How to Write a Business Plan That Works
Key components in and organisation’s success will depend on a great degree on how well you;
- can gather and interpret information
- adapt to change
- manage staff and resources
- promote your business
- look after customers and more.
This is where forward planning can help you.
A colleague once told me that ‘even a bad plan is better than no plan at all’. A bad plan at least shows that you have given some thought to the direction you want to go in.
A good plan takes time and effort, especially the first time you do one and many business owners or operators think they don’t have the time, or don’t see the value in it. But believe me… it is worth the time and effort!
It is an opportunity for you to build solid foundations for your business, based on known facts and these allow you to:
- be very accurate in your plans and future projections.
- avoid unforeseen pitfalls and crisis situations
- spend your money and/or other resources in the most effective way
- stay ahead of the market
- make the most of every opportunity
- be pro active and choose your own course rather than be reactive and follow everyone else
- stop wasting time, effort and resources on inefficient processes and more
Good business planning involves:
- looking at what you’ve done in the past few years
- looking at where you are now
- drawing conclusions from the above two points
- based on that information determining your objective for the coming year/s
- setting key strategies to help achieve the objective
Analysis of Past Performance
In this section of a business plan you look at the past year (or two) to take a good look at what worked and what didn’t. Where you came from is every bit as important as where you are going. You need to look at:
- What promotional activities did you run– for example did you have any discount deals, special offers etc?
- What worked? What didn’t?
- Why did the activities work so well, not so well – find the reasons
- Advertising campaigns
- (again) What worked? What didn’t?
- Why did the campaigns work so well, not so well – find the reasons
- What mediums did you use? (ie Newspapers, magazines, radio. List the actual companies you used as you may have used a number of different ones.)
- How much did you spend on them?
- Which ones generated enquiries and which ones didn’t?
- Did you keep track of the enquiries, if so, what were the results?
Keeping statistics on where enquiries come from can help you to use your advertising budget in the most effective way. There’s no point in spending a lot of money on advertising on television, for example, if most of your enquiries come from newspaper ads or word of mouth. Asking customers where they heard about you and keeping a record is the best way of determining advertising effectiveness.
- Were there any noticeable or unusual increases or decreases in your business? If so, why did they happen?
- Were the increases/decreases at any particular time of the year, or did they affect any particular product or service. If so why? Do a detailed analysis of product and service sales. How many of each individual product or service did you sell? Break these figures up by month (as shown in the graph above) as this will, again, show up regular high and low periods which will then allow you to forward plan. For example in high sales periods you know that you will have to order more stock and put on more staff whereas in low demand periods you order less. You can plan for these peaks and troughs in advance… because you have statistically shown that they are coming. An example of a detailed sales analysis is shown on page 15.
- Did your competitors do anything that impacted on your business? If so, what was it?
- How did it affect you?
- Are they likely to do it again?
- What did you (or could you) do about it?
- Budgets – income and expenses. This is extremely important and we will look at this in detail later in the document. Over the years these statistics will build an extremely accurate picture of your expenditure habits and sales that will show trends. With this information you can anticipate what is going to happen and proactively avoid any pitfalls or take advantage of upcoming opportunities. You can forecast – with a fairly high degree of accuracy – how much you will earn and spend in the coming year. While you might have an accountant to look after the “book keeping” for you, it is essential that you know exactly where your money is being spent and what your income is made up of.
The answers to these and any other questions relevant to your particular industry and business will give you a solid base upon which to build your plans for the future. Knowing how you got to where you are now can show you where you went right… and where you went wrong and gives a clear
Looking at the above information – what conclusions can you draw? For example:
- What will you do again next year and why?
- What won’t you do again next year and why?
- What will you do differently and why?
- Were there any lessons to be learned?
- What were they?
- Did you spend money on areas that were unsuccessful / unsuccessful?
- How much?
- Was this money well spent? Why / why not?
- Which products sold well / not well?
- Will you expand your product line?
- Are there any products you should discontinue?
Overview of Current Situation
It is very important to have a firm grasp of your current business environment. This is where you look at what is happening around you right now. Things that are happening that could potentially have an impact on your business. This will:
- give you a clear idea of any issues that might get in the way of your plans in the foreseeable future
- give you the opportunity and the time to take proactive action on any of these issues. This is much better than having to “react” to a change or problem that you didn’t anticipate.
It’s like having a high powered torch in a tunnel as opposed to a match!
A good overview of your current situation will involve looking at:
- the business environment in which you are operating
- your strong and weak points
- what your competitors are doing.
Business Environment Analysis
What exactly does “business environment” mean?
At its widest view point it can mean the sum total of a number of external and internal factors that affect you and the organisation you work for.
External factors could include such things as:
- Political issues. The stability of the Government can have a dramatic affect on the country’s or state’s economy.
- Legislative issues. New legislation can have an impact on your particular industry.
- Economic Trends. Are people spending money? What are they spending it on and so forth.
- Social Trends. What’s in.. what’s not? Safety & security issues as well as environmental protection issues etc are considered here.
