6 Essential Plans Every Business Needs
Business-planning advocates will tell you that every business needs a full-fledged business plan, and you certainly must have one if you’re going to seek outside investors or a small business loan. While it’s beneficial to have one even if you never seek outside funding, the reality is that many successful businesses launch and grow without a full, formal business plan. However, few businesses succeed without any planning whatsoever.
Planning isn’t something you do just to say you’ve done it and have paper proof. Done properly, planning is an absolutely essential part of business operations. Below are some of the plans every business owner should have, even if informal, and some quick instructions on how to create them. I also recommend you do them in this order, as each one builds on the one before.
1. SWOT Analysis
The SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is where vision meets reality. It puts your company in the context of the marketplace — customers and competitors. It’s a tool to make sure that there’s a good alignment between your company’s capabilities and the opportunities you’re pursuing.
It’s not a long and complicated process. Just answer a few simple questions:
What do we do best?
What do we not do best?
What resources do we have available — physical assets, intellectual property, and people?
What are our current operational capabilities?
What external political, social, and industry trends and events will likely affect our company?
What are the driving forces behind sales trends in our industry?
Which are our most profitable markets or market segments?
What potential markets might we explore?
What are the strengths and weaknesses of each of our major competitors?
Don’t dwell on it. You and your leadership team should be able to knock it out in a couple of hours if everyone comes to the meeting prepared. Plan to revise it at least quarterly.
2. Revenue Plan
Simply put, where’s your money going to come from? Saying that you want to make $1 million in revenue this year is a target, not a plan. Start with your revenue target and work backwards, taking it down to the operational level. If you only have one product and it sells for $100, that’s $1,000,000/$100 = 10,000 units. Divide that by roughly 250 selling days per year = 40 units per day. Can you realistically hit that? What will it take to do so? If you have more products and are currently in the growth stage, you may need to set up a simple spreadsheet to lay out the numbers for the year.
Break it down to the day and to the employee. You have four salespeople who each need to sell 10 you units per day. Can they realistically do that? Can you realistically deliver that many every day? You may find you have to adjust your revenue target. Or you may see that you need more sales staff, more marketing automation, or increased production capacity. You’ll never know that, though, until you look at this level of detail.
3. Sales Funnel Plan
Now let’s continue that same concept on up the sales funnel. To do this, you’re going to need to know two essential numbers:
- Lead conversion, the percentage of raw contacts that become prospects
- Sales conversion, the percentage of prospects that become customers
Note that in some businesses, such as web retail, these may actually be the same number, while in other businesses with a more complex sales process, you may have additional stages. For most businesses, though, these are the two essentials.
Continuing our example above, let’s say that you know that 40% of qualified prospects become customers, and 20% of leads become qualified prospects. In order to hit 40 sales per day, you need 100 qualified prospects (40% of 100 = 40), and 500 leads (20% of 500 = 100). Now, just as with the revenue plan, break that down by source, e.g., 100 will come from pay-per-click advertising, 100 from search engines, 100 from other web referrals, 100 via phone based on other marketing, and 100 from cold-calling. Again, make sure the numbers make sense — do you have the budget and resources in place to drive each piece at the level it needs to be?
4. Marketing Calendar
Marketing requires a gestation period. Campaigns take time to start generating contacts, contacts take time to turn into leads, leads take time to turn into prospects, and prospects take time to turn into sales. You need to know your sales cycle — how long does it take, on average, for a contact to become a sale?
Work backwards from your revenue plan and sales funnel plan. If you want to sell 1,000 units in December, and you know that it takes a month, on average, for a contact to become a prospect and another month to close the sale, then you need your marketing push to start in September or even August. Why not October? First of all, you want the sales to peak at the beginning of the month, not the end. Secondly, remember that the marketing campaign itself has a gestation period. Most people aren’t going to come sign up for your newsletter or want to receive more information the very first time they see or hear your message. Put everything marketing-related on the calendar — newsletter publication dates, webinars, teleseminars, trade shows, and, importantly, the internal deadlines leading up to those events.
5. Resource Plan
Executing everything described above takes people — skilled people. You now know how many leads you need to generate when, how many of those you need to turn into sales, and what and when you’ll have to deliver on those sales. You have the basis for figuring out how many people you need and what skills they need to have. Again, you generally can’t find the right people instantly when you need them — you need to start the hiring process well in advance of the need.
In your resource plan, also include training and development for current staff — you may not have to hire or outsource certain needs if you can get your people the skills they need in advance.
6. Cash Flow Plan
Your cash flow plan is very much like a budget, except that it only looks at actual cash inflows and outflows, such as when you get paid, not when the sale is made; or when you have to make a payment, not when it is purchased. Unanticipated cash flow shortages can kill a business in a matter of weeks or even days. How long can you go without paying payroll? Or rent? Or a key supplier? They don’t care about your overdue collections, accounts receivable, pipeline, or even that huge deal that you just signed the contract on but haven’t gotten paid for yet.
There are basically three ways to deal with a cash-flow shortage: cash reserves, credit, and slow pay (certainly the option of last resort). How much cash reserves do you need? Generally, 90 days operating expenses is considered a good starting point. Depending on the stability or volatility of your cash flow, you may need more or less than that. If you have less than that, or if you have highly volatile cash-flow needs, you probably want to look into establishing a business line of credit with your bank. You should also establish vendor credit in advance of needing it.
The key is early warning. Even an emergency bridge loan takes time to obtain, whether it’s from the bank or current investors. You can’t wait until you’re actually out of money to start figuring out what you’re going to do.
Moving from Planning to Action
As I said before, this is not meant to be a comprehensive business plan. These are plans that you will use not only for big strategic decisions, but on a daily, weekly and monthly basis. When planning, ask yourself these questions:
Are we taking advantage of our strengths and acknowledging and working around our weaknesses?
Are we focusing our attention on the best opportunities and highest income-producing activities?
Are we meeting our daily/weekly sales quotas, and do we have the marketing activities in place to provide enough leads? And if not, where is the process breaking down?
What should the marketing team be doing today, and what does the rest of the company need to be doing to support them?
Do we have the right people with the right skills to execute our plan? And if not, when do we need them and how will we obtain them?
Do we have enough cash or credit available to meet our financial obligations this month?
These are questions every business owner struggles with at one time or another. If you have these plans in place, you’ll know the answers and can focus on executing the plan rather than stressing over the unknown.
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