By Dan Dutra
Contributing Editor
Does this sound like a lot of work? It could be, but with some time and money, and a proper set of plans, you should be able to generate more income (or at least understand where it all goes) and have more time to enjoy it.
We are going to take an in-depth look at what makes up a comprehensive business plan. Why write one? What should a business plan accomplish? How often should it be updated or even looked at?
A roadmap to the future
The business plan should be the vision or roadmap for the company. It should communicate in a general sense the what, why, where, when, how and who of the business. It should contain a description of the business and what the business endeavors to accomplish. This should start with a vision statement and a mission statement. The plan should talk about what products and services the business will offer to the market and why these services will be used and embraced. It should also describe where the business is located and why this might be an advantage, i.e., real estate, expansion, demographics, large work force to draw from, etc. The plan should discuss time elements or goals for growth and expansion.
When writing a business plan, be clear on whom you are writing it for. You could technically have three versions of your business plan. The first would be for yourself, your employees and potential large customers. This document may be used to effectively communicate your plan for creating and running a successful business.
The next two versions would be for those looking to raise capital. I say two because there are two primary types of money to obtain. One is institutional money, like from a bank. This type of financial source wants to see a more conservative growth plan with stable assets. They want to know you have the ability to pay off the loan. The other money source would be if you took on an investment partner. This type of investor will be more likely to encourage some greater level of risk for reward. The market potential assessment, including the marketing plan and operating plan, will be of special interest to them.
Now that we have set the stage, what does it take to compile a comprehensive, successful business plan? Following is a guideline for the elements you should include when writing your business plan. Remember, this is generally the one-to-five year and beyond plan for the company.
An executive summary outlining goals and objectives.The executive summary introduces your business strategy and is probably the most important section for lending institutions and possible investors. If you can’t persuade a loan officer in the first two or three pages that you’ve got a viable business proposal, you’re going to leave empty handed.
This summary is also important as a communication tool for employees and potential customers who need to understand and get behind your ideas. This is where you put your vision and mission statements and briefly summarize all the following elements of the plan. Make this a strong, concise statement on who you are as a company. Give the reader enough compelling highlights to make them want to dig deeper. Here is where you make your first and maybe only impression. Don’t be surprised if most people you show the plan to don’t get past the executive summary. One useful tip: don’t write the summary until the business plan is complete.
An industry review. Get your hands on some valid statistics. Use the Internet and/or industry magazines as a starting point. Be sure to include the following information in this section:
- A brief history of the industry
- Monetary value of industry sales
- Historical growth or decline
- Expected growth or decline
- Typical business structures (independent, dealer, consolidator, network, etc.) and their position in the market
- Innovations
Include a short synopsis of the workflow, and how and why the industry operates as it does:
- Overview of the process
- The pricing process
A brief account of how the company began. Clearly explain the origins behind the company’s creation and how you or your business associate(s) came up with the idea to start your business. Are you an independent or part of a larger chain? Did you start in your parents’ garage and grow the business to what it is today? A short history of your successes is also appropriate here.
You may have started by yourself and now, 10 years later, you have six to eight employees. (e.g., sales of $200k during the first year grew to $1.1 million per year after five years and have seen 5 percent growth each year since 1998.) Whatever the story is, you will want to highlight it in this section.
Your company’s goals. Explain in a few paragraphs your short- and long-term goals for the company. Lay out your growth plans. How fast do you think your business will grow? Or is this plan just to be able to get back to previous sales volume or to safeguard existing market share and assure continued sales? You may have plans for expansion or a second location. You may want to purchase the building you are in or buy property and build your own. This is the appropriate place to include information that will describe why you are seeking financial or other kinds of support. Define your customers and what you are doing to attract them. Once you have retained customers, describe how and why you will keep them. This leads us to the next area of the business plan.
The service or product you plan to offer. A key aspect of this section is to share what your product or service is and how it differs from everything else in your market. This is the section where you will list the type of equipment and inventory you have and describe your plans for upgrading or acquiring new equipment, and why. How you plan to be unique in your industry will be important. What do you plan to offer that a neighboring business may not have? How will you distinguish your company from all others? Make sure to reference the type of warranties you offer, including any vendor warranties. Talk about significant strategic partners and what they do for your business that helps you provide a better customer experience. This is where you persuade people that you are special and that you are easy to do business with. Find a way to be unique in a market and you can greatly enhance your opportunity for success.
