Previous articles focused on considering a business of your own, defining the elements, planning for the business, and then developing the business plan. Last month’s article ended by asking you to capture some of the questions and answers that you would ask of someone else if they came to you as a supplier, business partner, investor, or customer. Those questions and answers are key to understanding how to define and communicate with the target audience of your business plan. The level of detail in your business plan and the processes you undertake to write it are a result of who you expect will read the plan and what you want to convey to them. This is especially important if you want to use OPM (other people’s money) to fund your business.
Part of the funding process usually includes having robust financial projections of the uses and sources of funds. These “pro forma” financial statements are estimates or projections of operations and activities translated into numbers that indicate what the business is going to look like, do, and get in return. While these projections can be made by the business owners and managers, banks and other investors tend to look for financial “models” of the business that are prepared by third party “experts” and reviewed by other third party “experts”. The reasons behind this are that it is critical to capture the business and financial assumptions accurately; to translate those assumptions and expected activities and events in a manner consistent with financial controls and methods – usually GAAP. [Note: GAAP-Generally Accepted Accounting Principles, the ground rules for how accounting and business transactions are recorded, valued, and timed. These rules are applied to insure comparability and consistency of treatment across companies.]
The more robust your business plan and financial modeling processes, the more likely you are to be able to identify and quantify the potential risks and opportunities in the business. By undertaking the business plan process, especially if you work with experienced business experts, you are able to understand the impact of various assumptions and decisions – while still in the conceptual stage. Think of the business plan and its financial projections as your opportunity to open your doors “virtually”, before you commit to physical space, payroll, and other investments. Your assumptions and projections won’t capture everything and they won’t be 100% accurate, but they will enable you to make reasoned decisions and have a plan for when things change or miss targets.
There is a saying that goes something like this “If you don’t have a destination in mind, then whatever path you take is fine.” Or to put it another way, if you want to drive to DC and you stay on I-40, you won’t get there. Choosing the path you are going to take for your life, your business, and your business plan depends upon where you want to go and how you want to get there. Do you want to have a route mapped out and a specific destination and schedule? Do you want to start driving and select your route randomly and accept whatever destination you reach?
There have been highly successful businesses that haven’t had a formal or written plan. Arguably they have had “informal” plans and guidelines as to what business they take and who they do business with. Whether they have had no plan or an informal plan, I just have to ask: How much more successful would they have been if they had had a plan?
The plan isn’t an end, it is a means to structure and guide what you DO. The plan will not encompass every aspect of your business, nor will all things happen as planned or expected. The plan will give you a measure, a yardstick, a benchmark for your business and facilitate your ability to know where you are, where you want to go, and what you need to do to get there.
Copyright © 2004 F.O.C.U.S. Resource, Inc.