What Business Plan Type Is Best for Me?

 

Shakespeare wrote, “A rose by any other name would smell as sweet.” I say a plan by any other name is still a plan; but many different things get labeled “business plans.”

You’ll see that label on:

• Strategic plans
• Annual plans
• Operational plans
• Feasibility plans
• Business plans for startups seeking investment money

And of course I use the term “lean business plan,” which is what I say all business owners need. No wonder it’s confusing! Here are a few tips to help you sort it out.

1. Start At the Beginning

All business plans begin with this basic principle: form follows function. What do you want from your business plan? The answers to that question determine what kind of plan you need.

2. Think Lean

At its heart, every business needs a lean business plan. It’s faster, easier, and much more useful than the mythological big business plan. It’s what every business owner deserves as a tool for optimizing the business. The Lean business plan:

• Leads off with bullet points for strategy. This is for your own business eyes only, not for public consumption. It’s not explanations, rationales, or supporting documents. It’s a simple list of reminders about focus: your target market, your product, and your business’s identity. Sometimes it also includes a breakdown of what you’ll call “success” — but it’s quick and dirty, in list form only
• Develops the right tactics. You can have a great strategy, but you’ll never make it happen without tactics. These are also bullet points featuring what you’ve decided are the key points of your marketing, product, financial, and recruitment plans. These are for your team’s eyes only, again … not for outsiders. And they’ll cover pricing, channels, social media, launch dates, products, services, features, and so forth
• Includes concrete specifics. This is where you list your assumptions, milestones, tasks, deadlines, responsibilities, and performance expectations. The key here? Measurable, trackable, and accountable
• And finally, pulls everything together in budgets. These are concise, too: your sales forecast, spending budget, and cash flow

With this lean business planning as a jumping-off point, you continue a regular process of review and revision to keep it fresh. Even if your business doesn’t need an elaborate plan, it’ll benefit from this framework.  Review and revise as needed, at least once a month.

3. Those Other Types of Plans You May Need

Again, because terminology tends to “bleed” from one type to another, don’t rely on labels. Think of the function of the plan and you’ll be able to narrow down the type that will best serve your business needs. Here are a few more common scenarios.

Plans for Banks, Investors, Buyers, and Partners

When you’re presenting a business plan to a bank, angels, or other investors, your latest revised “lean” plan is the first draft. Once again, remember, that plan is just for management; you’ll need to dress it up to include the additional content that outsiders will want and need. Among these items are:

• Summaries and Explanations: make sure your executive summary is strong; that’s all some of your outside target audience will read. Keep it short, and make sure it fits the need.  If you’re immersed in a selling-the-idea or selling-the-potential mindset in the written plan, your summary should include key highlights that will pique those readers’ interest.  Your lean plan also won’t include detailed explanations of your strategy, your company, your market, or your product. It has just summary tactics for marketing plan, product plan, financial plan, and management plan. Think of your readers – outsiders looking in – and help them understand the business. Achieve the specific goal of this dressed-up business plan
• Formal Financial Projections: while the lean plan might be fine with just sales forecast, expense budget, and cash management, a formal traditional business plan has to include formal financial projections that respect finance and accounting standards and include Profit and Loss, Cash Flow, and a Balance Sheet.  Banks will want to see projections of key ratios as well, and investors will like a Use of Funds table and sometimes a Break-even Analysis.

Startup Plans

Startup plans should be lean business plans with the simple addition of estimating startup costs and financing tactics. They become plans for investors or banks only when the startup looks for financing from investors or banks.

Operations or Annual Plans

Operations plans are lean business plans by another name – and annual plans should be lean business plans narrowed down to just the next year.

Growth or Expansion Plans

A growth or expansion plan tends to be narrower, with a focus on a specific area or subset of a given business — for example, plans to develop new products. These plans can be strictly internal, or they can be linked to loan or investment applications.  And they should adhere to the principles of the lean business plan.

Growth or expansion that’s being funded internally needs only internal plans, but don’t skimp on the details. Know what you’re funding before you fund it: take the time to estimate both potential sales and expenses for the new product.

On the other hand, if you’re pitching prospective investors, whether banks or individuals, approach a growth plan as if you’re pitching the business from scratch. You’ll need just as much detail in terms of company and product descriptions, management team backgrounds, and solid financial data.