The market potential for your service or product. Remember that you’ve got to persuade lenders, investors, employees and others that the market you’re after is large enough to support your plans for growth. You’ll need to do some research for this section.
You should visit local city or county planning departments to see what comprises the planning process for housing and commercial development. How many more homes are going to be built in your area of reach? Why will people be traveling past your place of business? If you have a single-location store, you need to assess the demand for your offering within a certain-mile radius, based on what you determine is a reasonable distance from your business. This could be as little as zero to five miles in a major metro market or up to 30 or more miles in rural markets. If you are a multi-store operator, then you can stretch and cover the ground in between, within reason, based on geography. If you’re nationwide or have customers all over the country, target specific regions or focus on certain areas to highlight your growth potential. You will need to look at your past customer base and see where the customers have come from. Zip code analysis is a feature in most management systems or you may have to go through closed orders manually. This information is critical to understanding where your future customers are going to come from. There are formulas that you can work with and most suppliers can help you understand what dollars available in a given zip code.
Then look at how many other like businesses are in your target market area. Is there over capacity or great opportunity?
A marketing strategy. How do you plan to tell the world (professional customers and DIYers) you’re open for business and you have built a better mousetrap? The marketing section should be an overview of how you will differentiate your message between consumers and wholesale accounts with strategies for each. You will want a marketing strategy, a message and an implementation plan.
Will you rely exclusively on word of mouth? (Today, you need to do more than that, even if you’ve already got a good reputation.) How will you advertise — in print, radio, television, on the Web or other ways? You’ll also need to include how much you plan to spend on marketing.
A rule of thumb is 2 percent of your gross sales. Some people spend less; some spend much more. You will decide what to spend based on your target market, your target customers and your budget. Marketing plans are a critical factor for the future success of your business. It will also help convince investors in your ability to grow the business.
A three- to five-year financial projection. This is the “meat and potatoes” of your business plan. This section should start with your current financial status or health. It will then move to financial projections for the future. Include a summary of your financial forecasts, with spreadsheets showing the formula you used to reach your projections. You’ll need balance sheets, income statements and cash-flow projections for the entire forecast period. The summary in this section is also where you would tell prospective lenders how much money you’d like to borrow to cover your startup or expansion costs.
You will then need to answer how you will make this investment pay off. The assumptions that you make in this section can make or break your company’s success. If you’re unsure about using this kind of financial modeling, find a professional. It’s worth the money. This will lay the foundation for the budgeting process and operation plan you will use on a regular basis.
An exit strategy. All good business plans include a section that lays out the benchmarks you’ll use in deciding to call it quits. This would include benchmarks for giving the business a decent burial, selling it, or being able to retire from it once it becomes wildly successful. The strategy could be based on a dollar figure, revenue growth or decline, the market’s reception to your expansion strategy, setting up for family members or a consensus among top officers. This could also be the foundation for a formal succession plan. There are professionals available who focus specifically on succession planning if you want to seek them out.
Biographies of the management team. One section should be dedicated to the names and backgrounds of lead members of the management team and their respective responsibilities. Your people are your most important assets even though you cannot put them on the balance sheet. This is where you get to showcase their value in the eyes of an investor.
You will want to rewrite this plan at least once to refine it after you compile the information and make sure that it delivers the appropriate message for your use and its target audience. Now that you have the plan reading the way you want it, put an appropriate cover and title page on it that reflects your business and will appeal to the target audience. Make the required number of copies and hand them out.
Once you have done this you can file the master copy away to be reviewed once every six months or once a year to see how reality has mirrored your plan and projections.
Knowledge truly is power, and being knowledgeable about your business and your goals will help you pave a path to a continuously successful future.
Dan Dutra is the northwest business development manager for Fix Auto, a performance-based national network of collision repair shops. He has served in the automotive industry for nearly 30 years. He just completed a two-year term as chairman of the Collision Industry Electronic Commerce Association marketing committee. Also, special thanks to Lance Bull for his assistance.
