Key Points What s in a business plan? 1. An executive summary 2. The business profile 3. The market analysis for your products or services 4. The marketing plan 5. The operating plan 6. The management and personnel plan 7. The risk management plan 8. The finance plan 9. Overall action plan The four steps for collecting information for your plan 1. A situation analysis to determine what s happening now and why. 2. The setting of objectives to decide what should happen with the business 3. Determining the broad strategies by which these objectives will be achieved 4. Coming up with detailed actions required to implement these strategies Key areas to consider in the situation analysis step What s happening in the business environment you operate in? Who is the competition? Who is the customer or the consumer? What financial and budget considerations are relevant to your situation? Do you have the right people resources to perform the roles required? Summarising and organising the key facts from the situation analysis Prepare a SWOT analysis Consider the Business Implications derived from threats and weaknesses Consider the Key Leverage Points derived from strengths and opportunities Implementation of your business plan Set objectives that describe the end results you want to achieve Set strategies that outline the broad approach to achieving these objectives Build detailed action plans ie turn each strategy into a series of tasks Execute the plans through a daily, weekly or monthly meeting cycle 1
What a business plan is and why you should write one A well-structured and well informed business plan can be one of the most powerful instruments in your business toolkit. Ask almost any successful business owner and they ll probably agree with this. The process of developing a business plan provides a wonderful opportunity to think about your business, what you are trying to achieve and what you will need to do to get there. What is needed however is a clear and simple method to enable you to think through all the critical issues identify the key issues to be addressed, and create a plan to address them. In these detailed notes, we ll discuss why you should write a business plan, when you should write your plan or update it, and we ll provide a step by step process for how to go about it and what the end result should look like. Firstly, a business plan is a great tool which allows you to articulate your vision and future plans. It s a document that details how you will handle all the important aspects of your business. It may combine several other plans or sub-plans which can stand alone or at least be viewed separately when necessary. A lot of ideas sound great in discussion, but it s not until they are structured and committed to paper with financial plans to support them that you are really encouraged to think things through. Your plan should force you to do your own due diligence and to challenge the validity of your ideas. Writing a business plan allows you to think clearly about what you re doing and where you re going. Having done this, a well written business plan helps you stay committed to your goals as well as organised and on track to achieve those goals. It becomes a roadmap to track your progress and hold yourself accountable for your future. If you are running a business, a division or simply a team within a business a well written business plan will be vital to achieving your goals. So when should you write a business plan? Most successful businesses will create or update their business plan at least annually, or even twice a year if your business and the market you re in are growing or changing rapidly. But this doesn t mean that you should only look one year to the future when writing your plan. The best idea is to take about a three year time frame. Ten years would be too long we don t even know what the world and the business environment is going to look like in ten years because the pace of change is so rapid. However three years is short enough to predict with reasonable confidence what the world and the business environment are going to look like within that time frame. And three years is also long enough to give you time to implement and experience the outcomes of any initiative you plan over that period. Business planning should be a repetitive process so it s best to review and refresh your plan on at least an annual basis each time with a three year horizon. 2
What s in a business plan? Firstly an executive summary The executive summary provides an overview of your operation. Even though it s the first section of the plan it may need to be written last when you have a clear understanding of the direction for the business. Crucial to the executive summary is the vision, which must be articulated, irrespective of the size of the business. This might simply be a vision for the team, for a division or for the business as a whole. It provides direction and guidance on what the business stands for, its purpose and a big picture view of what the business or team is setting out to achieve. Next the business profile The business profile describes your business, including its name, location and purpose. If you run a team within a larger organisation, it describes the function your team fulfils and where it fits into the bigger picture. It may also include key information about the business owners or the main leaders in the team, such as their expertise and background. And now the market analysis for your products or services This crucial element of your plan identifies, describes and analyses the products and services you offer. It includes your target market, your market share and your competitors. This analysis is vital for making pricing decisions about your products and services. What logically follows is the marketing plan This outlines the strategies you will take to attract new clients and to keep your existing