Product Units
Fixed Assets
Growth (or Start-Up) Expenses
Miscellaneous Expenses
Cash Flow Projections
Break-Even Analysis
Monthly Cash Flow Projections – First Year
Notes to Cash Flow Projections (Assumptions)
Annual Cash Flow Projections – Years Two and Three
Financial Statements
Projected Income Statement
Balance Sheet
Statement of Owner’s Equity
Additional Financial Information
Summary of Financial Needs
Existing Debt
Personal Financial Statement

Appendix Section

Action Log
Supporting Documents (Resumes, Research Citations, etc.)

Executive Summary

A business plan starts with an executive summary, which is a one or two page summary of your business plan, or an introduction to your business. Although this section is at the beginning of the business plan, it is the last thing to be written. You’ll be able to condense your business plan more succinctly once you have the opportunity to work through the other parts of the plan. The executive summary may be the only thing a potential investor or financier will read, so write it last because it has to be the most compelling.

Start by writing a description of your business, including what stage of development it is currently in (conception, start-up, first year, mature, exit) and your plans for growth. Discuss the nature of your business, the main products and services you offer, the market for your products and services, and how and by whom the business is operated.

Mission Statement

Then work on your mission statement. Here is where you concisely state the focus, scope and hope of your business (or values, vision, philosophy, and purpose). What is the customer pain you are soothing, the need you fulfill? Here’s an example from Coca-Cola:

Our Roadmap starts with our mission, which is enduring. It declares our purpose as a company and serves as the standard against which we weigh our actions and decisions.

  • To refresh the world…
  • To inspire moments of optimism and happiness…
  • To create value and make a difference.

PepsiCo has a different take:

Our mission is to be the world’s premier consumer products company focused on convenient foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness and integrity.

This is the mission statement of Inspiration Software, Inc.:

Our company strives to support improvements in education and business and to make a positive difference in our users’ lives by providing software tools that help people of all ages use visual thinking and visual learning to achieve academic, professional and personal goals.

Goals and Objectives

Next, outline your company goals and objectives, including long-term and short-term goals. You will get into more detail on how the goals will be accomplished in your operational plan and annual work plan, so focus on brevity at this stage. There is a difference between goals and objectives and it’s important to know what that is. I like how Andrew Smith explains it in The Business Plan Blog. Objectives are non-emotional, precise descriptions of what is needed to achieve a goal. Goals can involve emotion and don’t have to be as specific as objectives. Objectives are the steps to actualizing the goal. Here’s an example:

Goal:

To increase revenues by 50% by the end of the year.

Objectives:

Add a new product to our line.
Expand marketing outside of local area.
Develop a new customer retention strategy.

Of course, you will need a plan of strategies in order to accomplish each objective, but those details will be expounded upon in your annual work plan. A list of three short-term and three long-term goals, along with the objectives necessary to achieve them, is sufficient for most business plans. Remember to replace the goals and objectives with new ones as you check them off your list.

Background Information

The section that details the background information should start with identifying the industry your business is in. Even if you are not a member or have no intention of becoming involved, you should list any trade associations within that industry; you never know when you made need those connections. Find out what publications, magazines or journals are available to businesses in your industry. Use these and other sources of business information to identify how past trends (economic, social, political) affected the industry, as well as any current or future trends that may have an impact.

How does your business fit in the industry? What is the history of your business, including who started it, what changes have occurred, when was it started, where was and is it located, how was it started and operated, and why it was started? What barriers to entry, if any, have you recognized?

Organizational Matters

The ownership hierarchy of your business, the management structure, and the personnel are described in the section on organizational matters. This part of the plan deals with who, what and how your business runs. Who is in charge of what and how are they qualified? Discuss how the various parts of your business interact together; include details about outside contractors and consultants and what functions they perform. See the example below, thanks to Edraw Soft Vector-Based Graphic Design.

The organizational section of the business plan also needs to include an explanation of your record keeping process, checks and balances, and control management systems. Anyone who reads your business plan should be able to understand the organizational procedures for running your business day-to-day, as well as in an emergency situation.

