Target your planning process Featured

8:00pm EDT June 28, 2005

Often, presidents and CEOs rush to create a business plan to help their bankers understand the company's direction, but a business plan suited to communicate with banks and other external parties is almost never the kind of tool needed by management to help guide critical business activities.

Outside parties and company managers have fundamentally different needs. The solution is to create two different tools -- one for external audiences, the other for internal needs.

A plan for bankers

Outside parties such as banks usually prefer brevity. Business plans suited to outside audiences generally start with short narratives and expand into detailed financial projections, which can comprise as much as two-thirds of the document.

Bankers tend to flip to projections first. Because the financial projections are so important to a banker's decision-making process, all key assumptions receive a lot of scrutiny. Lenders often set loan covenants based on company projections, so external projections should be conservative.

For the narrative portion, outsiders look for a quick history of the business and an overview of management, key customers and product/service mix. External business plans usually provide a general idea about what is envisioned for the future, but not all the detailed action steps for getting there.

A plan for managers

Company owners and managers benefit from a strategic plan that not only paints a picture of the intended future but also helps them monitor day-to-day execution of the plan. A valuable strategic-planning tool possesses four features that aren't normally found in business plans drawn up for outsiders.

  • Brutal honestly about strategic considerations. The business plan created to impress and inform outsiders will not put prominent focus on the full range of potential strategic threats and company weaknesses that might need attention. The inside strategic plan needs to consider various what-ifs and alternative future paths.
  • Meaningful direction statements. The foundation for a solid strategic plan is a set of direction statements, commonly labeled vision, mission, core competencies and business definition. Combined with information on external factors such as market trends and competition analysis, direction statements provide a framework for evaluating options and setting future strategies.
  • Idea-driven plan, not numbers-driven. While outside business plans tend to be numbers-focused, inside strategic plans should revolve around six to 12 strategic objectives that collectively describe the long-term direction.
  • Detailed short-term initiatives. A well-designed plan translates long-term strategic objectives into short-term initiatives. Each short-term initiative should be assigned to specific individuals or teams and have defined completion dates.

Adapt your process to the situation

A business plan created for outsiders is a technical task that can be completed by a small team -- even one or two people. By contrast, a well-run strategic planning process brings forth wide-ranging ideas and can be a tremendous forum for creating a shared picture of where the company is going and the providing background to understand why. The more people included, the better.

An effective process will provide key employees a context to appreciate the importance of the short-term initiatives, which is the best way to harness the energies of all the talent within the company and win buy-in to the company's strategic direction.

As much care should be paid to the process as to the content of the strategic plan. Because each company is different, a strategic planning process should be customized to meet unique circumstances, rather than following a canned approach.

A seasoned consultant can find the best way to ensure healthy discussions, determine ways to improve your process each year and offer a fresh, nonbiased perspective on strategic options.

Jonathan Dean, certified public accountant and certified valuation analyst, is director in charge of Doeren Mayhew's corporate finance and strategic services group. Doeren Mayhew, located in Troy, Mich., is a regional accounting and consulting firm that provides a wide range of professional services to middle-market companies, including business plan and strategic plan development. Reach Dean at (248) 244-3256 or dean@doeren.com.