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o t w o H The book Hand

BusinessPlan
a step-by-step guide to ensure business success
Bagged with Entrepreneur Magazine Not for sale separately Issue 03 October 2007 www.entrepreneurmag.co.za

smart business pl an tips

defining the business model

01 Plot Your Path

Do you know where youre going and how to get there? Planning where you want to be can impact every business decision you make

any entrepreneurs get into business without clearly considering why they want to run their own business and how big they intend the business to be in the future. This can be debilitating. If you dont know where you are going and why you are choosing that route you are likely to strive for aimless revenue growth that may cause you to end up in a place you never intended to be. It is therefore essential to take stock along the way on your entrepreneurial journey and define what your aspirations are and why

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they are important to you. An entrepreneurs aspirations can range from survival, to lifestyle, to growth, to extremist revolutionary. A survivalist is a person who goes into business just to create enough money to meet their basic needs. Their ambitions are to feed and clothe themselves and their families and as long as those goals are met they are likely to be satisfied. Spaza shops and independent car wash operations are very often survivalist type businesses. A lifestyle entrepreneur is a person who runs their own business so that it can provide them with a certain lifestyle. Being an independent business owner may provide flexible working hours or the opportunity to live in a coastal town. Such entrepreneurs can very often be found running franchise operations or single retail stores. Growth entrepreneurs are business owners aiming to create a growing enterprise, an operation that develops past a single location and has a regional or national footprint. Examples of growth

entrepreneurs include restaurant chains, national logistics companies or multiple location consulting firms. Extremist revolutionaries are those people who aim to create an organisation that will one day be listed on a stock exchange and have a global impact. They take on large amounts of risk to facilitate high growth and often need substantial amounts of capital to make their business models work. Examples of extremist revolutionaries in South Africa are Adrian Gore (Discovery), Stephen Saad (Aspen Pharmacare) and Pam Golding (Pam Golding Estates). These different types of entrepreneurial businesses can be viewed on a continuum from survivalist at the one end (low risk, low return) to extremist revolutionary at the other end (high risk, high return). Knowing where on the continuum you hope to end up can make a substantial difference to the amount of capital you need to raise, the business strategies you employ, the management team you recruit and the marketing plans you put into place. Mapping out where you want to be can therefore help with making decisions about many other aspects of the business.

Write a good executive summary of no more than two pages

Greg Fisher

All business owners, new and old, should take some time to write down what it is that they want to get out of running their own business and allow those reasons to inform their medium- and long-term plans for their business. This can create relief for some business owners who may realise that they dont need to grow exorbitantly to meet their needs; it can also provide inspiration and motivation for those entrepreneurs who want to change the world. Strong alignment between the entrepreneurs reasons for running their own business, their growth plans for the future and the strategy and tactics they employed in managing the enterprise, will mean that the organisation is far more likely to serve its purpose and flourish as it does so.
By Greg Fisher, educationalist, speaker and entrepreneurship expert. Entrepreneur magazine SA. All rights reserved.

PUBLISHING CREDITS

publisher Andrew Honey managing editor Nicole Lombard copy editor Lesley Lambert art director Nikki Warfield

ENTREPRENEUR SOUTH AFRICA is published under licence from Entrepreneur Media Inc. by Smart Business Solutions (Pty) Ltd, a KreditInform Group Company
www.entrepreneurmag.co.za

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02 Know Thyself
T
ake a few minutes to do a personal inventory of your goals and resources. Think about what it is that really lights your fire. Passion is a driving force in our lives, and thats never as true as in business ownership. If you have a passion for your work, itll carry you far. If you need help assembling this personal evaluation information, sit down with a trusted friend, an advisor, your spouse or someone you know with business experience, and outline your resources, strengths, weaknesses and your resources (including financial resources). Talk through the concept and listen carefully. You need a reality check here. Dont necessarily accept what you hear, but take it into account. What type of business activities play to your strengths? Can your advisor see you pursuing a certain type of business? Would you be better suited for a business-tobusiness sales situation or a retail setup? Are you good with people, a good public speaker? Are you detail-oriented? Can you afford to
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Thinking of starting a business, but not sure which path to follow? Take a few minutes to do a personal inventory of your goals and resources.

