The Small Business Start-Up Guide
by Robert Sullivan

. . . brought to you by The Small Business Advisor


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CHAPTER 6
Planning For Success

WHY PLAN?

TRUISM 10
Planning is mandatory for business success.
Fail to plan and you plan to fail.

In some ways this is the most important chapter in the book since planning is the single most important element in starting and operating a business. Amazingly enough, it is also the most overlooked. Lack of planning is the cause for the majority of business failures. If you only take one thought from this book, remember this:

START PLANNING FROM DAY ONE AND KEEP PLANNING THROUGHOUT
THE LIFE OF YOUR BUSINESS. MODIFY YOUR PLAN AS YOUR
BUSINESS GROWS AND AS EVENTS DICTATE.

Planning is difficult because there is no immediate feedback as to its value. But if you think of starting and operating your business in the same way you might think about climbing the mountain that was mentioned at the beginning of Chapter 1, the purpose and advantages of planning become clearer.

When you start up the mountain you never know what to expect: sudden change in weather, lost or broken equipment, mistakes in maps, an injury. If you plan for these events, you will be able to deal with them and still reach top of the mountain in spite of the setbacks. On the other hand, if you fail to plan, you will not be prepared to meet problems that happen due to circumstances beyond your control. This can be disastrous. If you take the time to plan carefully, you will anticipate more of the potential problems, find solutions, and be able to achieve your ultimate objective.

THE "BUSINESS PLAN"

Many books have been written on how to write an "effective" business plan and most provide good advice. The traditional business plan is a very well defined and structured document. You write it so that it can be shown to lenders, potential investors, and bankers in order to raise capital for the business. So, it's sort of an advertising document and, well, maybe tends to exaggerate a little.

Many people will argue that the business plan is a planning document. However, it frequently is not because of these exaggerations. After a while YOU will start to believe the business plan ... even if you know that what is contained within the document is absurd in places. (Yes sir, there is no doubt about it, sales will easily double each year ... as long as we can obtain adequate financing.)

If your business is going to require investor capital at the onset, you will need that traditional business plan. See the references listed at the end of this chapter for some examples of where to find information on preparing a traditional business plan. But BEFORE you even get to this point, or if you are like so many of us and are starting a small business venture where little or no formal investment is needed, you need another plan ... A plan for YOURSELF ... A HONEST plan for you. You need a strategic plan.

THE STRATEGIC PLAN

A strategic plan is your plan for success. It will define your business mission, your present situation, and where you want to be in three to five years. A strategic plan, like the traditional business plan, should be well-structured, and include a number of short succinct statements covering the following areas:

  • Vision Statement
  • Mission/Purpose Statement
  • Scope of Business
  • Assumptions
  • Goals and Objectives
  • Risks
  • Strategies
  • Progress Reporting Methods
Every statement in your strategic plan will be important since it defines what your business will be, what your objectives are, and how you intend to achieve these objectives. If you find you cannot write about the areas that are about to be discussed, you need to stop and think carefully about your situation until you can. A strategic plan will allow you to anticipate problems and to make decisions that will help you meet your business goals and objectives. Without a clear goal in mind, the best decision may not be obvious and you are reduced to guessing.

VISION.

This is a short statement that defines your overall long term goal. This statement should define WHAT your business will be. It should be brief (20-30 words) and clearly describe what you will be providing; and who the customer base will be. If the statement is too specific, it's not much of a vision; too general and it's unattainable. Your vision should be something to strive for ... usually a multi-year effort.

Poor:

"Provide the best automobile repair service in town." (too general)

"Build the largest Porsche repair garage in the country." (too general)

"Provide automobile painting services." (poorly defined)

"Provide rebuilding services for 12-cylinder Ferrari engines." (too specific)

Better:

VISION:
Build an automobile repair business, specializing in Porsche, that will gain a reputation for outstanding service within the community and will, first and foremost, always be responsive to customers needs.

MISSION/PURPOSE.

