TAKING the Scare Out of the Business Plan

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I don't know about you, but I hate planning. However, the older and wiser that I get, the more I appreciate the good business plan and the execution of that plan. I suppose you could call the appreciation of the business plan an acquired taste. Considering that this is the first article of the year, I think it's appropriate that we talk about business plans. (Actually it will reinforce the webinar I will be doing on Wednesday night about business plans. Plus I write about what is on my mind and that's all I've been thinking about for the past week!)

So the first question is what is a business plan? I like to look at a business plan as your story about your business. Have you ever gotten a stock tip? They tell you the name of the company and the reason why you should buy the stock. They also tell you that the company does this or that, they don't have a lot of competition, they are innovative, and of course the price is always right. That's what a business plan really is and does. The difference is that the business plan goes more in depth into the story. One word of caution. My business plans have a very definite marketing focus. There are plenty of business plans with a financial focus or a production focus.

What the business plan is supposed to do is answer the following questions:

1. Who are you?
2. What do you sell?
3. What's your method of selling it?
4. What makes you different?
5. Who is your customer?
6. How we are going to attract a customer to buy from you?
7. How much will this cost?

Before I answer all of these questions, understand that many people create business plans because it's a requirement by a bank or lending institution. The sad part about it is after they do the business plan, they place it on the shelf and never look at it again. Your business plan should be your Bible or map that your business is going to follow. My advice is create a business plan and then review it, at a minimum, monthly. Let's get started.

Structurally, most business plans will begin with an executive summary which is merely the seven questions I listed above, each answered in a brief sentence and a closing paragraph that sums it all up. That's followed by repeating the same questions and including more detail.

1. The first question is Who are you? In the executive summary you might answer it by saying, "We are a husband and wife team with 15 years experience with corporations and have a desire to run our own (gift) business.

On the more detailed business plan you would describe the actual management experience by company name and responsibility. The size of the company and the sales volume will also be important. This is also the spot that you add your vision, mission statement, and/or positioning statement. The vision statement tells us where you see the potential of the company. The mission statement states who you are and what values are important to you. The positioning statement, or as I sometimes refer to it as the signature line, just narrows the vision and mission statement into a workable slogan to live by.

You can see how the longer business plan basically says the same thing as the executive summary. It just has more detail. Or at least it should say the same thing. I have seen business plans with these wonderful executive summaries written but then when you get into the detailed plan, the business goes off in another direction. Why? The debate goes on-- do you write executive summary first or write the detailed business plan first? My feelings are the detailed report comes first and executive summary later. It tends to avoid mistakes.

Here is the interesting part about the first question, Who are you? In the executive summary, it's easy or it least it should be easy to write and is always short. But in the business plan, the Who are you question is the largest part of the business plan. This is because it also goes into detail about your beliefs--towards employees, service, customers, merchandise, price, and anything else that is important to you. Most business plans also include the SWOT questions in this section: Strengths, Weaknesses, Opportunities.

2. What Do Sell? Is the much easier question to answer. It covers usage, quality level, category, price levels, and looks. Again these are short questions that generate much longer answers.

3. What is your Method of Selling Your Products? Are you going to be selling it at retail, online, what is the business going to look like, what is your business model and who are you emulating? That's a nice way of saying who do you look up to or who are you copying? Instead of copying I like to say what practices are we adopting or adapting.

4. What Makes You Different? What is your special sauce? Why are you different than the rest of your competition? Don't ever just say price. Why would you want to make your customers loyal to price? If someone were five cents cheaper, then the customer will go there. So I automatically throw away business plans that proceed to say that they are the cheapest in the state unless they have other differentiators that make them stand out in a crowded market place.

I want to know what benefit the customer will have in doing business with you. I want to know what ability you have that you are the most proud of? I also want to know why your best customers keep coming back and why new customers are attracted to the business. Answer these two questions in this section:

We enhance customer's lives by _______________________________.

If a newspaper would write a story about you and your business what would it be about?

5. Who is your customer? Know as much about your prospective customer and existing customers as possible. I want to know the demographic information such as age, sex, marital status, income level, homeownership, education and children. I also want to know the lifestyle information, a.k.a. psychographics.

That's a fancy way of saying what type of social activity are they into--such as gardening, home décor, reading, golf, travel, etc. This information is much easier to get than you realize. Just ask your customer what activities they are into and find the corresponding magazine that caters to that audience. Then contact a list broker and purchase contact information for prospective customers in your target area.

6. How we are going to attract a customer to buy from you? Another way of asking this question might be how are you going to market and advertise to your existing and prospective customer? Today there are so many different options from the traditional radio, television, and direct mail. These include billboards, websites, and all of the new social media options available today. Many times the true business differentiator rests in the way the business markets and advertises itself. It is not the best product or the best price that wins, if nobody knows who they are or what they're selling.

In this section it's advisable to list all of the possible advertising options, your choices on each one, and the choices that you have decided to use. I believe it's important to include a Calendar of Events in this section because you want to show as many events as possible. Events are important because you are giving the customer a reason to come into the store. These events do not have to be sale events. They can be classes, workshops, book signings, or any type of activity that brings people for the front door.

It is important that you address how you are going to market to your current customers and what strategies you can to adopt to attract new customers to your store.

7. How much will this cost? Here's the part that's not as much fun-- trying to figure out how much all these initiatives will cost and then putting them into a projected budget format. This is a good spot to employ my 40/55/5 Rule: The Profitability Formula. What that means is that in the average retail business, 40% of every dollar of sales will go to expenses. That is anything except the cost of the merchandise and the principal amount of a loan. It does include the interest charges on a loan and your salary. Then 55% of sales will go toward merchandise. The 5% left over is considered a positive cash flow. Any principal payments you have on loans will come out of the 5%.

Different industries will vary percentagewise, but every industry has a formula for profitability. In the jewelry business the expense percentage jumps up to 43%, but the cost of merchandise drops down to 52%. This is because in most jewelry stores payrolls are higher but the margins are better.

I explained all that because I have seen business plans that are brilliant from the first to the sixth question and then they blow it by having totally unrealistic costs and projections. I recently had a store owner tell me that 90% of every dollar that came into that store went to merchandise. Then she proceeded to tell me that she is very profitable. That is possible but highly unlikely. If I were asked by a bank to render an opinion on whether this business should or should not received a loan, I would have to deny the loan. The bottom line is to make sure your numbers make sense.

Finally end your business plan with a closing statement about how you plan on utilizing this business plan and updating it in a timely manner. It's even advisable to list the dates the plan will be reviewed and updated. Business conditions change quickly these days and business plans cannot be cut in stone. Remember it is a guideline and a map and even the best of maps can't take into account the detours life brings us.

I know that I have given you a lot of information in this article and I will be going over it in more detail in this week's Wednesday night event for The Retailer's Advantage. This program is also available for purchase as a single event for my readers who are not members at the following link:

Have a great week and remember planning does pay off.