03 Hiring Outside Help

our business plan isnt a standalone document; its you, your business and your promise. You have to know every date, every deadline, every last word, and every number in your plan. Investors invest in people, not plans. They buy the jockey more than the horse. Expert help cant change this fundamental principle. It must be your plan, yours down to your bones, and it must not be the consultants plan. the benefits A professional plan review. Does your plan cover the most obvious points? Does it have any obvious logical holes? Is it easy to read and is it easy to find the most important information? Ask an expert to review it. Help with the financials. You dont have to be an MBA or accountant to plan your business, but some of the underlying math and financial principles can be daunting. The ideal is doing it yourself with an expert looking on and coaching. General planning coaching. An outside expert can facilitate your

many financial institutions and investors caution against hiring a consultant to prepare a business plan on your behalf. carefully evaluate the benefits and perils.

maintain a clear focus on your fundamental interests

run a business? Can you afford to fail? Whats your level of risk tolerance? This information will be very helpful when you start to narrow your franchise search. By maintaining a clear focus on your fundamental interests, you wont be pulled off track by the distractions you encounter during your quest.
By Andrew Caffey, an internationally recognised specialist in franchise and business opportunity law. Entrepreneur Media, Inc. All rights reserved.

The worst element of outside consulting is the consultants who let you think that paying their fees will get you investment, when in fact theyre just going to give you advice.

thinking and planning by guiding discussion towards key issues. Industry-specific coaching. Dont reinvent wheels when you can leverage off of an experts experience. the perils Misunderstanding the deliverables. Dont pay for vague promises. Business-plan review, coaching and help with the financials are credible deliverables, but getting your plan financed isnt credible because that depends on you, not your plan. Wanting a turnkey business plan. That just wont work. If a consultant wants to go away without you and come back with a plan, you go away first. Not checking references. Always ask for references of previous clients and talk to those people. Paying in advance. Some consultants need to ask a fair payment up front, but not 100%.
By Tim Berry, the president of Palo Alto Software Inc,which produces the worlds leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.

Tim Berry

Andrew Caffey

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04 Crafting A Business Plan

B
usiness plans are often seen as the silver bullet to success when creating a new venture. Too often, aspiring entrepreneurs are under the misconception that a beautiful, well presented business plan is the key to attracting loads of venture capital funding and so look for a secret formula for writing a winning business plan. In the end a business plan is only ever worthwhile if it communicates a good business idea in a realistic way. It has been said that a business plan is out of date the minute it comes off the printer. It is true that a business plan is a dynamic document that is likely to change as you learn more about the industry and the venture, but the process of writing it does serve an important purpose in the establishment of a sustainable venture. Writing a business plan is an opportunity for the founders of a business to discuss, debate and decide on the direction of their new venture and to communicate that so that outside parties understand the proposed venture. Launching a new business is risky and it is a wise entrepreneur who understands how to mitigate that risk.
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Create your business plan for the all-important purpose of determining the sustainability of your venture. Entrepreneurial risk can be moderated if all the people involved in launching the business agree on the business opportunity and how it should be exploited. A business plan is merely a tool to get them on the same page in this regard. If you want to speak the language of investors and make sure you have addressed the key issues before setting out on the most daunting journey of a business persons career, you should aim to craft a business plan that focuses on the following key issues: 1. the people Who are the people driving the business? What do they know? Who do they know? How well are they known? 2. the opportunity Why does this industry and market pose an attractive opportunity? What is the market need? How big is the market? How quickly is the market growing? Who are the customers? Who are the suppliers? Who are the competitors? What are the substitute products? What are the barriers to entry?