This is a definitive comment that tells WHY you are pursuing your vision. Why do you want to start a business? What do you have to give? Keep in mind that a lot of people have a vision but very few have a mission ... At least one they are willing to pursue (many people shared Martin Luther King's dream but he was the one who also had a mission to do something about it). Think about what your mission really is.

MISSION:
Make use of my background and experience with Porsche automobiles to provide high quality repair and restoration services; to provide jobs for locally qualified individuals; to provide for my family's needs.

SCOPE.

You need to spell out the boundaries of your business. You cannot be everything to every-body. If the scope of your business is too narrow, the probability for success may be diminished due to the smaller number of potential customers. On the other hand, if the scope is too broad, you will never be able to achieve your objectives. You may make a few customers happy in the short term, but it is not a good idea to spread your energies over too broad an area.

Poor:

"Provide automobile repair service." (too broad)

"Provide Porsche repair services." (still to broad)

"Provide high performance engine modifications for Porsche." (too narrow)

Better:

SCOPE:
We will provide our services for all Porsche automobiles with the exception of the 914 series. Our services will include general repairs and maintenance (less major body work), detailing, storage, rebuilding and restoring.

ASSUMPTIONS.

It is important to understand what specific assumptions you are operating under concerning your new business since they can determine and dictate how your business will grow and prosper. The more specific these assumptions are, the better. It may require a little research on your part to lay out these assumptions but the planning stage is the time to do it. It is difficult to give general examples, but in keeping with our Porsche repair facility, here are a few:

ASSUMPTIONS:

  1. I will keep my present job for the next 12-months.
  2. There are many Porsche owners in this area.
  3. Present Porsche repair facilities are not perceived as doing a good job or being responsive to customer's needs.
  4. My spouse will continue his/her current employment.
  5. I will limit my involvement to 20 hours per week for the first 12-months.
  6. I have fifteen customers that I can start with right now whose cars require major repairs.
GOALS & OBJECTIVES.

This is a listing of specific goals and objectives you want to achieve with your business. Think through this carefully. Your list should include items that can be "measured." This way you will know when you've achieved success. Goals should be realistic and doable within a one to three year timeframe.

Poor:

"I want to be independently wealthy."

"I want to be my own boss."

"I hate my job, I want to do something new and exciting."

"I want to be able to set my own work hours."

Better:

GOALS & OBJECTIVES:

  1. Be able to quit my present job within 12 months.
  2. Generate at least $150K gross sales in the first year of operation.
  3. Add at least 100 new customers by the end of the first year of business.
  4. Sponsor a racing team by the third year of business.
RISKS.

Identify as many risks as you can. This might be difficult since it requires some negative thinking, but it is important for you to consider the downside in your planning. A new business venture can be risky, but what is important is that you identify as many specific risks to your proposed business as possible. By doing this, you can plan to deal with the risks. In our example, consider the following:

RISKS:

  1. Possible damage or loss of tools, inventory, facility.
  2. Loss of customers due to the competition.
  3. Loss of employee(s).
  4. Loss of an important supplier.
  5. Increase in cost of tools, parts, etc.
  6. Loss of lease requiring a new location and facility.
Missing from the listing are "acts of God." Risks of this type are usually covered by insurance. Refer to Chapter 10, Protect Thyself.

STRATEGIES.

Once the risks have been identified, you can list the ways to deal with them. Your strategies are the methods you will use to achieve your goals and objectives in spite of the risks. Here are some proposed strategies for dealing with the above risks.

STRATEGIES:

  1. Sponsor a monthly "clinic" in which we will provide the use of my facility to members of the local Porsche club. (generates loyal customers)

  2. Provide parts at a discount and free advice for those taking advantage of the clinic. (gain a competitive edge)

  3. Publish a monthly newsletter for all my customers. (excellent marketing)

  4. Use direct mail to identify potential new customers and send them our newsletter. (keep looking for new customers)

  5. Develop two reliable parts suppliers. (guard against loss of one)
  6. Constantly reassess pricing with respect to the competition and costs.

