10 CHAPTER 1 WHAT‘S IT ALL ABOUT?
You must sit back from the day-to-day pressures of steering the ship around the rocks
and take a long, hard look at what lies further ahead. The most successful businesses are
those that have proper planning processes in place. This book will show you how it is done.
Key objectives for your plan
Business plans are used for many different purposes. Essentially, it may be considered that
they are:
a formal expression of the planning process;
a request for funding;
a framework for approval;
a tool for operational business management.
Where does your plan fit? Ideally it will meet all four of these objectives. It is useful to look
at each one in a little more detail.
FORMAL DOCUMENTATION
There can be a huge difference between an undocumented and a documented plan. The
formal exercise of distilling plans on to paper helps highlight opportunities and risks and
helps uncover inconsistencies. Moreover, once formalised, the business plan provides a
guide for operating and for reacting to real world events. Writing a plan should never be
Recession-proof your business
Business planning is about a journey. The plan is your starting point. It charts a
route to your destination. It identifies the major hazards that you should watch for
along the way. It gives you strategies for coping with squalls and obstacles. It gives
you landmarks to confirm your progress. It helps you expect the unexpected. With
a good business plan, you know where you started, where you are going, and how
to get there.
If you are currently in a hole, use this book to help you draw up a plan for
climbing out. Take the plan along to your bank manager to demonstrate that you
are worthy of that extra loan. If everything is fine, use the plan to make sure that
you avoid traps and pitfalls. The business cycle is alive and kicking – do not let a
cyclical downturn catch you unawares and kick you into a hole.
t
KEY OBJECTIVES FOR YOUR PLAN 11
a bureaucratic exercise – this helps no one. But if as many people as reasonably possible
can be involved in developing and reviewing the plan, the management team is more
likely to end up with a greater understanding of where it is going, with a better shared
vision and common sense of purpose.
FUNDING
There is always a funding motive lurking somewhere behind a plan. The plan might be
used to help raise venture capital for a new business, additional equity funding for an
existing business, loan capital for an ongoing enterprise, or even trade credit. It might be
intended to encourage joint venture participation with a business partner such as a sup-
plier. It might be drawn up to support merger and acquisition activity.
Alternatively, a plan might be used to justify allocating internal resources (probably
retained earnings) to a particular business activity – perhaps your pet project. If funds
are so allocated, there is an opportunity cost of not investing them elsewhere. It might,
for example, be financially prudent to cease operations and place the capital in a bank
deposit. The plan helps identify if this is the case – and if so usually demonstrates why
there is a good reason for ignoring short-term financial loss in favour of long-term gain or
some other objective.
There is a well-known Japanese bank which in the late 1990s had assets of over $8 bil-
lion. What was its return on investment (ROI) with that much money available? Perhaps
5%?, or even 25%? In fact, the return was just 0.3% a year. It might have made better
sense commercially to have closed the bank, liquidated the assets, and put them on
deposit with a rival to earn, at that time, around 5% annual interest. Of course, the bank
expected better years ahead and political considerations, including the potential effect
on employment, precluded it from closing its doors.
Wherever the funding is coming from in the overall scheme of things, a plan might also
be used to justify grabbing a chunk of a bigger, organisational budget.
APPROVALS
It hardly needs to be said that a documented plan provides a framework for approval.
The owner of a small business who takes the trouble to document a plan is probably the
person who approves it. More usually, a board of directors or management committee
approves a plan as a collective statement of intent – or perhaps a lone decision-maker
somewhere approves someone else’s plan.
The approvals and funding processes are somewhat closely aligned. In a corporate
sense, approval of a plan is usually the same thing as approval of the funding. However,
the converse is not necessarily true. A capital provider who approves a funding request
based on a plan is not saying that the plan is correct. The business owners and executives
are always responsible for actually running the business.
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