- Competitors. What is your competition doing and how does that affect your business?
- Technology. This is an area that is constantly changing and can have quite an impact on the way business is done.
Also known as a PLESCT Analysis this is a thorough look at the world around you and the influences various issues may have upon your customers, suppliers and therefore your business. Doing this type of research means that you should not be caught unawares by new legislation, trends, changes or advancements. PLESCT stands for: Political, Legislative, Economic, Social, Competitor and Technology and looks at each of these sectors and how they may affect you positively – or negatively .
Doing a PLESCT Analysis
Some of the issues to consider when doing this analysis can include such things as:
Political issues. Here you should look at the general political stability of the country or state.
- Is there an election due? People get nervous around election times and are cautious about spending / investing their money
- Has there just been an election? In which case is the new government likely to make changes to the status quo – and if so, how will this affect you?
- International economic and social environment – how stable is the situation?
and so on….
For example changes in government often have an impact on businesses dealing with health, education and employment as existing programs are often changed or discontinued after an election, or new programs are introduced. International economic crises often have a big impact on our own market as does the increasing threat of terrorism or conflict situations.
- Have any new legislations been passed / or amended that affect your industry?
- If so, what will you have to do to comply with them? How will these changes affect:
- policies and procedures?
- Do you need to obtain any licenses or permits?
For example all staff working in the childcare industry, or dealing with under 18’s, must have a Blue Card, while industries dealing with tobacco or alcohol have very strict licensing laws.
Economic issues and trends
- What is the current economic climate?
- Does the current international climate have an effect on us?
- Are people spending more / less money?
- What are they spending it on?
- Are they likely to spend it on your product or service?
For example, the cost of living is currently rising faster than wages – things such as petrol prices and interest rates are increasing rapidly and people are thinking twice about spending their hard earned money.
Social issues and trends
- People will often be influenced in their purchase decisions by “what’s IN”, or may wish to keep pace with friends
- Environmental issues such as water saving, conserving energy and so on can have an impact on people’s purchasing decisions and so need to be considered
- Cultural issues also need to be considered – people from different countries and backgrounds have views and customs that may dictate how they make their purchasing decisions.
Competitor information – This is a very important part of your business environment analysis – you need to know as much as you can about your competitors. Questions you need to ask are:
- Who are they?
- Where are they located?
- How big are they (compared to you)?
- Do they have any affiliations?
- What are their promotional activities?
- How do they advertise?
- What do they advertise?
- How does their product range compare to yours?
- How do their prices compare to yours?
- How does their service compare to yours?
- What impact do they have on your business?
The answers to these questions will give you an overview of how you compare to them and what you can do to improve, and therefore win extra business.
If practical, a product/price comparison grid is an excellent way of keeping an eye on how you are faring against them.
It’s also a good idea to also do a SWOT Analysis on your main competitors (next section) – you need to be able to:
- counter their strengths
- take advantage of their weaknesses
- take advantage of the same opportunities and
- maximise their threats.
- Is there any new technology available that will have an impact on the way you do business?
- Is it viable for you to adopt this new technology from a cost point of view?
- Can you afford not to adopt this new technology from an efficiency point of view?
- What impact does the internet and electronic means of communication have on your business?
Internal influences also need to be taken into considerations and could include:
- The overall economic state of your business. Is it doing well or not?
- Change of ownership or management of the business. This could have a big affect on the internal workings of the company and the company morale.
- Change of direction for the business. Are you offering new services or products?
- Updating or upgrading of the business. New premises, new equipment etc.
- Down or Upsizing. Are you laying off staff or hiring more?
Looking at the PLESCT Analysis and your internal influences in detail will give you a firm understanding of what is going on around you, and will help you:
- avoid unpleasant surprises that could be costly and damaging to your business
- stay a step ahead of your competitors
- help you take advantage of new opportunities quickly
- minimise the impact of negative trends…..
A SWOT analysis allows you to have a deep down, honest look at your organisation in terms of its strengths, weaknesses, opportunities and threats and to look at ways to make you stronger.
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What are your organisations strong points? For example:
- Do you have a great location?
- Is it easily accessible?
- Is it a long established company?
- Does it have an excellent reputation?
- Does if offer anything unique?
- Do you have a lot of repeat business?
- Are your prices the best?
- Are you a market leader?
and so on.
What are your organisations weaknesses? For example:
- Is it a newly established business and not yet well known
- Is the infrastructure in the surrounding area poor making it difficult for customers to get to you?
- Are there any problems with suppliers or staff?
and so on. A point to remember is that not all weaknesses are negative and could be viewed as opportunities for improvement.
What opportunities are there that you could take advantage of? For example:
- New legislation opening new markets to you
- New housing or business developments bringing new customers into your area
- New technology that will make your production or processes more efficient
- Introduction of new product or service lines that will increase revenue
and so on.
What things could stop you from achieving your goals? For example:
- A new competitor in the marketplace
- A change in legislation that will mean major changes to your business practices.