The risk management plan needs to be fleshed out in the organizational section as well, including your risk strategy, the different types of insurance required, your contingency plans, and problem-solving protocols. What will you do if a natural disaster ruins part of your inventory? How will you handle the sudden illness or long-term absence of a key manager? What happens if you are unable to finish a project on schedule? What are some early warning signs to watch for?

It may not be pleasant to imagine all the “what ifs,” but doing it now and planning for those unexpected events will improve your company’s chances of surviving a storm. For an excellent step-by-step guide on the details of developing a risk management plan, see the article “How to Develop a Risk Management Plan,” by Charles Tremper at wikiHow.com.

Marketing Plan

The next section, themarketing plan, gets into the details of what your business offers and what market it serves. Marketing is the communication of how your products and services “ease customer pain.” Show the problem and how your business solves it. Marketing is a necessity for every business because once your doors are open, you must invite customers to come in. Everything you do in your business that affects customers is marketing because it sends a message about your company.

This part of the plan details the features and benefits of your products and services, their seasonality and life cycle, as well as any future products and services you are planning. It also includes a thorough market analysis, in which you will study your customers, your competition and the market itself. Here you should include a PEST analysis, in which you will consider the impact of various factors upon your business. The factors include combinations of the following, depending upon your business: social, technological, economic, environmental, political, legal, ethical, and demographic.

Studying your market will give you insight as to how you can make your business more appealing to people. Market research is more than just noticing trends in your customers’ buying habits; it’s discovering what motivates your customer to buy. Don’t assume that you already know because you’ve been in this business for years. This study often unearths characteristics about your market that are hidden or new. It’s best to discover these things before your competition.

Another key element to the marketing section of your business plan is an outline of your marketing objectives, strategies, and tactics. Writing down the avenues you travel in order to market your business will afford you the opportunity to record what worked and what didn’t work. You must be able to measure and calculate the results of your marketing efforts, otherwise, what’s the point? If you don’t know if something is working for or against you, then it’s working against you.

Include details about all of the following that are applicable to your business in the marketing section of your plan: location and distribution, and promotional strategies, such as packaging, public relations, advertising, and customer service. As a result of exploring these areas, you will naturally need to consider how much you will budget for your marketing efforts. This question is closely connected to your sales forecast, which leads us into the next section of the business plan.

Financial Plan

The financial plan consists of four sections: Financial Worksheets, Cash Flow Projections, Financial Statements, and Additional Financial Information. All of these components will tell the story of how you plan to start or grow your business from a financial perspective. It is vital that you explain the assumptions under which you have based your projections, for example, “We assume that there are no unforeseen changes in economic policy to make our products and service immediately obsolete.” or “We assume interest rates will stay the same over the next three years.” (both quotes from Bplans.com sample business plans)

I suggest that you construct easy to read tables and graphs for the financial portion of the plan. The worksheets suggested are: Salaries/Wages and Benefits, Outside Services, Insurance, Advertising Budget, Occupancy Expense, Sales Forecasts, Cost of Projected Product Units, Fixed Assets, Growth (or Start-Up) Expenses, and Miscellaneous Expenses. You may find some of the worksheet templates at PlanWare.org to be useful.

The expected revenues and expenses for at least a year should be projected in the cash flow section of the Financial Plan. It’s better to make conservative predictions rather than be too optimistic when it comes to cash flows. As part of this section, a break-even analysis is essential. This is the “amount of units sold or sales dollars necessary to recover all expenses associated with generating these sales.” (NxLevel for Entrepreneurs, 2005) The formula for calculating the break-even quantity is Total Fixed Costs/(Price – Average Variable Costs).

The financial statements section should show the way things are now if you have an existing business, as well as a forward look at your checking account, or projected income statement. The only way a start-up company can provide an income statement and balance sheet is by projecting these figures based upon well defined assumptions. Both start-ups and existing businesses should include a statement of owner’s equity.

