Business Planning For Recession Survival and Recovery
The New Basics of Business
With unemployment continuing to rise, home prices falling due to a surplus of inventory, and small business lending at a standstill, this recession doesn’t seem likely to end soon. The recovery will be slow and Americans will certainly not enjoy the wealth of a few years ago for a long time to come. It’s not just economists who think this way. “Half the population in [a] new ABC News poll thinks both job security and retirement prospects in the years ahead will keep worse than their pre-recession levels.” (“Poll: Less Job Security is the ‘New Normal,'” ABC News The Polling Unit, June 15, 2009, examination by Gary Langer) This confidence, or without thereof, is an integral part of an economic cycle. The examination goes on to say, “Those reduced expectations – plus the pain of the current downturn – are fueling retrenchments in consumer behavior that could fundamentally reshape the economy.”
Basically, consumers are hunkering down to limit spending, save money, conserve resources, and change the way they’ve been living. The major influence on the health of an economy is the psychological state of its consumers. When there exists a general belief that spending beyond necessity is unwise, people will change their habits and as a consequence, some businesses will have to close their doors. The economy is molting into a new, leaner animal. instead of react in desperation to avoid doom, firms should interact with the current situation with inventive and forward thinking actions.
No matter the economic slump, increasing profits is typically the number one goal of any business. To ensure profitability, a company must demonstrate a competitive advantage over others in its industry, either by cost leadership (same product as competitors, lower price), differentiation (same price, better sets), or focusing on an exclusive part of the market (niche). For long term maintenance of competitive advantage, a firm must ensure that its methods cannot be duplicated or imitated. This requires continued examination and regular reinvention of competitive strategies.
A recession is the optimal time to reinvent competitive advantage because the pressure of a ineffective economy will separate the strong businesses from the ineffective ones, with the ineffective falling out of the game thoroughly. Your business will be strong if you have a plan of action based upon a little industry research, an examination of what you have and what you want, and continuous monitoring of the results of your plan. This kind of innovation is not only a necessity right now, but it is an opportunity to enhance the quality and efficiency in the way you do business.
The three basic actions for growing a business in any economic climate are: enhance efficiency (continue output while reducing inputs, such as time and money); increase quantity (produce more in order to spread fixed costs); reorganize the business (change goals, methods and/or philosophy). If you plan to implement one of these, you may in addition plan to implement them all. By focusing on one of the above strategies, you will find a ripple effect that causes a need to address the others. This is a good thing.
Right now, growth may sound like an unattainable goal as businesses are grappling just to survive, but hey, “flat is the new up.” If a business can keep its doors open and lights on, then it’s doing better than many others. But lights and open doors don’t make sales, so making changes that attract business is in a sense, strive for growth. It won’t be this tough forever, but for now, putting some growth strategies into action may be what keeps your business alive, if not thriving.
Every Business Needs a Plan
Without a plan, there is little hope for growth, let alone survival. As my small business development counselor, Terry Chambers says, “If it’s not written, it’s not real.” That doesn’t average it’s unchangeable, but it does show that you average business. In order to accomplish your strategies of improving efficiency, increasing quantity, and reorganizing your business, you’ve got to examine what you have, what you want, and how you plan to get there.
Sometimes it takes a meaningful event or change in existing conditions for a business to create a written plan. I think it’s safe to say that the state of the economy is a meaningful change that should prompt business owners to alter the way they’ve been doing things. If you already have a business plan, it’s time to get it out and revise it. Make sure your plan includes answers to these questions:
- What do I want to accomplish?
- What do I have to work with?
- How have I done in the past?
- What might I do in the future?
- What will I do now?
- How will I do it?
- Is it working?
A business plan can be used as a means for accurate communication among principals, managers, staff, and outside supplies of capital. It will also help to clarify, isolate, and solve problems in your structure, operations, and/or finances. Along with these advantages, a business plan captures a view of the big picture, which makes a company better prepared to take advantage of opportunities for improvement and/or manager crises.
Essentially, the three main elements of a business plan are strategies, actions, and financial projections. In order to cover all of the rule elements, you will include in other types of planning:
- Marketing plan: Includes examination of your target market (your customers), in addition as the competition within that market, and your marketing strategy. This plan is usually part of the strategic plan.