Get the entire management team involved in devising and discussing what should be in the business plan
Greg Fisher

3. the business model What business model will be employed to exploit this opportunity? What are the sources of revenue and timing of cash inflow? What are the drivers of costs and timing of cash outflow? What is the total investment required to make the model work? What are the critical success factors for this business model? How long will it take to break even? How long will it take to reach a positive cash flow? 4. the strategy How will the business create sustainable competitive advantage? How will the company market the product or service? How will the operations of the business support the strategy? 5. the context What are the key macroeconomic factors affecting the business? How do factors such as regulatory issues, interest rates, exchange rates, demographic trends and inflation affect the business? 6. risk and reward What are the key risks facing the business and what processes have been put in place to mitigate these risks? What return can shareholders expect? What could possibly go wrong in launching

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this business? What is the probability of negative events happening? What processes do we have in place to mitigate such negative events? This framework does not provide the kind of winning formula proposed by many current how-to books and software programme for entrepreneurs. Instead it is a framework that requires the entrepreneur to systematically assess the six interdependent factors critical to every new venture by getting them to answer a series of probing questions. The answers to these questions should be portrayed in a plan that is well laid out in a logical order, easy to read, not too long and avoids complicated technical jargon. The plan should be agreed upon and clearly understood by all the founders of the business. It should also be reviewed by potential investors or financiers without input from any of the founders. Every traveller knows that a journey is a lot less risky when you have a map and directions; a business plan serves as a map for entrepreneurs, reducing their risk and aligning their actions.
By Greg Fisher, educationalist, speaker and entrepreneurship expert. Entrepreneur magazine SA. All rights reserved.

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05 Make it Great
Entrepreneurial start-up expert, Greg Fisher, highlights the key components of a great plan. ood business plans weave a story that is understandable, believable and makes sense to the reader. All elements of the story must link together in a coherent way: if the marketing plan provides for a product launch event, the costs of that event must be evident in cash flow forecasts; if the sales forecast provides for a ramp up in sales in month four, then the marketing plan must provide something to spur that increase and the operations plan must provide for the increase in production in month three and four. A great business plan is short, sharp and to the point. You need to capture and hold attention by including only what is relevant and will assist in the evaluation of the proposal. A great business plan has a very strong opening that captures the essence of the idea in a few paragraphs. Few people ever get past page two of a business plan so you need to make your point early and position the concept powerfully. Writing a business plan forces the management team of a grow8 s m a r t t ip s s e r ie s

06 Building a Strategy Pyramid

Need help implementing your ideas? This approach may provide you with the structure you need. ing venture to come together and talk about where they are taking their business and how they plan to get there. Very often people in a fast-growing business have different ideas about the overall strategy of the business and therefore begin pulling in opposite directions. Going through the task of writing a business plan compels the management team to align the different elements of an enterprise and to begin to work together to achieve a specified outcome. Writing a business plan forces an entrepreneur to test whether reasonable assumptions translate into positive cash flow and, ultimately, profit. If one needs to adjust too many assumptions to create that, then you need to evaluate whether the new assumptions are reasonable. If you cannot achieve positive cash flow with reasonable assumptions, this highlights a major risk for the business. Such a risk will only come to the fore as a result of the pain of preparing a business plan.
By Greg Fisher, educationalist, speaker and entrepreneurship expert. Entrepreneur magazine SA. All rights reserved.

Get one person to write the final business plan to ensure consistency and coherence

Greg Fisher

arketing guru Seth Godin recently addressed alignment in a piece about iTunes falling over its own words and intentions. After reading it, I did a quick Google search on strategic alignment, which brought up a lot of results and a lot of different meanings. To me, strategic alignment means lining up the details on the ground with the strategy up in the sky. For example, suppose a retail computer business says it focuses on service

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seeker small businesses. Revamping the physical location to create a long and inviting service counter is strategic alignment. Staffing it with friendly technicians in white service coats, like the auto dealers, is strategic alignment. Buying a white van with a huge sign on the side saying, Installing Another System, is strategic alignment. Doing nothing but talking about it at meetings is not strategic alignment. It was strategic alignment, or the
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smart business pl an tips

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lack of it, that led me to develop the strategy pyramid back in the mid-80s. I was consulting with the Latin American group of Apple Computer, led by Hector Saldana. I had done the groups annual business plan for three years when Saldana issued a challenge: We want you to manage our annual plan again this year, but with a difference. This year we want you to sit with us the rest of the year and make sure we actually implement it. The repeat business was, of course, good news, but there was a catch. The Apple Latin America group at that time was a collection of a couple of dozen young, well educated, brilliant people. Saldana and I were the only ones over 30 years old. It was hard to keep that

