Tuesday, November 3, 2009

3 to 5 Year Business Planning

As time goes by I sometimes think about the businesses I have been a part of, and of course my favorite memories are of the businesses I have helped create from scratch. If I was ever asked what the most important component was to each of these businesses I would have to say the initial 3 to 5 year business plans that each business required. Yes, I said required.

Most recently it is The Basement Design + Motion. This was the most pain staking, time consuming and rewarding plan to date. Before I get into the details of this planning, let me tell you I am a big believer of taking a proven winner, learning from it and executing built upon the winner's success. Assuming some small business owners, or future small business owners are reading this, here are a few steps I took to insure the plan was one that would help guide our business down the right path.

1. If you have never written a business plan before and you think you can run a successful business without it, think again. My words of advice; take plenty of time to write a complete business plan, review the plan, revise the plan, share the plan with a trusted advisor, and revise the plan based on feedback.

2. Dig up a proven successful business plan and adapt to your business. In my own experience I have often looked to the Harvard Business School's business plan contest that they put on for their business students. I was able to secure a copy of one of the winning plans and I looked at that as a great model to base The Basement's business plan off of. It was thorough, complete, to the point, had been reviewed and considered great by business luminaries who judged the contest and had plenty of great information that assisted me in making sure I was not leaving out any important variables or background information.

3. Do not get impatient and skip this critical part of starting and running your business. The streets are littered with failed businesses who did not work through a complete plan. Lazy planning will kill your business.

4. Find a successful business person that you trust and approach them about reviewing your plan to insure your projections, expenses, validation, mission, pipeline and more are realistic and based on an accurate foundation of industry intelligence. They may not be an expert in your industry, but the questions they ask will cause you to think through your plan, validate your projections and scrub your own reasoning.

5. When writing your plan compose it as if you will be presenting it to investors or potential suitors for your business. Even though this may not be a goal of yours - investors want to see the return potential, aka margin, time table to break even, time table to profit, top line revenue projections, scalability and future earnings potential of your business. Even if you do not think this is something you want to seek out in the future, those elements make for a healthy business, and planning for them now will only serve you well. After all, if your business cannot show profit, better to understand that BEFORE you sink yourself and your savings into it than after. Understanding how these important numbers scale out over time will help you plan more accurately for the future and become profitable quicker.

6. When writing your plan map out all potential start-up, one time and recurring expenses, not only for the first year, but for the following 3 to 5 years. Account for growth projections, taxes, services (lawyers, accountants, etc.) future employees, and the list goes on and on and on. When you think you have them all, add some more. Watch your margin shrink like George Costanza in a cold swimming pool. That is a good exercise because it will force you to review your cost model (what you charge for your service and whether or not the market will pay your price).

7. When you believe you have THE plan for success actually execute to the plan. Do not relegate the plan to the deepest, darkest corner of your hard drive never to be seen again. This is your most trusted partner in business and treat it like such. Go back and review the plan over time and adjust the numbers based on actual performance. review progress. Examine good months and what made them good against your plan. Examine bad months and what made them bad against your plan. Doing this will show you where you can improve, tighten up and expose opportunities for growth much quicker than relying on your gut. Fact based adjustment is always a good strategy.

I could continue this post for at least another couple of paragraphs, but I will stop here. Perhaps I will continue it in a "part two."

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