clients. A vital consideration here is how your product or service differs from what is already available from other providers. Then, the operating plan The operating plan summarises how your business or your part of the business actually works. It will include details of your equipment, key suppliers, materials you use, labour and technology. Management and personnel plan This is where you review staff functions, job descriptions, any essential HR policies, workforce planning and training. It should go without saying that the functions and skills of you and your people are crucial to the success of your business. Risk management plan The risk management plan identifies things which might affect your business and describes how you will deal with them when and if they occur to reduce or eliminate the damage potential threats could cause. The finance plan This is where you identify the costs for establishing or growing your business, the sales needed to break even, your projected cash flow, and any funding and repayment arrangements. The accuracy of this plan is vital if you are seeking funding from a bank, from investors or from the organisation within which your division or team operates. 3
Finally to the action plan The action plan identifies the tasks and the resources you need to complete to achieve your goals both short term and long term. It takes all the required actions identified from your plans we ve just discussed, covering marketing, operations, management and personnel, risk management and finance and combines them into one, organised and logical set of tasks and sub-tasks, identifying who will be responsible for each task and the date when it needs to be done by. Crucially, an effective action plan includes critical milestones (short term and long term) and results tracking tools. These enable you to track your progress against all essential tasks, giving you a means by which you can hold yourself and your key team members accountable for progress against tasks and goals. Collecting information for your plan What we ve covered so far is what you need to put into an effective business plan. And most of this information is internally focussed on what you are actually going to do. But what we ve not yet covered is how you collect and assemble all that information in the first place in order to put it into the plan. And we don t have a process to interpret that information, decide what to do about it and turn it into logical actions which address the key issues. What s needed is an organised but flexible process to follow. We need to understand our business and the market in which we operate. We need to understand what s happening and why. Then we need to determine what should be happening, considering alternative approaches so we can develop a detailed plan of action which we can implement tracking our results against the plan as we go. So let s look at a method we can follow which will help us to collect the information we need to put into our plan. As we outline this method, it may appear deceptively simple. But its flexibility allows you to make it as simple or complex as you need it to be, depending on the situation you re addressing. Writing a business plan doesn t always mean you have to take many weeks and come up with a fifty page document. It might take a few hours or a few weeks. But in each case the general process would be the same. It involves 4 vital steps: 1. Firstly a situation analysis to determine what s happening now and why. This means examining the market and the environment in which your business operates as well as looking at your business itself. 2. Steps two is deciding what should happen with the business by setting objectives. 3. In step three, we determine the broad strategies by which these objectives will be achieved 4. And finally in step four, we come up with the detailed actions required to implement these strategies which we then organise into a business plan. 4
Situation Analysis Although each component of this process is important, the situation analysis is the key. If the situation analysis is right, then all that follows will be right. If the situation analysis is wrong or incomplete or badly informed, then all that follows could easily be wrong because your business plan will be based on poor or wrong information. So it s especially important to devote the right amount of time and effort to explore and analyse the factors on which the effectiveness of your business plan depends. As we go through the situation analysis, you ll notice that we start by looking broadly outside our business then move via an analysis of our customers or consumers to look at what s happening inside our business. This is key to ensuring that what we eventually do is focused on the demands of the business environment, our market and our customers giving us the best possible chance of succeeding against the competition. The key areas to consider in your situation analysis are as follows: What s happening in the business environment that you operate in or more specifically the mortgage marketplace? What is happening with interest rates and unemployment? What are property prices doing and what does local housing supply and demand look like? Are the demographics of your local area changing due to higher levels of immigration? Is affordability preventing first home buyers stepping onto the property ladder? You need to be across the internal and external factors impacting your business. Now, who is the competition? How many local mortgage brokers or large franchises are in the area? What is their value proposition and how can you differentiate your offering? How are your competitors generating leads and retaining existing client relationships? Is your competition nimble and better able to react to change? It is important to know who you are competing with so you can continue to evolve your business. Who is the customer or