Strategic Plans

Strategic plans tend to be a subset of internal plans. They focus on strategy and tactics, but skip the detailed financial data and milestones of an operations plan, with a focus on company-wide priorities. In that context, one key to setting strategy for your company is carefully examining your strengths and weaknesses as a business. Knowing what your company does well enables you to play to your strengths and select the right opportunities to optimize them.  That way, you’re funneling resources efficiently, to the areas where they provide the best payoff.

Conclusion: Do Only What You Need

With all the different meanings of “business plan,” I recommend you use good planning to help you run your business as well as possible. Keep it lean. Don’t make it a document for outsiders unless you have a business reason to show a business plan to outsiders. Keep it fresh. Use it to get what you want from your business.

If you have any questions about writing a business or starting you own business, please feel free to contact our office. We would be glad to help you out.

Tips for Taxpayers Starting a New Business

Anyone starting a new business should be aware of his or her federal tax responsibilities. Here are several things you should know if you plan on opening a new business this year.

1. First, you must decide what type of business entity you are going to establish. The type of business you open will determine which tax form has to be filed. The most common types of business are the sole proprietorship, partnership, corporation, and S corporation

2. The type of business you operate will determine what taxes must be paid and how you pay them. The four general types of business tax are income tax, self-employment tax, employment tax, and sales or excise tax.

3. An employer identification number is used to identify a business entity. Most businesses need an EIN, and your business will definitely need one if you hire employees, regardless of the type of business entity selected. Please call this office to determine whether your business needs an EIN and get assistance in obtaining one if it does.

4. Good records will help ensure the successful operation of your new business. You may choose any record-keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kinds of records. However, the business you are in will affect the types of records that will have to be kept for federal tax purposes. If you need assistance or guidance in setting up your business records, please give this office a call.

5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.

6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method. Under the cash method, income is generally reported in the tax year it is received, and expenses are deducted in the tax year they are paid. Under an accrual method, income is generally reported in the tax year it was earned, if not yet received, and expenses are deducted in the tax year they are incurred, even though they are not yet paid.

If you are contemplating starting a business or if you already have one, please contact our office if you need assistance with your accounting, bookkeeping, payroll or sales tax reporting, or other federal or state compliance issues.

 

Ask the right questions before you start a business

There are several questions you must answer before you even consider starting a new business. Unfortunately, some would-be-entrepreneurs spend more time planning their summer vacation than they do the start of a new business. Most of these businesses will fall into the three out of five start-ups that fail in the first five years. The statistics vary from industry to industry, but about 30% of new business start-ups close down in the first year of operation. Another 30% will fail in the four years that follow.

How can you increase the chances of a business’s survival? Here are a series of questions you should answer before launching a new business. Nothing can guarantee a new business will be a success, but being well armed with the right information can certainly help.

• The first question to be answered in your written business plan is what products and/or services you intend to provide. Are these products currently being offered in your local market? What is the price being charged for competing products? How do you propose to capture enough of the local market to make a profit?
• Who is your ideal customer, and what media will you use to promote your product or service? Do you have an adequate population of potential customers to provide the sales you need to make a profit?
• What will make your business stand out? What is unique about your product or service? Will you compete on price, location, product variety, or customer service?
• What size building do you need, and how many employees will it take to serve customers properly?
• How much money will it take to open the doors, and how much is needed for operating capital until you turn a profit? Is it likely that you will make a profit in the first year or two? Be sure to prepare conservative cash flow projections for the first five years showing your best estimates of sales and projected expenses.
• What is the source of funds from day one until you turn a profit? How much will you invest and how much is needed from outside sources such as banks or private investors?
• What legal entity will you use: a corporation, sole proprietorship, LLC, etc.? What government forms and licenses need to be filed? Do you have adequate insurance of the right type?

Every business person can benefit from the services of at least four other business advisors. You should engage the services of an accountant, an attorney, a banker, and an insurance agent before you launch the business. These advisors work with a variety of businesses and business solutions every day and can help improve your chances of succeeding in your new venture. It is imperative that you involve them early in the planning process.

If you have any questions about starting a new business venture, please feel free to contact our office.