An income statement shows revenues minus expenses, in order to calculate net income or net loss. Start-ups should project these expected results for the first twelve months of business, then quarterly for the next two years. A list of a company’s assets (what you own), liabilities (what you owe), and net worth (assets minus liabilities) is called a balance sheet. The statement of owner’s equity shows the owner’s initial investment, additional investments, and retained earnings, minus owner withdrawals.

The additional financial information at the end of this part of the plan should give a summary of your business’s financial needs in order to grow, show its debt position, and state the owner’s financial status.

Appendix

In the appendix, which is the final section, an action plan or timeline for implementing the business plan should be presented. This is where the detailed goals and objectives are expanded in a work plan. Also, include in this section any additional information or supporting documents that are relevant to your business plan, such as important research, marketing materials, product specifications, and owner and employee résumés.

Executive Summary

Now that you have written the hard part of your business plan, it’s time to write the fun part, the executive summary. As mentioned in the beginning of this white paper, this is the most important piece of the business plan because it illustrates the very essence of your business in a captivating and condensed form. If you ever share your business plan with a potential investor or potential buyer, the executive summary may be the only thing that is read.

Make the executive summary brief (no more than two pages), but make sure you showcase the best qualities of your business without glossing over important information; show why yours is a winning business. Write one to three sentences about each of the following:

  • General description of the business
  • Mission statement
  • Management structure
  • Business operations
  • Products/services, the market and your customer
  • Your marketing plan, including the competition
  • Financial projections and plans

A clear, concise, and convincing executive summary will intrigue your audience and inspire them to read the rest of your plan. If the plan is never seen by anyone outside of your business, don’t assume it was a waste of time. During the planning process, you will have worked through an enlightening exercise that prepares you to run and grow a better business.

Having this written document available for frequent consultation and review will improve your chances of not only surviving, but coming out strong on the other side of this recession. Most people think that knowing in the back of their mind what they plan to do is sufficient for survival or recovery, but the difference between a written plan and an idea is usually the difference between failure and success.

Starting a New Business the Right Way

So you’ve decided to take the plunge into the exciting world of business. Starting a new business is one of the most satisfying ventures to undertake as you’ll be working for yourself and watching your efforts bear fruit. You need to set up your business in the right way to ensure your enterprise runs smoothly without any hiccups.

Initial Setting Up of Your Business

The first thing that you have to do is decide on what sort of business structure you’re going to need for your particular service. Perhaps you’re a plumber and want to start a plumbing service business as a sole proprietor. That means that you’re starting your business as an individual who’s trading on their own. Now you’ve got to choose a name for your business. You may want to select a name like ‘Payne Plumbers’ to better identify the type of business you’re conducting.

Once you’ve decided on the name for your business, the next step is to apply for and register your business name with the relevant authorities. In Australia, you have to register your business name in the Australian state or territory in which you plan to operate. Before you can register your chosen business name, you must first check to see if the name is already registered as a business. If it hasn’t, then you can go ahead and register your business with the relevant State Consumer Affairs Department.

Next, you have to apply for an Australian Business Number or ABN. This is a unique 11 digit number which is exclusive to your business. You’ll use this number when transacting with other businesses or customers. It’s important to include your ABN on your sales invoice otherwise your debtors have the right to withhold 46.5% of any payment due to you. It’s necessary to have an ABN to facilitate communication and dealings with the Australian Taxation Office or ATO.

Another important reason why you’ll need the ABN is because it’s necessary to register your business for Goods and Services Tax or GST. You now have to register for GST to ensure that you can both charge and claim GST credits on your sales and purchase invoices. It’s vital that all your invoices to customers include a 10% charge for GST. You’ll also be charged GST on any supplies that you purchase. You must account for the difference between the GST paid by your customers and the GST you’ve suffered on your supplier invoices, to the ATO every quarter.