Dont allow your plan to exceed 25 pages

Greg Fisher

group focused. Strategy takes boring consistency to implement. The strategy was desktop publishing, but wed been working with that for so long that multimedia was much more interesting to the managers, but not to the market. So I came up with the strategy pyramid, which made it possible to track implementation and work on strategic alignment. We used it to build a database of business activities that we called programmes and track them back up through tactics and strategy. One strategy, for example, was to emphasise desktop publishing. Tactics used included advertising, pricing of bundles and distribution channels. The detailed programmes were things like advertising insertions,

STRATEGY TACTIC
PROGRAMME PROGRAMME

TACTIC
PROGRAMME

TACTIC
PROGRAMME

From Business Plan Pro. Reproduced with permission from Palo Alto Software, Inc.

seminar marketing, bundling of hardware and software, and distributor pricing. Each programme had a manager responsible, a start date, an end date and a budget. Sometimes the budget was zero, but there was room in the database for the amount. The result was strategic alignment. The next year we were able to sort and manage programmes according to strategies and tactics. We could show a spending pie divided into pieces representing each of our strategic priorities. We could also track implementation to the level of specific tasks assigned to specific managers, with performance on start date, finish date and budget. In some cases we could even track sales back to projections in the plan. So seminar programmes that began with sales projections had to live with sales results. You can use the strategy pyramid in your own planning. Focus on three or four main strategic priorities and build a conceptual pyramid for each one. Dont sweat the details like definitions of strategies and tactics; just make it work for you, in your business, with your pyramid. Do sweat the details like

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making programmes with specific responsibilities, budgets and projected outputs when possible. You dont have to be a big company. Apple was a huge company to me in the mid-80s, because it had more than 1 000 employees; yet the Latin American group had less than two dozen people. We made the pyramid work because we wanted to make it work; we wanted to build strategy, not just great parties.
By Tim Berry, the president of Palo Alto Software Inc,which produces the worlds leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.

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07The Numbers in Your Plan

was a wordsmith first before I went to business school and discovered that some things cant be explained with words alone. Even with all the great thought youll put into the text portions of your business plan, a good business plan depends on numbers to make it all real. Without the numbers, its only a rough draft at best. An effective business plan has to include at least three important pro forma statements (pro forma in this context means projected). Theyre based on the three main accounting statements: The profit or loss, also called income statement shows sales, cost of sales, operating expenses, interest and taxes. The statement shows performance over some specific time period, like a month, a year or a quarter. The balance sheet shows assets, liabilities and capital (assets less liabilities). This statement shows a companys financial position at a specific time. The cash flow statement projects how much money is in the bank
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Do words like cash flow, balance sheet and sales forecast make you cringe? follow this easy guide to understand the figures you need to make your business plan count.

avoid excessive, detailed financial projections and Dont be overly optimistic in your projections you will lose credibility

Greg Fisher

and will be in the bank. The three critical accounting statements are so well linked that you could prepare the balance sheet automatically if you had already prepared your income and cash flow statements. I also recommend that you add at least two additional tables highlighting specific portions of the main tables: a sales forecast and a personnel plan. In addition, Id suggest you start the balance sheet with either starting costs or past performance, depending on whether youre creating a business plan for a start-up or an existing company. You dont have to know the subject of finance inside and out to create a business plan. You do have to understand that if you dont know how to prepare the main financial projections, you should get help. If youve got the budget, you can hire somebody to do this for you, but then that makes it their plan, not yours. The better way is to get help from books, websites, software, or friends and family so that you can do it yourself. High

finance is a career, but projecting your own business finances is something you can do yourself as long as you have the patience to take it step by step. (You may have to learn at each step, but its good for you.) If you have the budget to hire consultants, take advantage of that and bring some experts on board, but be sure you have them show you how to prepare the projections rather than just have them do it for you. You want to understand your business numbers when questions come up. Ideally, consultants or not, you should be able to review and revise your numbers at any time, day or night. Expect to have to make some educated guesses. Dont waste your time complaining that you cant possibly know how much sales or expenses will be because yours is a new business every business that ever started was a new business, and the good ones had estimates to work with. You can do this everybody else does, and youre no different. Nobody likes to forecast, but nobody is more qualified than you to forecast your own business. Regardless of how you do it,