- Strategic plan: Asses the impact of the business ecosystem (STEER examination: Socio-cultural, Technological, Economic, Ecological, and Regulatory factors). Includes company vision, mission, goals and objectives, in order to plan three to five years into the future.
- Operational planning: With a focus on short-term actions, this kind of planning usually results in a detailed annual work plan, of which the business plan contains only the highlights.
- Financial planning: The numerical results of strategic and operational planning are shown in budgets and projected financial statements; these are always included in the business plan in their entirety.
- Feasibility study: Before you decide to start a business or add something new to an existing business, you should perform an examination of its strengths, weaknesses, opportunities, and threats (SWOT examination), in addition as its financial feasibility, then asses its possible sales quantity.
the time of action of business planning does not end when the written plan is complete. Business planning is a cycle, which includes the following steps:
- Put your plan of action in writing.
- Make decisions and take action based upon the plan.
- Gauge the results of those actions against your expectations.
- analyze the differences, whether positive or negative, and write it all down.
- Modify your business plan based upon what you learned.
President of Palo Alto Software, Inc. and business planning coach Tim Berry says, “Planning isn’t complete unless you’ve planned for review.” Review is the basic action that initiates putting your business plan into action. In his blog at Entrepreneur.com, Berry lists some insightful strategies to making good use of your plan review, a few of which include keeping the review meetings as fleeting as possible and an emphasis on metrics as meaningful to effective review.
Write your business plan in sessions. Don’t think that you have to produce a business plan before go to bed tonight or you won’t be able to open your doors for business tomorrow. I like Tim Berry’s Plan-As-You-Go method of business planning. The practice of planning is an effective way to really get to know your business and you might end up discovering some important things about your company and about yourself.
There are various strategies and outlines obtainable that will guide you in choosing the appropriate format for your business plan. Check out the collection of sample business plans for a variety of businesses at Bplans dot com. Every business is different, consequently every business plan will be structured differently, but for the purposes of this white paper, I will present the basic elements that make up strategic, operational, and financial planning. Here is a basic outline, thanks to NxLevel® for Entrepreneurs (2005, Fourth Edition):
General Business Plan Outline
Table of Contents
Mission, Goals and Objectives
General Description of the Business
Stage of Development
General Growth Plan Description
Goals and Objectives
Background Industry Information
Current/Future Industry Trends
The Business Fit in the Industry
Business Structure, Management and Personnel
Other Operational Controls
The Marketing Plan
Growth Description (Future Products/sets)
The Market examination
Current Trade Area Description
Market Size and Trends
Sales quantity possible (Current and Growth)
The Financial Plan
Salaries/Wages & Benefits
Cost of Projected Product Units
Growth (or Start-Up) Expenses
Cash Flow Projections
Monthly Cash Flow Projections – First Year
Notes to Cash Flow Projections (Assumptions)
Annual Cash Flow Projections – Years Two and Three
Projected Income Statement
Statement of Owner’s Equity
Additional Financial Information
Summary of Financial Needs
Personal Financial Statement
Supporting Documents (Resumes, Research Citations, etc.)
A business plan starts with an executive summary, which is a one or two page summary of your business plan, or an introduction to your business. Although this section is at the beginning of the business plan, it is the last thing to be written. You’ll be able to condense your business plan more succinctly once you have the opportunity to work by the other parts of the plan. The executive summary may be the only thing a possible investor or financier will read, so write it last because it has to be the most powerful.
Start by writing a description of your business, including what stage of development it is currently in (conception, start-up, first year, mature, exit) and your plans for growth. Discuss the character of your business, the main products and sets you offer, the market for your products and sets, and how and by whom the business is operated.
Then work on your mission statement. Here is where you concisely state the focus, scope and hope of your business (or values, vision, philosophy, and purpose). What is the customer pain you are soothing, the need you fulfill? Here’s an example from Coca-Cola:
Our Roadmap starts with our mission, which is lasting. It declares our purpose as a company and serves as the standard against which we weigh our actions and decisions.
- To refresh the world…
- To inspire moments of optimism and happiness…
- To create value and make a difference.