Sorting Out Your Business Accounts

This critical component of a new business start up cannot be stressed enough. Setting up your accounting system is vital if you are to get a good grip on the financial aspects of your business. You need to have a chart of accounts to classify the various accounts in your business in order to charge expenses and allocate payments. You must have monthly bank reconciliations performed to find out your true cash balances and what cheques have not cleared in the bank statement. You also need to reconcile your credit card accounts if you’re using your credit card for business purposes. You need to have proper debtor management systems in place so that you know the extent of your Accounts Receivable.

At the end of every month, you should be able to assess how well your business is doing from the monthly management accounts. You can determine how much income your business has made and how much you owe your suppliers. You’ll see your various accounts in a trial balance that ensures all the debits and credits are in balance.

All these functions are important for the smooth and efficient running of your business. You should use the services of an excellent bookkeeper to ensure that your accounting records are maintained systematically, accurately and completely.

Connecting with an MYOB Partner

The most common business accounting software in use in Australia is MYOB or Mind Your Own Business. You should team up with an MYOB Approved Partner to ensure your business accounting requirements are efficiently handled. A MYOB Approved Partner will utilize this cost effective, powerful and competent software to manage your entire accounting records from the Accounts Receivable and Payable to Invoicing and BAS.

The benefits to your business are multifarious as you’ll be assured that only state of the art and comprehensive accounting software is being used to record your transactions, update your accounts and invoice your customers. You can have access to timely support for MYOB services and be apprised of the latest software updates that further enhance performance.

Getting Your Business Off To A Good Start

As a new business owner, you’re most concerned about getting new clients and building your business. You’re focused on providing excellent services to your customers and retaining their custom. You’re driven and primed for quality output. You’re also often pressed for time with many activities and tasks demanding your attention at once.

Furthermore you need to have an online presence to add credibility to your business. Many people search for services on the internet and are often impressed if you have a website they can refer to for further information. You must have a registered domain name and have your website designed attractively to garner more traffic and optimized for better sales conversion. Your site has to be hosted on a reliable server to ensure you’re available on the Net 24/7 with no downtime or broken links. You must be able to communicate with your suppliers and clients via email, a fast and efficient mode of communication.

What Has Business Networking Got to Do With It?

Business networking is a form of marketing. It creates various business opportunities for the businesses that network together. Many businesses use it to generate more leads and customers because it is a less expensive alternative to traditional forms of advertising and marketing. Business networking can be done using a variety of free websites along with some that charge small monthly fees, but for the most part, business networking requires less monetary investment and more personal time commitments, therefore protecting the business capital and cash flow. It can also be done offline in a face-to-face manner, making it very flexible to fit the needs of nearly any entrepreneur or business model.

Online Business Networking

This method uses various business networking sites to connect with other business owners and customers all over the country, even the world. It makes it very easy for people to stay in contact with leads and customers all over the place, no matter where they are located or the distance between the business and its customers. There are several different sites available to choose from, some for general purpose, and others specialized for certain kinds of businesses.

Offline Business Networking

This kind of business networking has been done for years, even before the existence of the Internet. When you meet with important clients for lunch, dinner, or even a round of golf, this is networking. This kind of networking still remains effective in that sometimes people enjoy a more personalized interaction than words on the screen. Others sometimes still prefer the online communication because of the convenience factor of being able to network while still wearing pajamas.

Why is it important?

It is important because it is necessary to meet new people so as to create and sustain new business relationships. Continuing to grow, no matter how large or small a business may be, is very important to the overall success of the business. Without networking, your business will have to rely on word of mouth, and other more expensive forms of advertising. While these may work and bring success to your business, networking is a factor that may be just enough to send your business hurling past the competition.

Getting Started

Get involved. Go out and meet people. Talk to them. Join social networks. Start actively participating in those. Let everyone know what you do. Inform them about your business through your online profiles and conversations in the real world.

Business networking is something that is very easy to learn how to do. It is something everyone should try to do, and if they don’t like it, they can always hire a couple of people to assist with the task. It will get people to notice your business and help you find ways to become more involved with the community and your customers.