the consumer? Who uses, wants or needs your products or services and where are those customers? The more you know about your customer the better equipped you will be to identify solutions that fit their requirements. Diversification into a new product area will only be valuable if it meets an actual customer need or want. What financial and budget considerations are relevant to your situation? This is firstly about cost. If you are looking to double the volume of leads coming in what will it cost to be able to service them? Will there be labour costs or other set-up expenditure on items like SEO marketing to maximise traffic to your website? What is the expected payback period? What is the financial impact both long term and short term to the bottom line? And this is also about profit. What is the expected revenue and what are the profit considerations? The last key area to mention is people resources. Do you have the right people to perform the roles required and do they have the necessary levels of skills and experience? Would you run a more effective brokerage if you hired a loan administrator to take care of the back office? Could you set-up relationships with external financial planners or accountants to add value to your customers without increasing head count? If you decide to diversify your offering to include a new product like insurance will there be a need for training? Who will do it? 5
Summarising and organising the key facts Up to this point in the situation analysis, the focus has been on data gathering. But gathering and organising facts is not enough. This is just the starting point because now we need to analyse the facts we ve collected and turn them into useful information. A key to turning the data into information is to ask why? or so what? at every step of the process. Think about or ask what s going on behind these facts. And when you have an answer, ask why again to get at the facts behind the facts, and to truly understand what s happening rather than relying on assumptions. Keep looking for the significance of the facts you ve collected at every stage. The business world is littered with examples of companies who made assumptions without the facts. Consider how many technology companies assumed that tablets would never replace PCs. Did they really do their research to understand why people were choosing mobile computing? Whether your business plan involves a team, a department or an entire business, it is important to summarise and organise the information you ve collected so that you can use the key information in your business plan. One way of achieving this is to do a SWOT analysis on all the information you ve collected. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths are internal to your particular business operation and are what your business does best. Weaknesses are also internal to your business, but they do the opposite they restrict what your business can accomplish. Opportunities are external circumstances, events or situations that could offer you the chance to achieve or exceed your objectives if you make the appropriate decisions and act on them. Threats are the opposite of opportunities. They are the external forces, factors or situations that might potentially create problems, harm your business or endanger your ability to achieve your objectives. We make a key point here a SWOT analysis is NOT meant to be a new fact gathering stage. It is a method for ORGANISING the facts gathered, summarising them, and analysing what they mean. Out of all the facts gathered, what are the most important strengths, weaknesses, opportunities and threats? Not all the facts are of equal significance. The SWOT analysis is the time to identify and separate out the relevant and critical information. This is also a tool that can be very helpful in analysing the competition. If your business has very specific competitors, it might be helpful to do a SWOT analysis on them and then compare this to your specific business operation. When the SWOT analysis is complete, a summary is the next step. This is where you finally answer those so what? questions we referred to earlier by looking at two broad categories Business Implications and Key Leverage Points. 6
Here is an example of a SWOT analysis: Strengths Weaknesses Well established referral network Services beyond residential mortgages insurance, leasing and personal loans Reputation for great customer service Extensive knowledge of the mortgage market and products available Opportunities High rental costs Poor web presence Not enough time for strategic planning Threats Build strategic partnerships with local financial planners and accountants Diversify service offering with new products like insurance Develop SEO strategy for more traffic to website Local area marketing to make brand more visible in community New housing estate opening in the suburb Competitors with large marketing budgets Keeping up with changing regulation Savvy consumers wanting to access mortgages online Business Implications are usually derived from threats and weaknesses. They are the combination of factors that are so significant that they must be addressed in your strategies and business plans for your business to go forward successfully. Business implications are the limitations that must be addressed in your business plan for your business to succeed. Key Leverage Points are usually derived from strengths and opportunities. They are the factors that take advantage of opportunities to build the business. Knowing what can be built upon or leveraged helps you decide the strategies you will include in your business plan. This brings us to the end of the Situation Analysis. We now know our situation we ve described what is happening with our business right now. What comes next is deciding what should happen with the business where we want to move our business to. 7