PepsiCo has a different take:
Our mission is to be the world’s premier consumer products company focused on functional foods and beverages. We seek to produce financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we function. And in everything we do, we strive for honesty, fairness and integrity.
This is the mission statement of Inspiration Software, Inc.:
Our company strives to sustain improvements in education and business and to make a positive difference in our users’ lives by providing software tools that help people of all ages use visual thinking and visual learning to unprotected to academic, specialized and personal goals.
Goals and Objectives
Next, outline your company goals and objectives, including long-term and short-term goals. You will get into more detail on how the goals will be achieved in your operational plan and annual work plan, so focus on brevity at this stage. There is a difference between goals and objectives and it’s important to know what that is. I like how Andrew Smith explains it in The Business Plan Blog. Objectives are non-emotional, precise descriptions of what is needed to unprotected to a goal. Goals can include emotion and don’t have to be as specific as objectives. Objectives are the steps to actualizing the goal. Here’s an example:
To increase revenues by 50% by the end of the year.
Add a new product to our line.
Expand marketing outside of local area.
Develop a new customer retention strategy.
Of course, you will need a plan of strategies in order to accomplish each objective, but those details will be expounded upon in your annual work plan. A list of three short-term and three long-term goals, along with the objectives necessary to unprotected to them, is sufficient for most business plans. Remember to replace the goals and objectives with new ones as you check them off your list.
The section that details the background information should start with identifying the industry your business is in. already if you are not a member or have no intention of becoming involved, you should list any trade associations within that industry; you never know when you made need those connections. Find out what publications, magazines or journals are obtainable to businesses in your industry. Use these and other supplies of business information to clarify how past trends (economic, social, political) affected the industry, in addition as any current or future trends that may have an impact.
How does your business fit in the industry? What is the history of your business, including who started it, what changes have occurred, when was it started, where was and is it located, how was it started and operated, and why it was started? What barriers to entry, if any, have you recognized?
The ownership hierarchy of your business, the management structure, and the personnel are described in the section on organizational matters. This part of the plan deals with who, what and how your business runs. Who is responsible for what and how are they qualified? Discuss how the various parts of your business interact together; include details about outside contractors and consultants and what roles they perform. See the example below, thanks to Edraw Soft Vector-Based Graphic Design.
The organizational section of the business plan also needs to include an explanation of your record keeping course of action, checks and balances, and control management systems. Anyone who reads your business plan should be able to understand the organizational procedures for running your business day-to-day, in addition as in an emergency situation.
The risk management plan needs to be fleshed out in the organizational section in addition, including your risk strategy, the different types of insurance required, your contingency plans, and problem-solving protocols. What will you do if a natural disaster ruins part of your inventory? How will you manager the sudden illness or long-term absence of a meaningful manager? What happens if you are unable to finish a project on schedule? What are some early warning signs to watch for?
It may not be pleasant to imagine all the “what ifs,” but doing it now and planning for those unexpected events will enhance your company’s chances of surviving a storm. For an excellent step-by-step guide on the details of developing a risk management plan, see the article “How to Develop a Risk Management Plan,” by Charles Tremper at wikiHow.com.
The next section, themarketing plan, gets into the details of what your business offers and what market it serves. Marketing is the communication of how your products and sets “ease customer pain.” Show the problem and how your business solves it. Marketing is a necessity for every business because once your doors are open, you must invite customers to come in. Everything you do in your business that affects customers is marketing because it sends a message about your company.
This part of the plan details the features and benefits of your products and sets, their seasonality and life cycle, in addition as any future products and sets you are planning. It also includes a thorough market examination, in which you will study your customers, your competition and the market itself. Here you should include a PEST examination, in which you will consider the impact of various factors upon your business. The factors include combinations of the following, depending upon your business: social, technological, economic, environmental, political, legal, ethical, and demographic.
Studying your market will give you insight as to how you can make your business more alluring to people. Market research is more than just noticing trends in your customers’ buying habits; it’s discovering what motivates your customer to buy. Don’t assume that you already know because you’ve been in this business for years. This study often unearths characteristics about your market that are hidden or new. It’s best to discover these things before your competition.
