Proper Business Planning is Key

Apr 13
2010
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A recent article in the Financial Post section of the National Post notes that many small business owners and start-ups turn to the Internet to download free business planning templates.

That is what the founders of Smiths Falls, Ont.-based Maple Lane Equestrian did when they launched in 2005.

“We did a financial business plan on paper when we set up our business, and we used a template from the Internet and one from a program I had taken,” Marsha Houlahan, co-founder and president of Smiths Falls, Ont.-based Maple Lane Equestrian, told reporter Alexandra Lopez-Pacheco. “It [the template] covered the financials as well as how to market and what products we should bring in at the beginning–that kind of thing.”

In the same article, Theodore Homa, managing partner in consulting at Business Development Bank of Canada, said the main purpose of a business plan is to obtain financing. The better organized, thoughtful and comprehensive the plan, the better the ultimate pitch the startup will make to the banker.

However, with free, boilerplate-style planning forms, you usually get what you pay for says Mike Thompson, co-author of Business Diagnostics, insisting that start-ups – and more mature operators – need to carefully plan and prepare their proposals using well-structured, professionals guides and advice. A poorly structured financing pitch can set a new business back and damage long-term viability.

In the same article, Mr. Homa suggests business owners focus on two core areas when preparing a business plan:
The first is a market analysis. “Have you done market research? Why is there a need for your product or service? Who buys it? What’s your position in the market and why would you have success in selling your product?” Mr. Homa said.

The second is cash flow and profitability. “So how much are you going to spend on developing this product? How much are you going to earn from selling it? What’s your expected profit and your break-even points?” he asked.

Mike Thompson says Business Diagnostics was developed to assist business owners in these specific areas. Business Diagnostics is a manual, guide and reference for current and aspiring business owners. The book provides a unique framework that helps small and medium size company owners and managers evaluate their corporate health while providing indispensable insight and reference for small business start ups.

Essential for everyone in the small to medium sized business sector, authors Rich Mimick and Mike Thompson are highly regarded management, accounting and commercial banking experts and have compiled a remarkable resource of information and guidance on raising equity, obtaining financing, implementing growth strategies.
Business Diagnostics can be reviewed and purchased here.

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How to complete an effective business plan

Oct 16
2009
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Glimmers of optimism continue to appear in Canada’s retail, housing and resource industries. Some have suggested the recession has ended and a return to economic growth is not far off.

For many business owners who have maintained the status quo or even reduced operations in late 2008 and through much of 2009, they now face the daunting task of preparing a Business Plan to attract new equity investment or obtain a line of credit from their bank.business-planning

Investors and lenders often receive voluminous presentations that are invariably never read in depth due to the sheer volume of content and the absence of a clearly defined message. Business Diagnostics de-mystifies the Business Plan preparation process and provides some practical tips on ‘standing out from the rest of the crowd’.

This is an abridged chapter from the book – Business Diagnostics-2nd edition – authored by Richard Mimick and Michael Thompson, offering insight on the Business Plan preparation process. Additional information can be obtained by visiting the authors’ website – or by ordering Business Diagnostics – 2nd edition.

Know Your Audience

External Audiences (investors, bankers, other lenders) will typically receive an initial overview of an investment or banking opportunity by way of a short and simple ‘Business Opportunity Document’. This will be supported by a formal Business Plan and, if an investment opportunity is being pursued, a public offering and/or private placement process may be initiated via another set of documents, the Offering Memorandum and/or Prospectus.

Internal Audiences ( senior management, employees, Board of Directors or Advisors) will also have the opportunity to review the Business Plan, which acts as a foundation document. It is then followed by a Strategic Plan along with a detailed Budget and Forecast.

The Written Proposal
The Business Plan structure can be summarized as follows:

  • The Executive Summary
  • Company and/or project description
  • Marketing plan
  • Production and Operations plan
  • Financing plan
  • Management plan
  • Appendices

Seven Ways to Create an Effective Business Plan

Focus on the Market

  • Strive to be market driven (meeting customer needs) rather than technology driven. The potential of the marketplace and resulting revenue/earnings is far more important than the product’s technical features.
  • Demonstrate the users’ benefit rather than promoting the product’s virtues and innovation. If the product can provide significant cost savings to clients (e.g., a pay-back period under two years), this translates to a significant user benefit.
  • Document booking orders with supporting data indicating the number of customers who have committed to purchase. This allows you to provide a convincing projection of the “rate of acceptance” for the product or service and the pace at which it is likely to be sold.

Anticipate Investors’ or Lenders’ Requirements

  • Investors: Are they friends and family, angels, venture capitalists or strategic corporate investors?
    Primary objectives will be a defined exit strategy (cashing out) and setting an appropriate price and percentage ownership.
  • Lenders: Why is financing required?
    Amount of funds required?
    Repayment: Over what timeline and from what source (ongoing earnings,sale of assets?)
    Security: What company assets are available?

Emphasize Management Depth

  • Does your management team have:
    Proven industry experience?
    Previous start-up experience?
    Track record in bringing new products / services to market?

Clearly Define Your Customers and Competitors

  • Customers
    Segmentation – Which are the most attractive segments?
    Targeting – Who is buying from you?
    Preferences – What do they buy from you?
    Timing – When do they buy?
    Criteria – Why do they buy?
  • Competition
    Demonstrate your knowledge of the competition, how you are keeping track of them (latest product offerings, price discounts, etc.) and how you differentiate yourself from them.

Obtain Feedback

Show drafts of your business plan to business advisors, senior management and other key employees. Ensure that your lawyer has confirmed that the plan meets all necessary regulatory issues (especially from an investment standpoint).

Prepare Realistic Financial Projections

Investors and lenders will focus on the accuracy and integrity of your financial numbers.
Projections and revenues, gross margins and earnings have to be carefully supported by assumptions that are reasonable and that can be defended. Complete ‘best-expected-worst case’ scenarios.

Complete the Executive Summary (last)

This is the most important section of your Business Plan. People will read it first and formulate their initial impressions based on these critical pages.

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