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dont expect to go through the numbers once, from step one to step whatever, and be finished. It doesnt work like that. Any revisions you make in one table will affect the others. And as you develop your plan, your numbers will change. Whatever tools you use (obviously were talking about software and a computer), make sure it all flows together.
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08 What Investors Look For

Heres some of the interdependence you need to deal with: Starting balances affect cash flow and all other balances.The sales forecast affects profits, cash flow and the balance sheet. The personnel expense forecast affects profits and loss, cash flow and the balance sheet. Many of the things you do in cash flow directly change the balance sheet, such as taking out a loan, taking in investment or paying dividends. The balance sheet can affect the cash flow. For example, increasing accounts receivable or inventory decreases the cash balance while increasing accounts payable increases the cash balance. When it comes to timeframes, do your numbers for the first 12 months of the plan in monthly detail, then by year for the following two to five years. Normally, three years is long enough, but some plans involving longer cycles will require five years total. You can add highlights for 10 years, and you can talk about time periods even longer than that in the text.
By Tim Berry, the president of Palo Alto Software Inc,which produces the worlds leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.

Starting Balances and Start-up Costs

Although theres no fixed sequence in a process like this, because the statements are so interdependent, I recommend you order the tables in a way that leads toward the final results and builds on the source tables: Sales forecast Personnel expenses Profit and loss Cash flow Balance sheet

Heres what your business plan needs to include to catch the eye of start-up investors. lthough you definitely need a business plan to find investors, your plan alone no matter how good it is isnt enough to attract investors. The investment decision depends on a lot of other factors: A management team with a proven track record. Yes, that often means they wont fund your plan because you dont have experience, but you dont have experience because they wont fund your plan. Deal with it. If this is the case, look for private investors or friends and family. A defensible product with a competitive advantage. Its easier to predict the success of a tangible product than it is a service, which is why service businesses are rarely interesting to venture capitalists. Reasonable valuation. Divide the amount you plan to take as investment by the percent of ownership youre offering to give in exchange. For example, offering 50% of a company for R5 million means youre valuing your company at R10 million. An outrageous valuation shows investors you may still have your head in the clouds.

When it comes to timeframes, do your numbers for the first 12 months of the plan in monthly detail, then by year for the following two to five years.
Tim Berry

Understand that you cant get to the last step without a lot of revision of earlier steps. What you discover in the profit and loss will change your personnel expenses, for example, which will further change your profit and loss statement, which affects your cash flow and balance sheet. Just keep adjusting until it seems right.

Whether youre one of the very few start-ups that land venture capital investment or youre taking investment from angel investors, friends or family, work closely with an attorney to be sure that any deal you do is structured properly.

A clear statement of the investment offering. Check with your attorneys about the legality of your offering, including how much equity for how much money youre planning to offer this time through, and the planned future dilution for later rounds of investment. other things that interest venture capitalists include: A shot at increasing the value of the company from whatever they think it is now to about 100 times that in three to five years. A plan that has several other similar investors ready to invest at the same time. Venture capitalists find safety in numbers so they dont want to be the only investor in a deal. A clearly stated exit strategy. Investors like to see that youve thought ahead to how theyre going to get their money back.
By Tim Berry, the president of Palo Alto Software Inc,which produces the worlds leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.

Tim Berry

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09 Common Mistakes to Avoid

Steer clear of these 10 blunders when crafting your business plan.

keep it current with your business. Of course, youll soon realise that your plan may never be done, but the important thing is, youre planning. You should always be planning your business. 2. dont confuse cash with profits. Theres a huge difference between the two. Waiting for customers to pay can cripple your financial situation without affecting your profits. Loading your inventory absorbs money without changing profits. Spending most of your money buying inventory doesnt affect profits, but cash flow is much more important than profits because profits are an accounting concept and cash is money in the bank you dont pay your bills with profits.

