Business Planning
Brian O’Kane explains what involved in business planning – and why it’s different from writing a business plan
Research and anecdotal evidence both show that an effective business plan is one of the major elements in successful business start-ups. The fact that almost 50% of new businesses world-wide fail within three years of start-up, and that 75% of these failures can be shown to be due to lack of planning, emphasises the importance of a structured approach to business planning. It is not enough to know where you want to go, you also must know how you are going to get there. A good business plan offers you a route map to success.
The benefits of business plans are dependent on how they are used – as live documents that bring clarity of thinking to your actions or as something that needs to be written simply to get finance for your start-up. While fund-raising is often a necessary purpose of business planning, it is certainly not the only, or indeed major, purpose. In fact, the main reasons for business planning are:
o To establish the fundamental viability of a project
o To define realistic goals for the business and map out the steps and intermediate targets required in achieving them
o To act as a yardstick for measuring progress against the targets
o To communicate ideas to outsiders, particularly those outsiders you are seeking to persuade to invest in the business.
Business planning for a new venture is a process that defines the goals of the business and the means by which they will be achieved. The process involves a thorough analysis of the major factors involved in achieving success in a new business. The output from the process is a formal business plan document that records those goals and factors. This distinction between process (business planning) and output (a business plan) is critical – and the business planning (process) is more important than the business plan (output).
The process of business involves asking – and answering – these key questions are:
o Are you the right person to set up and run a business?
o Have you got a feasible idea?
o What formalities must you complete before you start your business?
o What sales do you expect and how will you generate them?
o How, and with what resources, will you meet your planned sales?
o Can you describe the people you will need and how you will organise them?
o How will you fund your business?
o Have you the best plan possible?
o Have you got a document that adequately captures all your strategies, targets and projections?
Although apparently simple, these questions are very powerful. Answering them well (there are no “correct” answers in the real world) leads to a stronger business and one more likely to achieve its aims. This is because the questions see the business from the viewpoint of a reader, not the writer, of a business plan. In answering these key questions, you answer the questions that will be in the forefront of a reader’s mind, be that reader an investor, a lender or potential participant in the new venture.
Depending on the reader, of course, there may be additional questions. For example, a banker will be concerned about security for a loan and the ability to repay the loan over an agreed period. An investor will want to know what they will get back for their investment and what is the “exit strategy”. A support agency providing grants may be concerned with the number of jobs being created. But whatever the background of the reader, each will want clear answers to all of the key questions posed above. If you cannot provide clarity of thinking in dealing with these questions, then your business idea has not been thought through fully and you need to do more work. In many ways, answering these questions acts as a safety valve that prevents you from establishing a new business without understanding first the requirements of the business.
And, if you doubt the value of business planning, just look at the success rate of franchises – generally held to be over 70%, sometimes as high as 90% – which is a result of the franchisor, with all his/her experience of the business, doing the bulk of the planning for the franchisee.
Brian O’Kane is managing director of OAK TREE PRESS (www.oaktreepress.com), author of Starting a Business in Ireland and Could You Be Your Own Boss?, co-author of Starting Your Own Business: A Workbook, and webmaster for www.startingabusinessinireland.com.