The Business Plan - Your Organization's GPS
My previous article, The Key Drivers of Strategic Planning, discussed the thought processes behind the formulation of a strategic plan. In this article we will consider the thought process and some questions that should be answered when building the business plan. Though organizations span a vast range of activities, they all have revenue and they all need resources. I have tried to keep the ideas adaptable to all organizations.
This article applies for a physical product, intellectual property or a service (all referred to as products). Not-for-Profits generally provide services to assist their clients. These could include social assistance, housing, counselling or training. When we talk about resources we tend to think about raw materials, plant and physical infrastructure, but they may also be people (HR), programs and methodologies.
The primary purpose of the business plan is to set out, in detail, how the strategic plan will be achieved. The plan will extend over one or more business cycles. These are governed by the market and the nature of the business. For convenience and to meet secondary objectives and deliver on outcomes, the business plan will be broken into annual cycles and the budget should be run out longer than one year to match this.
Taking the Wrong Direction
If we recognize the false paths we will avoid them during the business planning process:
- This is not a budget process: This is an operations process. Though it is important to consider financial resources, at this stage it is at a macro level.
- No business has a life of one year from January to December: Business moves on a cycle that is rarely annual. Plan to that cycle. The cycle is not necessarily the revenue cycle. The introduction of a new product, for example, could have a cycle of several years from conception to a sale.
- Not only the executive participate: This is a time for inclusion to gain maximum knowledge.
- An upfront “Business Planning Meeting” does not drive the process: The strategic goals drive the process of data gathering and preparation of organizational level plans. These are then brought together in the overall plan for the organization.
The strategic plan will have identified the goals of the organization for ongoing activities and for new initiatives. The business plan takes these goals, analyses the process by which they may be achieved, provides an estimate of costs and identifies the resources needed.
Let us consider how we get started:
1. Communication: The strategic plan must be communicated across the organization. Although senior management will be aware of the plan, line managers and often their staff will also need to know the content. At the business planning level broad input will improve the content.
2. Assign Responsibility: Ongoing business is generally assigned by department or program. Each will prepare a plan that meets its assigned strategic goals. Those strategic goals may be broken down further to give meaningful milestones and performance measures.
Business development may be assigned by department but often will cross the organization. A proven strategy is to appoint a “champion” who has a broad understanding of the goal and the organization. That champion will pull together the resources needed to achieve the goal and will manage the team.
3. Gather Data: During the formulation of the strategic plan we gather information on:
- Our products and services, potential offerings and products/services at end of life.
- The market place and how we position ourselves within it.
- Our competitors.
To this will need to be added information on:
- Human resources.
- Materials and suppliers.
The detail needed in this data will be far greater than at the strategic level. It must confirm the feasibility of the strategic objectives, set a defined roadmap for operations including finance and allow the preparation of the budget.
Getting it Together
Generally organizations have three streams of operation:
1. The ongoing business.
2. The new business or business process, or in the NFP sector fund development.
3. The end of product/program (service) life.
Books the size of War and Peace have been written about the methodologies involved in business planning. Pick your book and follow it but answer the questions set out below. They apply to all three streams. Be honest and minimize assumptions.
1. What do we provide?
- Define the existing products/services, rate their success, consider their life cycle.
- Define new products and services, what need do they meet, who is the client, what will be the life cycle.
2. How do we provide it?
- Who is our customer/client?
- Who is our competitor, what are their advantages and how will we overcome them?
- What is our brand and how recognized is it?
- How are our products/services promoted?
- Who touches our products/services before the final consumer?
3. What materials/resources do we need?
- Who supplies our raw materials and are they reliable (remember people may be your raw material)?
- Will our current suppliers continue to provide what we need?
- Are there new materials and suppliers out there who will allow us to make a better product or deliver a better service?
- How scalable are we? Can we have materials as and when we need them?
- What is our risk mitigation strategy?
4. What people do we need?
- Have we evaluated our current staff and can they meet our needs?
- What training do our people need?
- Do we have a need for specialist or scarce resources? How will we attract them?
- If there is to be attrition, do we have a plan that will be fair, will minimize the deterioration in morale and that will meet legal requirements?
5. What plant and infrastructure do we need?
- Have we considered our capacity in relation to growth?
- Is our plant near the end of its useful life, obsolete, inefficient?
- What do we replace our plant with?
- What plant do we need for new processes?
- Does our building meet our needs?
- When will we negotiate our lease and what needs do we have?
6. Can we afford it?
- What is our routine cash position?
- Will our credit facilities accommodate swings in the business cycle?
- Do we need to consider the lease or purchase of assets and how will this be financed?
- Is new owner, investor equity, program funding needed to sustain the business and its growth?
The last and most important questions if this is a private sector entity: Are we making a profit? Are we accumulating a dollar? If the answer is “no” to either and this is a surprise, you need to backtrack to the Strategic Plan and resolve how you will turn around and, if you cannot ,how will you arrange an orderly exit.
The New Product or Process, the End of Life for a Manufacturing or Product Development Company
The development of a new product, the introduction of a new process (system) and the end of life of an existing product are too often governed by hopes and dreams rather than by hard facts and reasonable assumptions. All of the questions above should be answered.
The best way to deal with these events is by making each occurrence a project and implementing project controls. Project management is a discipline and there are many resources available to help. When preparing the business plan, take the answers to the questions and incorporate them into the following project requirements:
1. A Project Champion: This must be an individual with a vested interest and sufficient authority to control the resources needed. When considering who will be project champion evaluate the required and decide how the normal day to day workload of the champion will be backfilled.
2. A Well Defined Project: An explicit definition of the project is needed. It will set out precisely, and in sufficient detail, the need of the end user, whether a customer or an internal user.
3. A List of Product Specifications: These must meet the project definition and be as comprehensive as possible.
4. An Overall Project Schedule: The timeline from origination to the sale of a final product. Bear in mind that the first saleable product may not be the final product.
5. A Staffing Schedule: Consider internal resources, how their work will be backfilled, additional resources and specialists. Are the skills in short supply? Do we contract or hire?
6. A Procurement Schedule: How will I get my materials when I need them?
7. A Budget and Cash Flow: The most important question is where will the cash come from? Potential sources are internally generated cash flow, credit facilities, loans and equity. Do not forget that money is available through grants including SRED (Scientific Research and Experimental Development) credits.
At this stage the project may not be fully defined and there will be changes during the development process. Changes should be fully documented and considered in future planning cycles.
The Final Plan
When you have followed your business plan development methodology and can read this article and say “yes, got that covered” then document the results. Now you will have a robust guide to operating your business and a base to measure performance. At the back of the document leave space for the budget. We will talk about building the budget from the business plan in a future article.