Write From an Audiences Perspective

The starting point for any business plan should be from the perspective of the audience. What is the purpose of the plan? Is it to secure funding? Is it to communicate the future plans for the company? The writer should tailor the plan for different audiences, as they will each have very specific requirements. For example, a potential investor will seek clear explanations detailing the proposed return on their investment and time frames for getting their money back. is not the idea itself but a business thats already built on top of it. It takes employees having shown up every morning, phone calls being answered, products being built, ordered and shipped, services being rendered, and customers paying their bills to make an idea a business. Either write a business plan that shows you building a business around that great idea, or forget it. An idea alone does not make a great business. 5. dont confuse a plan with the act of planning. You need both to succeed. And your planning process doesnt end
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n the more than 30 years Ive been involved with business planning, Ive seen styles and fashion of plans change a lot, but the fundamentals remain fairly constant. To help you craft a plan that hits all the right notes, heres a list of some of the more common business planning mistakes you should avoid:

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1. dont put off writing a plan. Dont wait until you have enough time, dont wait until you have the right people, and definitely dont wait until theres an urgent reason you suddenly need a plan. Instead, just do it now. Recognise that you need a business plan and that your first step is to prepare your first plan. Get a draft up and running and then continue updating it to

3. dont dilute your priorities. A plan that stresses three or four main priorities is a plan with focus and power. People can understand three or four main points. A plan that lists 20 priorities doesnt really have any. 4. dont overvalue the business idea. What gives an idea business value

write a business plan that shows you building a business around a great idea, or forget it. An idea alone does not make a great business.
Tim Berry

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Understand The Competition

An integral component to understanding any business environment is understanding the competition, both its nature and the basis for competition within the industry. Is it a competitive environment, or one that lacks competition? Including a thorough understanding of the basis on which you intend to compete is vital; can you compete effectively with the existing players? when your plan is done. The value of a plan is in the implementation it causes, and implementation starts the day you settle on the main points of your plan. Understand that your business plan is never really done youre always revising it, or should be, because reality is always pressing forward. Without a plan setting markers, youll never know the difference between plan and reality. Work your plan; dont just write it. 6. dont fudge the details in the first 12 months. By details, I mean your financials, milestones, dates, responsibilities and deadlines. Cash flow is the most important, but you also need
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lots of details when it comes to assigning tasks to people, setting activity dates and specifying whats supposed to happen and whos supposed to make it happen. These details really matter. A business plan is wasted without it. 7. dont sweat the details for the later years. This is about planning, not accounting, and youre only guessing the future in a system full of uncertainties. As important as monthly details are in the beginning, they become a waste of time later on. How can you project monthly cash for three years from now, when your sales forecast is so uncertain? Sure, you can plan in five, 10 or even 20-year horizons in the major conceptual text, but you cant plan in monthly detail past the first year. Nobody expects it, and nobody believes it. 8. dont create absurdly optimistic hockey stick projections of sales taking off in the near future. Yes, it happens about once a generation, but nobody believes it in a business plan because they all say that. No investor is going

to tell you they believe that even though your sales have been flat up to this point, once you have their money, your sales are going to go through the roof. If youve really created that once-in-a-generation business whose sales will take off, then youd better build so much bottom-up detail into that forecast that even the most jaded investor will believe it. 9. dont write too much. Keep your business plan short and focused on your main priorities. Its a business plan, not a doctoral thesis. Stick to the main points, and use bullet points to keep the main points highlighted and simple. 10. dont sweat the formatting details. No business plan has ever failed because the page headers werent color-coded. Dont dress up your plan with multiple fonts, too many colors or complex page layouts. Dont hide the important information. Keep it simple, and dont sweat the small stuff.
By Tim Berry, the president of Palo Alto Software Inc,which produces the worlds leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.

Dont use technical jargon or unknown acronyms in your plan

Greg Fisher

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