# Business Plans



## Nathan (Jul 21, 2003)

Alright, I'm currently in the process of writing an business plan. 
So of course I've got a couple of questions.

First, how many of you wrote a business plan when you started out?
Second, did you use any software or templates to help out or did you start from scratch?
Last, how details was your business plan? I'm looking at some of these plans and they are as long as books! 

I purchased Busienss Plan Pro 2004 today and I'll tell you how it goes. Theres a lot of information to enter in but it does a good job of holding your hand.


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## hatchet (Oct 27, 2003)

I used an older version of Business Plan Pro and it did do a good job of walking through the steps. Although you still end up doing a lot of leg work for the current market and competition in the area. Same goes for demographics and target markets, etc...
I've found quite a few sample business plans also - and some are quite involved.
The one I did didn't have a lot of the market information and not too much financial stuff but still ended up being somewhere around 17 pages.


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## pgriz (Sep 29, 2003)

Nathan said:


> Alright, I'm currently in the process of writing an business plan.
> So of course I've got a couple of questions.
> 
> First, how many of you wrote a business plan when you started out?
> ...


Before I started my business, I figured out that the money I would need was in significant excess of what I had available, so finding lendors or investors was going to be a key step. No-one will either invest or lend unless there's a solid business plan showing your projections 3 years out. I was fortunate to have an acquaintance who worked with several start-ups, and my 10-page business plan quickly grew to almost 50 pages (about half spreadsheets), as I was pushed to detail out my assumptions. The "final" plan was ripped apart by two experienced businessmen, who poked holes in a lot of assumptions. However, the end result was that I knew my numbers cold, from market breakdown, to number and value of sales, to my direct and indirect costs, etc. It also pointed out to me, very forcefully, that had I gone ahead with the original approach, I would have been financially dead within a year.

Despite all the preparation, one key thing to keep in mind is that the business plan is like a battle plan - few survive the first encounter with the enemy. Until you actually do it, you never really know which assumptions are good and which ones not. Sometimes even the best advice is wrong, so you have to always be aware of what's actually going on. Are your costs within budget? Is your marketing giving you the expected amount of return? Is your closing rate higher or lower than originally estimated? If you have staff, are they performing in line with your expectations? A good plan is one where you can still survive if almost everything that can go wrong, will. As you learn, you need to update the business plan, redo the numbers, and see in which direction the business is evolving. Since every starting enterpreneur ends up doing almost everything, you need to work out several key indicators which you can figure out without a lot of number-crunching, to see if you're on track.

While each business is different, some measures come to mind: How much does it cost you to get each sale (that's out-of-pocket marketing costs, plus your time, plus all the expenses you need to incur to get sale, plus any commissions)? What does your current ratio look like (current assets divided by current liabilities)? What is your profit margin (gross revenues less direct costs)? What's your break-even revenue (where gross profits covers overhead)?

In our business, we've figured out that we've got to sell X squares each week to stay in business. Above that number, we're in the money, below that - we're passing bricks. If we think about expanding the overhead, we divide the prospective cost by the gross profit, and see how much more the sales have to increase to pay for the new overhead. From our business plan, we also know the absolute lowest gross profit margin we need to remain in business, and every bid is checked to see that we're comfortably above that. Without a business plan, none of these numbers would be very obvious or clear.


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## Nathan (Jul 21, 2003)

Great information Paul... Thanks!

Keeps me going!


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## Teetorbilt (Feb 12, 2004)

Nathan, I have never written a business plan.
I started Advanced Marine Systems after being fired due to the luxury tax. No loans, no nothing. The business was fed with freelance engineering jobs. We deal with technical yacht systems.
smalljobs,LTD. was started by helping out a few friends move and getting their new homes to pass inspection. Today it is Teetor & Teetor, Inc., Residential Contractors. Soon to be General Contractors. Still no business plan.
Our next intention is to open a warehouse for discount window treatments. Still no buisness plan.
I'm not going to state what I make but I will tell you that it all started from scratch at age 35 and I have never owed anyone a dime.


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## pgriz (Sep 29, 2003)

Teetorbilt said:


> Nathan, I have never written a business plan....
> I'm not going to state what I make but I will tell you that it all started from scratch at age 35 and I have never owed anyone a dime.


A business plan is a road map. Some people, like you, do fine without one, because you've got an excellent grasp of what is needed in your area. However, not all of us are so gifted, and a good business plan is a useful tool to reduce the self-deception and blue-sky dreaming that new business owners occassionally fall prey to. The most common reason for failure of startups is inadequate working capital - the first few things that go wrong will exhaust the financial resources of a young company, unless you've built in enough reserves. The second most common reason for failure is expanding too soon. A well thought out business plan will minimize (but not eliminate) the chances for the first cause, and give you proper tools to check yourself financially before you extend yourself too much and fall prey to the second.


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## Grumpy (Oct 8, 2003)

I started writing a business planw ith busines splan pro. After reading what it output I was upset I wasted so much time. I said to myself "This isn't much of a plan at all." I came up with something that is less formal but 200x more comprehendable. It's more than a plan it's a schedule and budget as well. I like to think of it as mapquest directions for my business.

Sure I know my business plan will be passed aside by the lenders BUT it's for my business not the lenders. I can easily padd it if needed, but then your just complicating things for no good reason. 

I'm currently working on monthly and quarterly projections for a three year forecast. My numbers are based on the averaged conditions for the last 4 years. It's becoming a very elaborate spreadsheet. 

