When it comes to buying a business, a good business plan is crucial. It’s an invaluable guide to listing your objectives and aims in detail. It’s a good source for information and analysis of your aims, targets, customers and prospects. All in all, it’s a great resource to refer back to time and time again. By setting up the business plan, you will have a better chance of success because you have listed everything down in your head on paper.

The vendor of the available business will need to see this in order to ascertain whether you are right to buy. It will demonstrate whether you have the correct business acumen required and whether you are serious about the business. It will also be useful when it comes to the financial side of things, but more on this in a minute.

By making a business plan, you can pick out any potential flaws that might hinder you. It’s a good chance to find any problems or issues that may arise, and then deal with them accordingly before you get caught up in the business. Also, outside parties can cast a fresh eye over the plan, and may pick out something that you may not have spotted.

It’s also important to show the business plan to the vendor or bank manager. If your business needs financing at the beginning, then you need to turn to one of these sources for financial assistance. With that in mind, you need to produce a detailed business plan that shows that your business is credible and also has potential for making money. Not only does the plan prove that you are serious about the business, it also shows that you have a sound business mind and a good grasp of what needs to be done in order to achieve good profits.

So what should you include in your business plan? Well, at the start, it should list the concept of the business. What is the business all about? What are its aims? What sort of returns do you aim to get?

With regard to the aims, you should set these out in bullet point form and alongside these, list sound, realistic ways of achieving them. It’s also worth noting any potential problems that may come your way, and producing effective solutions to combat these. Not only will you be prepared for these problems, the vendor or bank manager will see that you can deal with any pitfalls.

On the subject of finance, you need to produce realistic financial details. How much money will the business require? What are the expenses required? How much tax will you need to pay? What are the profit margins? Do you stand a good chance of achieving these sums, and how? Finance plans should include income statements, cash-flow statements, balance sheets and profit analysis. This should form a big part of your business plan, in order to convince the vendor or bank manager of your credibility.

You should also be aware of what NOT to put in your business plan. The issue of future forecasts is a contentious one. While it’s all very well attempting to make future forecasts, it’s difficult to predict too far ahead. What you need is to look to the short-term future and then produce your plan accordingly. As the business plan then continues, you can modify the content as and when it’s necessary. Long-term planning, however, will only prove to be a pointless exercise.

Another point of contention is how optimistic you should make your business plan. The problem with making over-optimistic predictions and plans is that these plans could well go wrong. Unforeseen circumstances can always put a spanner in the works. Therefore, it’s wise to err on the side of caution when it comes to devising your business plan. Indeed, it’s wise to predict conservatively and prudently when it comes to assessing the possibilities of future targets, sales and profits. A worst-case scenario will always prove to be less of a shock than one that raises expectations too high.

Another point to bear in mind is that you need to keep the business plan relatively simple. Don’t use fancy business jargon or clichés, since this will only cloud the important issues. In particular, if you are presenting the plan to a vendor or bank manager, you will need to keep the plan on point and free of over-fussy language and business speak. Present the facts in a concise, straightforward manner, and this will result in a plan that’s both accessible and plausible.

On average, a good business plan will be about 15 to 20 pages. Keep it concise but detailed. A good business plan will pay dividends both in the short and long terms. An investor and/or bank manager will see this and if the plan holds up well, then this will bring you the business that you seek. And from a personal point of view, a great business plan is something that you can return to time and again as a good reference point – something that you can draw upon in the future.

If you’re in business, one of the most important questions that you must be asking yourself is “what is the best way to grow your business?” How can you take what you have, expand on it but keep your costs as low as possible?

Fortunately, history has given us plenty of good examples of how NOT to do this. Perhaps the best of these happened in 2001 – when thousands of companies went under in the dot com bubble.

But how did SO many go SO FAR WRONG?

In those days, start-ups (with little or no income) and existing companies (with dreams of expanding their business online) were renting the biggest and best offices. They were signing huge print advertising contracts, paying ridiculous sums for banner ads and taking enormous salaries.

When sales were lower than expected and the cash to keep paying all those expenses dried up, these businesses had no way of easily adjusting their monthly expenditures down – because they were primarily FIXED, not variable. Their only option was to declare themselves bankrupt and close down.

Compare this situation with Amazon.com which started in a suburban garage with old doors on sawhorses for desks. By keeping fixed costs down, they were able to stay in business long enough to start generating a profit. They are now a huge company (with real offices) making huge profits.

So how does all of this apply to your company?

No matter what the size of your current business is, the aim is to grow your business while keeping your fixed costs as low as possible as a percentage of sales. And there are many practical ways to do this.

