When a new business is being planned or an existing business is looking to expand, company leaders must present a sound business plan to the banking institution in order to procure the necessary financing.
If the business plan is incomplete or doesn’t cover the necessary components, it will not tell the lending institution what it needs to know. And instead of driving the business, the plan will eventually drag it down.
“Depending on the results, the business plan will normally require adjustments, since it can’t predict all of the turns in the road that all companies experience,” says Gary Base, CEO and president of ViewPoint Bank in Plano.
Smart Business spoke to Base about how to devise a good business plan and how to tell if one is no longer efficient.
When is it apparent that a business plan can no longer drive the desired results?
First, a business plan must be complete, including key components such as financial, marketing and management sections. Proper resources must be devoted to each component to assure success. Ongoing monitoring of the results will identify nonconformance within the business plan. This should be completed at least once a month and – when sales are involved – on a weekly basis for a new business.
What are some of the warning signs that a business plan is not working?
Sales by product versus expectations, expenses, gross income, net income and other variances. Also, customer and employee feedback can be early indicators that something is wrong. Be sure not to ignore the facts or replace them with excuses, which can be very easy to do.
Are business plans less efficient as a rule?
A business plan is not a guarantee of success. The most complete business plan will help with your execution but can be built on premises that do not prove to be correct. Upfront research of the market is critical in identifying the difference between a good idea and what the market will be interested in.
How can the necessary information be collected for a business plan?
Focus groups are important as is a competition analysis. It is critical that you go ahead and do some market analysis previous to developing the business plan.
Take toothpaste, for example. Recently, a company bought Ipana toothpaste, a popular brand many years ago. The questions are, How successful can the owner be? and What is the market today for Ipana toothpaste? A lot of young people in the market have never heard of Ipana. They’ve been Crest users since they were small children. If you were buying the Crest name, that would be one thing. But buying the Ipana name is something completely different.
How far in advance should the business plan be developed?
Once the idea is formulated, you really need to go ahead with your research and go through with the market analysis of the product. Depending on how large the market is and the type of products involved, that could take you anywhere from three to nine months.
Say you’re looking at all of the journalists in Dallas, which would probably be a pretty small group that we could quickly identify and communicate with. If you’re talking about all of the journalists in the world, then you run into complications with different languages and customs and it becomes more difficult to gain access and communicate with them, and the analysis would take much longer.
To put it another way, if all I was going to sell you was a single new software product, that would be easier than trying to sell you a suite of services.
What should a good business plan contain?
It needs to contain the components I mentioned earlier. It can’t just be a financial plan, which most people complete because it is easier to develop. Without the other critical component of marketing, you haven’t identified one of the most crucial areas of your plan, the leadership component. Leadership translates into management, and you have to have the proper resources to include the proper management.
Has the business plan become outdated?
No. As the 6th century Chinese philosopher Sun Tzu said in ‘The Art of War,’ ‘If you fail to plan, you plan to fail.’
Leadership requires planning for success. Your strategy needs to be outlined so that all parties involved understand the direction and goals of the business.
If it’s just a financial plan, it won’t include any of those elements. There is no replacement for proper planning.
GARY BASE is CEO and president of ViewPoint Bank. Reach him at (972) 509-2020, ext. 7488 or [email protected].