In the pages of Springfield Business Journal, I’ve noticed emerging trends of home-based businesses, social media sites replacing business Web sites, shared office spaces and an overall hankering for entrepreneurship.
Entrepreneurs are starting their own businesses, adding new divisions to existing companies and rolling out new products to the marketplace.
In any of these steps, a business plan is an essential component. Or is it?
I know there is debate out there whether full-fledged written business plans are essential for entrepreneurs. One school of thought – and I’ve seen it demonstrated locally to varying degrees of success – says a minimalist plan is preferred and should evolve with the business. It seems that creative minds and business models can pull this off.
On the other hand, for Isabel Eisenhauer of the Missouri State Small Business & Technology Development Center, there’s no question that business plans are a necessity.
As a business consultant, Eisenhauer says written, detailed business plans are a must for entrepreneurs, especially for those seeking working capital. Earlier this year, I attended her introduction to business plans seminar in the Urban District Alliance’s five-part Center City Small Business Education Program that wrapped up this month. Eisenhauer speaks with 19 years of sales and marketing experience with Fortune 100 companies Northrop Grumman Corp. (NYSE: NOC) and Hewlett-Packard Co. (NYSE: HPQ).
During her presentation, held at Ozarks Technical Community College and attended by roughly a dozen businesspeople, Eisenhauer laid out the 12 critical components of a business plan. These pieces are supported by the SBTDC at Missouri State University and developed from a handful of entrepreneur and business manuals, or cookbooks, as Eisenhauer calls them.
Sections in a business plan should include:
- Executive summary. Eisenhauer says to treat the summary like a book review intended to grab interest in up to three pages. She also suggests writing it last, with the full business plan in scope.
- Company description. This is self-explanatory. Who? What? Where? When? Why?
- Industry analysis. Where is the industry trending, nationally and locally? Your idea may be on the way out.
- Target market. Know how many potential clients exist and their demographics and psychographics such as discretionary income, living habits and cultural preferences.
- Competition. Know whom you’re up against and the challenges to overcome.
- Marketing plan and sales strategy. Eisenhauer advises to get help here, if needed.
- Operations. This is somewhat intuitive, Eisenhauer says.
- Technology plan. This might not be as critical to all businesses. In the least, consider computer hardware and software, such as accounting systems, and whether outsourcing is a sound option.
- Management and organization. Eisenhauer says this is more important than most think. Lenders will look for capable and experienced management staff.
- Community/social. Is this important to you? Write it out.
- Development, milestones and exit plan. Out-of-control growth and the lack of a succession plan was identified by Chicago entrepreneur, speaker and writer Jay Goltz as two of the Top 10 reasons small businesses fail.
- Financial. Project monthly for the first year and yearly for the first three years, with a keen eye on positive cash flow. First, lenders need to know they’ll get paid back. Second, you need to know how pricing directly affects your profits and the economies of scale. Three of Goltz’s other reasons for failure are financial: bad math, poor accounting and no cash cushion.
When completed, a solid plan should comprise 15 to 35 pages, Eisenhauer says.
She then suggests five steps to refining the plan.
- Lay out the business concept/project. What are you going into business for – is it for more job control, a different challenge, an outlet for creative juices or greater cash?
- Gather data on the feasibility and specifics of the concept, including industry standards.
- Refine the concept based on collected data. She warns that this step could be jarring because plans might need to change.
- Outline the specifics of the project.
- Put the plan into a compelling form, with special attention to the executive summary, financial and management description sections of the business plan.
Now, that’s a lot of work. But it’s just the beginning, if you’re going into business for yourself.
Eisenhauer says the effort is well worth it, and she quickly debunks the myth that investors don’t read business plans. After funding is in hand, the plans set a target for what you’ll do with that working capital.Springfield Business Journal Editor Eric Olson can be reached at firstname.lastname@example.org.