Setting objectives, strategies and action plans Once the situation analysis is complete, the objectives should be obvious. If not, then more time probably needs to be spent on the situation analysis especially in distilling the key points. Specifically, if the Business Implications and Key Leverage Points are clearly identified then setting the objectives will often only require quantification of the outcomes that you want to achieve. A complete business objective is a specific end result that you want to achieve. It should also be measurable in other words there must be some way to measure results. Measures might be sales volume, market share, percentages or dollar amounts in fact almost anything with a number attached. An objective must have a time boundary. How long will it take to achieve? The end of the quarter? One year or three years? In fact objectives may have more than one time frame, for example short term and longterm. Finally a business objective should be understandable. The true test of an understandable objective is to read it, tell it or give it to another person outside your business or your department. If they can understand what needs to happen without any additional explanation, then the objective is understandable. Determining strategies A strategy is defined as a broad, planned and directed approach to solving a business problem. It also means putting your business in an advantageous position relative to your competition, and using the most creative means possible to increase that advantage. A word of caution here the creative approach must come directly out of the SWOT analysis you did earlier and therefore it must derive from the business implications and key leverage points. If it wasn t there, it can t be done no matter how creative a solution it seems to be because every strategy has to be founded on something real and possible. If you decide there are several possible strategies which could enable you to achieve a particular business goal (which will probably be quite often) then you may need to choose one of these strategies the one which you believe will be the most effective, based on your earlier analysis. When we ve determined the strategy or strategies we need to implement to achieve our business objectives, we can start to identify the detailed actions which will be required to implement these strategies. 8
Action plans Action plans take the strategies and ideas and turn these into a series of tasks that can be assigned to individuals who can be held accountable for their completion. Action plans are your blueprint for execution. They must be specific and include: What each task is When it needs to be done by a time frame Who is responsible for doing the activity or getting it done How the task should be completed;and The expected outcome of the task including relevant measurement Contingencies for possible outcomes,and Budgetary considerations are also essential Accountability and communication between the people responsible for completing parts of your plan are critical because these can make or break your success. And the communication process is not a one off event. It is ongoing from start to finish and even afterwards when you move into the next business planning cycle. Putting your business plan together Early in this module, we discussed the essential elements of a business plan. These were: 1. An executive summary 2. The business profile 3. A market analysis and a marketing plan 4. An operating plan 5. A management and personnel plan 6. A risk management plan and 7. A finance plan 8. And finally an overall action plan as we ve just discussed which pulls all these elements into one workable and track-able plan. 9
If you have carefully followed the process of collecting information, analysing all the data and distilling the key issues, and if you ve then set objectives based on this analysis and determined the strategies to achieve them, then it s likely you have available all the information you need to compile an effective business plan one which covers all of these eight elements. It s possible you may reach this stage and realise you don t have enough information to complete one of these key elements. The best advice in this case is to go back to your original situation analysis and check whether you have truly examined all the important issues to see whether there s an area you need to look at again more carefully. On the other hand, you may conclude that the reason for this lack of information for a certain part of your plan is that there is no important change required for the period of this particular business planning period and therefore there are no key activities to include in this part of the plan. If so, rather than leave these areas out of the plan, it s important to document such conclusions and the reasons behind them so you can refer back to them at a later date. Execution of your business plan Execution is simply putting the plans into action. It is actually doing what was planned and tracking the results of those actions. It is during execution that plans are adjusted to fit any on-going changes in the real world because then the key dates, the milestones and the measures come to life. However if the execution is not effective then the excellent strategies and detailed action plans you ve developed will be of little value. So to be sure that your business plan is effective make sure you implement a framework through which everyone responsible for actions is held to account. This might be through a daily, weekly or monthly meeting cycle. In some ways it can be thought of as simply managing a project. In this way, each action plan can be reviewed against actual performance. At a minimum, you should assess business outcomes and progress against your plans every 90 days. This provides time for changes of behaviour to be demonstrated and for new strategies to begin to have their intended effect. 10