What Paul said about knowing what each lead costs is the #1 reason I wanted to go into my own business. One day I sat down and figured out what all the leads costs us to bring in. I divided that number by my closing ratio and was astounded at the low cost per SALE. I then figured 2 hours of my time x number of leads and refigured the cost per sale and was still shocked at how little a sale was costing us. I've said it before 100 times "KNow your numbers" If you know your numbers and make a good schedule for yourself of what to do and when to do it you can forecast your profit in average market conditions.

I know a very good idea of what I need to just open my doors. I know how much money I need in reserves for the first three months if we make zero income. I combined these numbers to be my startup capitol. I know what my overhead will be each month. I know at what times of the year I will make large marketing expenses and what those expenses will be. I know about how many leads these marketing expenses will bring in, based on past years averages. I know what my closing ratio is. I've got a very clear path ahead of me, and I may become side tracked from time to time like anyone but this schedule of mine will help get be back on track.


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## Teetorbilt (Feb 12, 2004)

I understand what a business plan is and what it is supposed to do. It's most common use is to convince an investor that you know enough about what you are doing to lend you money.
When I started my first buisness I should have written a business plan, it would give me lots of laughs now. Could I have foreseen the population tripling? It would have read like some poor schmuk trying to get by, which was exactly what I was doing.
I view a BP as entirely theoretical, which it is unless you happen to be clairevoiant. You are attempting to set goals and milestones into the future without any idea of what the future holds for you.
Many large, well established companies took severe hits or went under due to the luxury tax. Many companies were effected by 9/11, same with the Gulf Wars I+II. Indian River County is imposing an 18 mo. building moritorium. These are things that cannot be predicted and can ruin a BP.
I opted for the 'flex plan', to bend in the direction that the wind pushes you. For 20 yrs. it has worked well for me.


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## Grumpy (Oct 8, 2003)

Theres really not anything wrong with goal setting. I live by it. If you don't know where you want to go, how will you ever get there? I encourage you to read "Think and Grow rich" or just find the cd and let the author read to you while you drive. That book changed my life. 

The thing about a business plan, or any plan for that matter is it must be flexible. What if there is road construction? Take a detour. What if shingles are outlawed in IL? Specialize in cedar or slate. A ruined busines splan is only a revision away from being a valid plan again.

If it works for you that's great! But like I said I am the kind of guy that focuses on goals. I'd be like a boat in the water with no engine if I didn't have some kind of plan. Not just for business but for my life in general. I have a clear defined plan for my life and I'm ahead of schedule on some things and behind schedule on others. I adjust my plan accordingly, but the ultimate goals remain the same.


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## Teetorbilt (Feb 12, 2004)

I do the same but only mentally, much faster than on paper. Having things written down would interfere with spur of the moment decisions (let me refer to my notes).
It all boils down to profit margins. Do you really think that I have an interest in window treatments? I know people that do and they are willing to work for $12.00 an hour. Do the research and do the math, I'd be a fool not to do it.


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## pawned (Apr 3, 2004)

I have never in my life seen a business plan, I have started, sold, started again business without one. All I know how to do is make money, I have to hire an accountant to make sense of my books so the gov't stays off my back and I pay the correct taxes. I also can not read the work the accountant does for me. 
All I know how to do is make money. I start with nothing and improve on it and sell it. Please do not think I am stupid, I graduated college in electronics 3rd in my class and have an IQ in excess of 140. But there are a few things I can not do. One is understand accounting and the other is I can not subtract numbers without a calculator. The paper turns blank and I can not see the numbers. I imagine being dyslexic does not help.
But a business plan is if you need to borrow money from someone to start your business and I have a passion against oweing people money, so I always worked with my own money and always did very well.
So to me a business plan would never work. If someone brought one to me in an attempt to borrow money to start their business, it would mean nothing. I would sit down with them and discuss what they wanted to to and would make a decision from there. This has never failed me before


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## Grumpy (Oct 8, 2003)

Pawned I agree with you. You start a business plan to borrow money. Like I said my business plans are much simpler and more straight forward. They are meerly an estimated expense sheet forecasting expenses and projecting revenue. They are also like road maps where I sit down and I decide the who what where when why. I try to put together a schedule of what to do and when to do it. If you pick up one of my business plans it's very much like a "how-to" run a business. 

A formal business plan IS for borrowing money. I've nothing against borrowing money and DO plan to seek a loan after a few years in business for growth. Unfortunately I probably won't be going to you to be an investory. More than likley I'd be going to some kind of financial institution that would require one of these plans to even consider me. No big deal though, I can play the game.


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## hatchet (Oct 27, 2003)

Yeah - there are multiple uses for a business plan. I more use it like you do Grumpy.. as kind of a guideline for running the business. Like what happens when we get a new client - what meetings do we have up front..etc..etc. Who does what .. some sections closely relate to the articles of incorporation as far as business structure.


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## Grumpy (Oct 8, 2003)

Hatchet for me that is our company policy book. 

For me the business plan is more like: when to market, how much to spend, what methods to use. Part of the plan also includes my expected return for each marketing campaign. Theres much more to it but more than anything it deals with the financials. I wouldn't want it falling into the hands of an employee because like I said it's a road map to running a business and any smart employee could take it and run.


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## hatchet (Oct 27, 2003)

Yes I should've mentioned that too. Many of the sections get incorporated into the FOG (Field and Operations Guide) that we are developing. I'm going through this same thing with my counterpart back in MT right now. We feel our biggest assets are the processes we have in place in dealing with clients, warranty work, etc... so we've plugged more of that type of stuff in there for a "niche" market in that area. Notably for when/if we go for financing or board members.


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