Begin by creating a simple excel spreadsheet of your current revenue and expenses each month. Ensure that you have correctly separated the fixed and variable costs of doing business. Roughly speaking, the breakdown should look something like this:

Revenue
– Cost of Sales (includes cost of goods and variable wages for subcontractors or part time employees)
= Gross Profit

– Fixed costs (includes rent, wages, marketing, telephone, utilities, accounting fees etc.)
= Net Profit

Next, based on your current financial results, set your monthly revenue targets for the next 12 months and estimate the cost of goods sold. For example, if you currently generate $20,000/month in sales with a 60% gross profit margin, you might like to grow your sales by 15%? Therefore, you would use a projected sales target of $23,000 each month with Cost of goods sold at around $9,200 as a starting point. This would leave you with a gross profit each month of $13,800. If your sales fluctuate each month due to seasonal variations, manually adjust your forecast to reflect these ups and downs.

Now here is where most business owners will go wrong…

Most will mistakenly assume that fixed costs are fixed. Meaning, the owner will start to place the existing amounts for rent, marketing, wages, telephone etc. into the financial projections. Fixed costs are referred to as fixed because they are fixed at a point in time. This does not mean however, that they are fixed forever and cannot be altered. In fact, when you are preparing a business plan and financial projections for the future, you should consider almost every aspect of your business as “up for debate and re-adjustment”.

That is why we prepare business plans – we use them to re-evaluate and plan for the future so that we can improve and grow. Without a concrete plan, in all likelihood we will continue to get the exact same results that we got in the past.

Where you will get the most value in this exercise is by going back over each cost (fixed or variable) to identify opportunities to “make the most of what you have already got”! Cutting costs may be possible and advisable in some areas of your business. However, cutting costs [in isolation] is not usually an effective strategy to grow a business. In order to grow and improve your bottom line, you will need to ask yourself the question – “how can I expand my business without expanding costs”?

Can you think of ways to partner with others to expand your reach and sales without actually having to open another location or hire more full time employees? You may already have underutilized capacity to increase your sales right now.

Can you introduce products or services that complement the ones that you currently have and contribute more to the bottom line of your business? Can you renegotiate the terms or prices you have with your suppliers to increase your gross profit margin?

Do you have a website and a fully functioning payment gateway? Do you make it easy for customers to buy from you? Selling online is a very cost effective way to increase your reach without increasing fixed costs.

If you manufacture goods, you could identify ways to increase production simply by tidying up, rearranging the layout of machines and planning more cleverly (to reduce work in progress and downtime). Often mistakes and rework can be costly to your business and surprisingly, they can be prevented by taking time during the business planning process to brainstorm solutions.

Making better use of time is another fantastic way to increase production with minimal impact on fixed costs.

Surprisingly, 95% of business owners never take the time to create a business plan and forecast of revenues and expenses. Of those that do, only a small portion refer back to the plan and measure their progress against the targets and KPIs. That is why so many businesses go under each year.

A business plan doesn’t have to be 50 pages in length and take 100 hours to complete. It just has to be realistic and useful. To do this properly, following my basic outline for projected revenues and expenses above should take 48 hours of your time. 48 hours of your time, in exchange for better bottom line results and peace of mind, is a small price to pay…

A business plan falls on the desk of an investor. They pick up the document and begin to read. A few pages in it has become crystal clear that this is the same plan they read earlier in the week, sometime last month, or dozens of times over the past year. While it may be written on different paper by a different management team, the business plan is obviously a “me too” document.

What is a “Me Too” business plan? It is a document that outlines a business model or strategy that closely mimics that of competitors in the market without bringing anything new or original to the table. It outlines a path that is already heavily travelled by competitors. It does not clearly identify why you will do it better than your competitors, or why you are taking a different approach from those that have already tried and failed. It jumps upon the latest “it” business model without directly addressing the issue of how you will differ from the hundreds or thousands of others on that same bandwagon.

In the hyper competitive and crowded business environment in which we all operate, it is critical to create a plan for your company that clearly, concisely and compelling demonstrates how you will succeed by taking a road that is all your own.

• Is it the composition, quality, or pricing of your products and services?
• Is it your ability to provide better value and service to your customers?
• Is it your ability to address a segment of the market which is either not served or underserved by your competitors?
• Is it the depth and experience of your team (be realistic here)?

Why is it so important to avoid a “Me Too” business plan? Because most investors review hundreds of business plans each year and if they can not quickly recognize in your document what makes you better and different than other similar concepts, you are doomed for the NO pile.

Good Luck!