Another meaningful component to the marketing section of your business plan is an outline of your marketing objectives, strategies, and tactics. Writing down the avenues you travel in order to market your business will provide you the opportunity to record what worked and what didn’t work. You must be able to measure and calculate the results of your marketing efforts, otherwise, what’s the point? If you don’t know if something is working for or against you, then it’s working against you.
Include details about all of the following that are applicable to your business in the marketing section of your plan: location and dispensing, and promotional strategies, such as packaging, public relations, advertising, and customer service. As a consequence of exploring these areas, you will naturally need to consider how much you will budget for your marketing efforts. This question is closely connected to your sales forecast, which leads us into the next section of the business plan.
The financial plan consists of four sections: Financial Worksheets, Cash Flow Projections, Financial Statements, and Additional Financial Information. All of these elements will tell the story of how you plan to start or grow your business from a financial perspective. It is vital that you explain the assumptions under which you have based your projections, for example, “We assume that there are no unforeseen changes in economic policy to make our products and service closest out of use.” or “We assume interest rates will stay the same over the next three years.” (both quotes from Bplans.com sample business plans)
I suggest that you construct easy to read tables and graphs for the financial portion of the plan. The worksheets suggested are: Salaries/Wages and Benefits, Outside sets, Insurance, Advertising Budget, Occupancy Expense, Sales Forecasts, Cost of Projected Product Units, Fixed Assets, Growth (or Start-Up) Expenses, and Miscellaneous Expenses. You may find some of the worksheet templates at PlanWare.org to be useful.
The expected revenues and expenses for at the minimum a year should be projected in the cash flow section of the Financial Plan. It’s better to make conservative predictions instead of be too optimistic when it comes to cash flows. As part of this section, a break-already examination is basic. This is the “amount of units sold or sales dollars necessary to retrieve all expenses associated with generating these sales.” (NxLevel for Entrepreneurs, 2005) The formula for calculating the break-already quantity is Total Fixed Costs/(Price – Average Variable Costs).
The financial statements section should show the way things are now if you have an existing business, in addition as a forward look at your checking account, or projected income statement. The only way a start-up company can provide an income statement and balance sheet is by projecting these figures based upon well defined assumptions. Both start-ups and existing businesses should include a statement of owner’s equity.
An income statement shows revenues minus expenses, in order to calculate net income or net loss. Start-ups should project these expected results for the first twelve months of business, then quarterly for the next two years. A list of a company’s assets (what you own), limitations (what you owe), and net worth (assets minus limitations) is called a balance sheet. The statement of owner’s equity shows the owner’s initial investment, additional investments, and retained earnings, minus owner withdrawals.
The additional financial information at the end of this part of the plan should give a summary of your business’s financial needs in order to grow, show its debt position, and state the owner’s financial position.
In the appendix, which is the final section, an action plan or timeline for implementing the business plan should be presented. This is where the detailed goals and objectives are expanded in a work plan. Also, include in this section any additional information or supporting documents that are applicable to your business plan, such as important research, marketing materials, product specifications, and owner and employee résumés.
Now that you have written the hard part of your business plan, it’s time to write the fun part, the executive summary. As mentioned in the beginning of this white paper, this is the most important piece of the business plan because it illustrates the very essence of your business in a captivating and condensed form. If you ever proportion your business plan with a possible investor or possible buyer, the executive summary may be the only thing that is read.
Make the executive summary fleeting (no more than two pages), but make sure you showcase the best qualities of your business without glossing over important information; show why yours is a winning business. Write one to three sentences about each of the following:
- General description of the business
- Mission statement
- Management structure
- Business operations
- Products/sets, the market and your customer
- Your marketing plan, including the competition
- Financial projections and plans
A clear, concise, and convincing executive summary will intrigue your audience and inspire them to read the rest of your plan. If the plan is never seen by anyone outside of your business, don’t assume it was a waste of time. During the planning course of action, you will have worked by an enlightening exercise that prepares you to run and grow a better business.
Having this written document obtainable for frequent consultation and review will enhance your chances of not only surviving, but coming out strong on the other side of this recession. Most people think that knowing in the back of their mind what they plan to do is sufficient for survival or recovery, but the difference between a written plan and an idea is usually the difference between failure and success.