- Re-zoning of your area or roadways changing and taking customers away from their current routes (where you are located)
and so on.
When looking at your SWOT Analysis what areas need to be addressed?
- Strengths – what can you do to capitalise or maximise on them?
- Weaknesses – what can you do to minimise or negate their impact. Which of them can be turned around to become a strength?
- Opportunities – what do you need to do to take advantage of these opportunities? How can you ensure you get your slice of this opportunity?
- Threats – what can you do to avoid or minimise the impact of the threat?
The answers to these questions will form part of your business plan.
Objective for Next Year
Having looked at your past analysis and current business situation you should now have a solid grasp of your business and where it needs to go to remain successful. Your endeavours to date will now give you a clear direction – or objectives – to aim for in the next one to three years.
One overall objective will have a number of Key Strategies – each of which will, in turn, have a set of tactics designed to help achieve each strategy and therefore the ultimate goal.
- Your objective is WHERE you want to be in a given period of time (ideally 1 – 3 years0
- Your Key Strategies are WHAT you need to do to achieve the objective and
- Your Tactics are HOW you are going to go about actually making it work
The objective, as stated, is where you want to be. The key strategies are the issues you need to address in order to achieve the objective; WHAT needs to happen. For example if your objective is to increase your revenue by 10% over the previous year, then typical key strategies could be:
- Introduce a new product range to fill an identified market need
- Decrease expenditure by 15%
- Increase your customer base by 10%
All of which would work towards achieving the overall objective.
Obviously strategies will be determined by your own business and industry needs, so think about the things you need to do to achieve your goal.
Each strategy will have a series of tactics (or steps) that need to be taken to make that strategy work. As mentioned, these will outline HOW you will go about each strategy. For example.
Key Stratey 2: Decrease expenditure by 15%
2.1 – Review all current suppliers to ensure we are getting the best product for the best price
- 2.1.1 Offer tender opportunitities to new suppliers
- 2.1.2 Research new suppliers via web, phone calls etc
- 2.1.3 Review all suppliers on an annual basis.
2.2 – Introduce new procedures regarding unnecessary printing of emails and other documents to decrease amount of paper being used
2.3 – Re-use single sided documents as scrap paper / memo pads to save paper
2.4 – All electrical equipment and lights to be turned off when not in use
2.5 – Review discounting policy and determine if this could be replaced in a more cost effective manner
2.6 – Review consumable usages
and so on.
Once again, the tactics will depend entirely on what strategies you need to fulfil and should be as detailed as possible. These tactics will form part of your action plan. If there is a cost involved, or extra resources, then detail them here.
Sales Forecast for Next Year
Forecasting is neither as scary nor as complicated as it sounds – if you keep accurate sales records!
Sales forecasting means making an “educated” guess on how much revenue you will earn in the coming year and for this reason accurate records are essential and indispensable. You need to know where your sales came from – by product or service and even by month or week of sale. This may seem overkill but eventually this data will give you a complete and detailed picture of exactly how your business is performing. For example spikes (up or down) in sales figures don’t happen for no reason – detailed statistics can show up these spikes which might be due to such things as:
- Promotional or advertising campaigns
- New trends
- New products
- Competitor initiatives
- Seasonal fluctuations
- Economic climates and so on….
For example – the Tourism Industry is very much affected by high and low seasons. They usually know well in advance when demand will increase or decrease. Travelling to Europe in their winter is low season and demand is not as high as going in their spring or summer time. Knowing this tourism operators can plan for these periods by developing specific products designed to increase sales and take advantage of increased demand in high season. They can also accurately forecast revenue because they have a solid knowledge of who their customers are and when they travel on a month by month basis.
The same may well apply to your own industry.
A review of past years sales statistics can give you an excellent idea of how your sales happen on a month by month basis. You can read the trends like a story – allowing you to estimate with a large degree of accuracy what sales you can expect to make and know how much you will need to spend in the next year.
But what good does all this do you in forecasting? When you have collected this data for a number of years you can start to build up a picture of:
- peaks and troughs in your sales
- popular and less popular products,
- popular times of the year
- effects of advertising and/or promotional campaigns and so on
Sales figures rarely drop (or increase) for no good reason.. the trick is to be aware of what is going on around you so that you know why increases or decreases happen. This is where your PLESCT and SWOT prove valuable.
Armed with all this accurate and well researched information you should be able to make a reasonably accurate prediction on how many of each product you will sell in the coming year.
Points for your action plan will come from the tactics. By putting them into an actual action plan, detailing what needs to be done, by whom and by when, you can ensure that each task (or tactic) is done on time and will therefore take you that step closer to reaching your objective.
That, ladies and gentlemen, is basically it!
By following these logical steps you can:
- gain a greater awareness of the environment in which you operate
- avoid major pitfalls that may come your way
- realise your strengths
- overcome weak points
- take advantage of opportunities that are presented to you and much more
Templates for building a better business plan can be found on www.lptraining.com.au