This article summarizes our approach to preparing one particular type of business plan with a client, along with the outline I’ve developed over time. We offer it freely to blog-readers and others who may find it useful.
When I help a client with a viable business create or update their business plan, I first make a distinction about the type of plan they want:
What I call a "Selling Business Plan" is used to convince bankers, investment bankers, and/or outside parties to lend to, invest in, or even buy their business, In contrast, a plan used for actively running a business month to month, year to year I call a "Living Business Plan."
While the two types of plans (and other types out there) have much in common, the latter type is extraordinarily helpful to running a business, or so I’ve found with my clients.
I've just completed Living Business Planning for a round of clients, and I love it when they choose to create or update a plan, regardless of whether I help them or they do it on their own. My job is to provide both a template that works, and a process for completing that template.
Regardless of how small/simple or large/complex is the P&L you run, a Living Business Plan can help you set and stay on course over time.
First, some process notes:
1. It's always best to get an outsider to help you prepare a plan -- whether a paid consultant, or a trusted advisor. Just make sure they have no direct stake in your business.
2. I like to use three-year periods for the overall view, and one year -- the current year -- for the key milestones and measures. More about that in the Plan Outline.
3. I use presentation software, like PowerPoint, rather than doing a long, text-intensive Word document.
4. I like to include first the thoughts of the person in charge of the P&L, do a draft, review it with them alone, do another draft, then review and update it in a working session with the leadership team, then another draft, then a final review with the P&L head alone, then a completed plan.
5. At the end of the process, I like the P&L head to walk through it with the leadership team, if there is one, and get their "buy in," particularly on the first year.
Now, here’s the outline of the key components in my “Living Business Plan,” roughly in this order:
A. CURRENT SITUATION
I. Mission Statement: what is the reason for the organization's existence? (Less than one page)
II. Vision Statement: what is the leader's vision of where the organization is heading in the next three to five years? (Less than one page)
III. Values List: a list of values that are the MOST important to the organization (less than 10 bulleted values)
IV. Landscape: what is the backdrop to the stage on which the organization exists, and how is that backdrop changing?
V. Strengths: what are the organization's existing/on board top 10 strengths, in the areas of clients, employees, products/services, technology, finances, operations, strategy, and/or positioning in the marketplace? (Bullet list of 10)
VI. Weaknesses: what are the organization's existing/on board top 10 weaknesses in these same areas?
VII. Opportunities: what are the organization's current and immediate future highest-priority opportunities to create, launch, introduce, enhance, fix, improve, change, and/or address that are most in sync with its Mission, Vision, Values, and Landscape? (Bullet list of 10)
VIII. Threats: what specific threats is the organization facing from outside itself -- e.g., competition, commoditization of products or services, regulations, legal issues, government-related issues, financial pressures outside of its own control, or marketplace issues. (Bullet list of however many people can imagine).
B. FINANCIAL OUTLOOK
IX. Base-Case Three-year Revenue Plan: top line revenue expectations that, after a number of passes, can answer the question "Is this optimistic, pessimistic, or realistic?" with "It's realistic." (Spreadsheet)
X. Best-Case Three-year Revenue Plan: (optional) top line revenue expectations that are optimistic, but not wildly so. (Spreadsheet)
XI. Worst-Cast Three-year Revenue Plan: (optional) top line revenue expectations that are pessimistic to downright grim. (Spreadsheet)
XII. Base-Case Three year P&L Plan: looking at the previous year -- just completed, along with the Opportunities (above), the existing and anticipated capital and operating expense structure without necessarily doing detailed budgeting, and the Base Case Revenue Plan, what are the gross expenses (total for each year), and the gross margin for each year? (Table)
C. MARKETING ANALYSIS AND PLAN
XIII. Detailed Year-Ahead Revenue and P&L: yes, detailed budgeting is required to develop this realistic view of the year ahead. (Spreadsheet)
XIV. Marketing Assessment: think thoroughly and develop scales for best to worst possible: positioning, pricing, products/services, promotion, target markets, client profiles. Do a market sizing (total market), competitive, and demand level analysis for each product or service. Map current situation into these scales, and take a hard look at where you are misaligned with where you would like to be.(Usually four to five pages to get through mapping to your current situation into your scales), and one page each for market sizing, competitive, and demand level assessments.
XV. Marketing Plan: Develop a plan for each product/service in each of the areas you covered in the previous section for the year ahead.
D. RISK MITIGATION APPROACH
XVI.Take each bullet item from sections VI and VIII, list them on one side of a table in a column for "Key Risks," and in an adjacent column, labeled "Risk Mitigation Approach," identify what you will do in the year ahead to address the risk associated with it. (Usually one to two pages).
E. YEAR AHEAD PLAN
XVII. Key Milestones By Month: given your Opportunities in Section VII, Financial Plan in Section XII (above), your Marketing Plan in Section XV (above), and your Risk Mitigation Approach in Section XVI (above), what are five or so milestones for each month that, if missed, will interfere with the likelihood that your annual goals will be achieved?
XVIII.Key Measures: what are the three or four key measures that take the blood pressure and temperature of your organization overall, and show progress, or lack thereof, in all key areas? What is the expectation for each, by month, for the year?
XIX. Accountability Approach: how will you hold yourself -- and your people and organization -- to the plans, milestones, and measures for the year ahead? How will you make this document indeed a "Living Business Plan?" Monthly check in meetings? Quarterly Business Plan (versus Actuals) Reviews?
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Most of all, enjoy the process of developing -- or updating -- your business plan. It's best when it reflects lively discussions with differing views and rigorous honesty, and even then, further reflection and refinement.
Get help if you need it. If you are not operating from some kind of plan that includes these elements, I hope that you will consider developing one, or at least make sure you have thought through all of them!
My clients who do a "Living Business Plan" are always happy they did.
Comments are not only welcome, but invited!--click the comment link, below.
