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Home > Tools and Resources > Running a Business > The Business Plan versus the Strategic Plan - Part 3

The Business Plan versus the Strategic Plan - Part 3

By Charles A. "Chip" Brethen | Stonehurst Capital Advisors, Inc
Contact Charles A. "Chip" Brethen | Visit Website | About The Author

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Part Three: The Business Plan in More Depth.

While the Strategic Plan is an internal operational guideline on how to achieve your Vision by achieving your Objectives, the Business Plan is essentially a marketing piece designed to entice someone or some entity to invest in your company. That investment is normally financial, but easily could be an investment of time or some other resource you need. It is even used when you want to sell your company. The information generated for the Strategic Plan and the results of the Strategic Plan itself is the basis for much of the Business Plan.

The Business Plan is designed and written to entice and give confidence to potential investors in your product, your service, your company and your potential. People who view myriads of plans are looking for something that resonates with them quickly. Therefore, the plan should get the essentials of the company out quickly in the Executive Summary. The reader should know:

  1. What you do: Concisely, in one sentence, what business are you in?
  2. How you do it: And again, in one sentence, what method do you use to make your product or perform your service?
  3. That you know where you are going: What is your Vision; that is long term or 5 to 8 years? And, what are your Objectives; that is short term or 1 to 3 years?
  4. You know what you're doing. You should have a document that is professional and well thought out; not complex or lengthy, but comprehensive.
  5. How you are going to get there; You demonstrate a plan of attack on how your are going to achieve your Objectives, and
  6. How the investor is going to get paid back; there should be supporting financials that show a projected balance sheet, budgets and forecasts that include debt service, and cash flow projections for at least three years.

To repeat the essentials from the original article as a framework would be beneficial at this time. I will elaborate on each point. Your want to reveal enough information to entice the audience, but not too much. Let them come to you for more meat. Plans, even though protected with non-disclosure agreements, somehow, frequently end up in competitor's hands.

The Business Plan is a statement about your business that follows a distinct format that will be used to evaluate the business you are in and what you choose to do with your business in the future. The use for a "Business Plan" is to demonstrate to outsiders what your business is all about. The basic format is as follows:

  1. Cover sheet: Simple, clear with the company name, address and contact information, what the document is and the word "Confidential".
  2. Table of contents: Again, simple and align the chapter topic to a numbered tab to be helpful.
  3. Executive summary: Start with an attention getter and then show:
    1. What your business is in concise terms
    2. What the market looks like
    3. What are the problems and predicacments of the target market(s) you have chosen
    4. Why you are the solution
    5. Your leadership team
    6. Your investment proposal and investment understanding
  4. The company
    1. Company Ownership: who owns the company, what is the corporate structure and what are the stock classifications
    2. Company History: Brief synopsis of the evolution of the company
    3. Company Facilities: Description of location, amount of land, size of buildings and their significant features (cranes, ceiling height, etc.)
    4. Company Equipment: Significant manufacturing and processing equipment
    5. Business Strategy: This is where you insert the elements of your Strategic Plan to let the reader know that you 1. know what you are doing, 2. where you are going, and 3. how you are going to achieve your Vision and Objectives.
    6. Risk Analysis & Contingency Planning: A sophisticated audience will know that nothing is perfect and want you to recognize that as well. List risks that could well happen and would have a distinct impact on your company if they did. Give a brief scenario as to what you would do if you could.
  5. Production, engineering and/or technology
    1. Products/Services: This is a good time to mention your product or service features and their benefit to your customer
    2. Competitive Comparison: List and explain competitive products and technology. You might add why yours is better.
    3. Technology: Are there unique features of your products that set you apart or give you a competitive advantage?
    4. Future Products: Anything new on the horizon?
  6. Market Analysis
    1. Market Segmentation: What is your industry like? Fragmented, regional, pricing, target markets, quality levels?
    2. Industry Analysis: Elaborate on the state of the market used in the executive summary.
    3. Competitive Marketplace: Who are your competitors and what are their strengths and weaknesses?
  7. Marketing & Sales Strategy
    1. Marketing and Sales Strategy: How do you approach the market successfully?
    2. Target Markets: What are the criteria or parameters for your primary and secondary markets?
  8. Management & Organization
    1. Organizational Structure: Draft an organization chart for top and upper middle management.
    2. Management Team: Give a short biography on your key players to include educational and work background.
  9. Financial
    1. Past 5 Years Performance
    2. Year End P&L and Balance Sheet
    3. Projected Profit & Loss for the next three years minimum.
    4. Projected Balance Sheet
    5. Projected Cash Flow: note cyclality if applicable.