  7. Stay in close touch with my Realtor in terms of other locations in the event I have to move due to growth or problems with my current facility.

  8. Be an employer worth working for ... treat my employees like the important asset they are. (See Chapter 11, Hiring and Working with Employees.)
PROGRESS REPORTING.

You will need to identify a way for periodically re-porting the progress of the elements of your plan. If you write your plan and then forget about it, it doesn't serve the purpose for which it is intended. Your business is constantly changing ... many situations that affect your business are changing constantly and your plan must be updated or modified to reflect these changes. You must continually measure your performance against the plan. It is amazing how many planning documents are generated with great care and then placed in a drawer never to be looked at again. Don't you do it!

TRUISM 11
A plan that is not periodically reviewed
and updated is nearly worthless

Revisit your strategic plan monthly and revise and update it as required.

FAILURE

Your planning, if you have considered risks and especially the unexpected, should help you improve your chances for success. However, some businesses will fail for any of a variety of reasons. We've already talked about the fact that you must constantly update your plan to make sure it is tracking with changes as they happen. If you find, by referring to your planning documents, that you are not making satisfactory progress towards your goals, in spite of your best efforts, you must be ready to admit failure. Pull up stakes and cut your potential losses. Hanging on and watching your business slowly die can be financially and emotionally devastating. Alternatively, you might consider setting a new goal for a new business. In this case, the planning process starts again.

Perform a post-mortem and assess the failure. What went wrong? Were the circumstances beyond or within your control? Could the event(s) contributing to the failure have been anticipated and possibly mitigated?

In the true entrepreneurial spirit, you will probably be involved in a new business venture sooner or later and you want to be able to take advantage of your previous experiences. By spending time performing a careful assessment of your failure, you can document the lessons learned for future reference.

Lastly, you should be aware of this very important "planning for failure" truism:

TRUISM 12
Pay yourself first or you may end up with nothing for your efforts.

Do not make the mistake of putting every dollar of profit back into your business. Your business may very well prosper for a number of years and then be plunged into sudden bankruptcy through no fault of your own. If this happens, and, if you have not planned ahead, you may very well have nothing to show for your time or efforts. Plan for this disaster by remembering that YOU are the business and deserve to be appropriately paid for your efforts. Never forget to pay yourself first. In bad times, the creditors may hound you, but they will wait.

How much should you pay yourself? There is no easy answer or magic formula and it is difficult to give specific advice but some general guidelines are worth noting.

    • If your business is equity financed, your salary should be formally determined based on a formula agreed to by the equity lenders. For example, the initial salary could be based on current monthly needs with subsequent in-creases as the business becomes profitable.

    • If your business is debt financed (by yourself or others), your business or strategic plan should include your own salary and its basis. Clearly, if you are using your own money to finance a new business you probably won't initially take a salary. In this case you should ensure that your savings and any other sources of income will support you until you become profitable. However, as soon as the business starts re-turning a profit, start paying yourself a reason-able salary.

    • Strike a balance between growth considerations and your salary. This will be different for each business but thoughtful planning will allow you to determine an effective split.

We all plan for success but in the world of small business, failure is all too possible, and for reasons beyond your control. So plan for both success and failure - don't return every dollar to the business - keep some for #1, yourself!

In terms of protection, you should be placing a certain percentage of your income into a retirement account such as a SEP or 401K plan. Money in these types of accounts is protected from creditors.

Plan ahead, you won't be sorry!

SUMMARY

Fail to plan and you plan to fail. This statement, or something similar, has been made in just about every business book ever written ... and many entrepreneurs still don't take it seriously! Be the exception ... plan, assess, and plan some more. You MUST have a clear goal and a well-defined metho-dology for getting there. Take all the time necessary to produce a well thought out strategic plan. Plan for your success but also plan for failure. Do this in part, by paying yourself first and having an appropriate savings program.