The above format is basic and can be modified and/or enhanced depending on:

  1. The purpose for the plan.
    1. Raise money: For operations, a new product launch, a physical expansion, cash flow improvement, refinance, to get out of debt.
    2. Find a strategic partner: Attract a partner who is geographically advantageous, a vendor, a customer or a competitor.
    3. Give confidence to lenders: Those who have or will lend money need to know their investment is a good one.
    4. Check the viability of your company or new programs: Through the process one can often find weaknesses in the way your company operates or wants to operate.
  2. The audience: Some things to consider when drafting a plan is to who the audience will be, their sophistication, and what you want to achieve. You should also consider what stage your business is in, (start up, growing, mature, sales mode, acquisition mode, divestiture mode) and the degree to which the recipient of the document will use the Business Plan as their due diligence.
    1. Stakeholders: Management, Board of Directors, Employees, Vendors, Customers
    2. Investors or lenders current and/or potential: A good way of updating your financial ties.
    3. Acquisition or divestiture candidates: If you are going to be bought out the buyer will insist upon some type of Business Plan as a prelude to the due diligence process. If you are buying a company the seller will like to know what type of organization he will be working for in the future.
    4. Strategic alliance candidates
    5. Potential key employees
  3. The maturity of the company.
    1. Start up
    2. Growing
    3. Mature
    4. Static
    5. Declining or in trouble

The bottom line is that the first thing that your audience will want to see, especially if they are asked to take a vested interest in your company, is your business plan. NO ONE WILL RISK THEIR CAPITAL WITHOUT EVALUATING SOME TYPE OF VIABLE BUSINESS PLAN. (Unless you have enough credit and assets to basically underwrite the amount of money on your own) Aside from the business details you will be judged by the reader for your logic, clarity, completeness, simplicity, consistency, grammar, punctuation, spelling, and your ability to demonstrate your uniqueness. Your audience will be looking for a specific format with a compelling executive summary. As previously mentioned, they will want to know that you know what you are doing, where you are going, how you will get there and, most importantly, how and when they will get paid back.

I read and review dozens of business plans every month and find that most are very poorly written. The most common flaws in the written proposal are:

  1. The inability to clearly and simply state what business you are in and how you do it in the first few paragraphs of your executive summary

  2. The use of industry jargon that is familiar to only those who are in that industry and thereby confuse the audience.

  3. The concentration on the features of the product, service or company and not the emphasis on the solutions that are provided to their target market's problem.

  4. The inability to articulate exactly who the target market is and what their target market is looking for.

  5. The lack of a compelling argument in the executive summary to entice the reader to delve into the details later on.

  6. Financial inconsistency between the prose of the plan and the financial statements.

I like to call a more informal plan a "Corporate Summary". This form of a business plan is designed to give the reader enough information to determine whether or not he wants to see more information. This "Business Plan Lite" or Corporate Summary is less time consuming for both the drafter of the plan and the management team. If the recipient of the plan is interested in the Corporate Summary and wants to delve deeper into the due diligence process, they may specifically ask for what they need to satisfy their interests. For example, they may want to see appraisals, income and profit by product line, market research, or a variety of other items in varying degrees of detail.

I would like to address the use of software packages that are available for drafting a business plan "fill in the blanks" style. These programs are cheap (about $100 or less) and very comprehensive with regard to the data they require. I generally recommend that someone who wants to tackle the business plan software to give it a try. It is a good way for the individual to get an idea of the information that needs to be accumulated in a format that is understandable. These software packages are often very complex and time consuming. Still, they provide valuable data for the ultimate preparer of your plan. This will reduce the cost of using a professional and get the people acclimated for what has to be done.

Generally, Business Plans generated in this fashion are too long, very dry and don't entice the reader to go further. Your Business Plan is first and foremost a marketing piece that is drafted with the idea of selling or marketing your project to a specific audience. All information and no sales and marketing verbage make for a dull read and consequently, lack of interest.

All in all, you should consider making the investment in an outside facilitator. Choose one who has experience in drafting documents has had a success rate with those willing to invest in companies or concepts. One of the decisions to be made is whether or not top management is willing to look at the process - not event - of planning as an investment in either his company or to entice someone to risk capital. If the process is looked at as an expense, then the mindset may not be there to take full advantage of the benefits of the money spent. I have been asked to do plans because the bank demands them. Often, these plans show half hearted management involvement that is reflected in a mediocre document that is never used to improve the business.

If you do use an independent professional to facilitate your planning you should have a mutual understanding of what to expect from each other. It makes for a bad relationship when one's expectations differ after the project is well underway.

The client should expect from the professional facilitator or strategic advisor:

  1. A written letter of agreement as to:
    1. The fee structure
    2. What work is to be done
    3. Reimbursement as to travel time, business expenses and supplies
    4. Time frame
    5. Approximate cost
  2. An understanding as to the facilitator's availability
  3. Progress updates
  4. Timely meetings

The professional facilitator or strategic advisor should expect from the client:

  1. The client's availability
  2. Timing as to when the document needs to be done
  3. Information from key people as needed
  4. Access to key people
  5. Commitment to the process
  6. Recognize that it is a process and not an event
  7. Willingness to have off sight meetings if necessary

This is the final or 3rd installment on the "Stategic Plan versus The Business Plan" articles. Obviously, this has been a rather brief synopsis so I have probably omitted some salient details. I would appreciate any comments - negative, positive or inspirational - that you might have. I have enjoyed the email that I have received so far from interested readers. Please feel welcome to inquire if any points need clarification or expansion. Thank you.

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About The Author
Charles "Chip" Brethen is a business man experienced in consulting businesses. He has been President and CEO of six companies ranging from $20+ million to over $500+ million, and is currently a Managing Director and a Principal for Stonehurst Capital Advisors - A Merchant Bank in the Midwest.

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