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The number one cause of business failure in the United States is poor planning. A recent study by Dr. Stephen Perry of Gardner-Webb University concluded that "...very little formal planning goes on in U.S. small businesses; however, non-failed firms do more planning than similar failed firms, (Bankrupt) did prior to failure. Simply put, businesses that do not plan have a very high probability of failure and the more you plan the more successful your venture is likely to be and right now might be one of the best times to get started as the U.S. continues to make it's way back out of the Great Recession.
SMALL BUSINESS: BUILDING AMERICA'S FUTURE A Monthly Series of Small Business Articles Sponsored by the U.S. Small Business Administration Office of Business Initiatives SUBJECT: STRATEGIC PLANNING: THE KEY TO SMALL BUSINESS GROWTH AND SUCCESS The May article for SBA's monthly series is entitled, Strategic Planning:
The Key to Small Business Growth and Success. It has been sent to trade associations and other small business organizations for use in newsletters. Additional copies of this article or others in the series may be obtained by calling Jane Boorman at (202) 205-7411.
STRATEGIC PLANNING: THE KEY TO SMALL BUSINESS GROWTH AND SUCCESS
Many people think of strategic planning as a management concept only for big businesses. It is, however, a management mechanism which both small- and medium-sized businesses need to consider. Strategic planning matches your business to market opportunities. To do this effectively, you need to collect, screen and analyze information about the business environment, have a clear understanding of your business and develop a clear mission with obtainable goals and objectives. Strategic planning focuses largely on managing interaction with environmental forces. These include competitors, government, suppliers, customers, various interest groups and other factors that affect your business. Your ability to deal with these groups will vary widely depending on the group and on the timing. Because of major changes in the business environment, your familiarity with strategic planning and your ability to implement it is critical. The more data you have and use, the better will be your plan for the future. Proactive planning and anticipation of future events is crucial to implementing an effective strategic plan. In proactive planning, decisions are based on predictions of future states of the environment as opposed to reacting to crises as they occur. Think in terms of the who, what, when, how, how much and where. These variables will help in filling in the details and in making your plan more specific. They, also, assure the collection of enough relevant data to reduce the uncertainty of the future. Such foresight will take your business where it needs to be in the next month, year and decade.
The first step in the strategic planning process is an assessment of the market and of your own business and its goals. The outcome of this self-assessment is a mission statement for your business. Key to defining this mission statement is addressing the question: "What business am I in?" In determining the nature of your business, do not tie it strictly to a specific product or service you currently produce, but rather tie it to the result of your output and the competencies developed in producing it. Next you must define the firm's basic philosophy. This will help explain to investors, employees and associates how you envision your firm's operations. Set clear, firm goals to guide and maintain the business on a path consistent with its mission. Accomplishing this requires establishing and achieving specific objectives, which must 1) be clear, concise and attainable; 2) be measurable; 3) have a target date for completion; 4) include responsibility for taking action and 5) be arranged according to priority. In determining appropriate goals, you will need to consider the business's position within its industry and the broader business environment. Some trends that may affect your business include population shifts, economic trends, technological developments, legislation and activities of special interest groups. Four approaches to dealing with such fluctuations are: 1) buffering -- when vigilance can be relaxed with confidence that your resources are sufficient to accommodate any changes that may occur, 2) smoothing -- when the abundant resources of one area are used to meet the overtaxed resources of another, 3) forecasting -- the projection of future sales, income or other variables and 4) rationing -- delaying or foregoing altogether business goals due to sudden changes in income or other unexpected circumstances.
Setting up an effective information system is integrally related to your mission and goals and to the specific environmental factors defined in your strategic purpose. Involve employees in determining what information is needed and where and how to obtain it. Now consider a mechanism for conducting internal business analyses. The primary task in this phase is to identify those factors giving you a competitive advantage. These may include holding a patent or an exclusive license on a particular product or service, the technology used to make your product or employing individuals skilled in areas unique to your business. Flexibility is a major advantage small businesses generally have over larger rivals. When you have identified areas in which you are ahead, perform a S-W-0-T Analysis to assess the Strengths, Weaknesses, Opportunities of and the Threats to your business. A SWOT Analysis forges development of a success strategy by identifying and devising measures for correcting potential problem areas, setting a preliminary course of action, developing alternative courses of actions and evaluating, shifting and revising your current actions and immediate goals. With a clear grasp of the competitors, customers, suppliers and situations combined with a realistic understanding of your own strengths and weaknesses and a well-written, comprehensive business plan, you can develop a strategic plan that will lead to success.
Additional information can be found in Developing a Strategic Business Plan, available by sending $1 to SBA Publications, P.O. Box 30, Denver, CO 80201-0030. The U.S. Small Business Administration (SBA) Office of Business Initiatives is pleased to sponsor this article. The SBA offers a variety of services to persons in business or to persons wishing to start their own business.
For a list of SBA publications and videotapes on a variety of business management topics, you may request a free Small Business Directory from your local SBA Office. For the SBA office nearest you, consult the U.S. government section in your telephone directory.
For information about SBA economic development programs and services, call the SBA Small Business Answer Desk at 1-800-8-ASK-SBA or fax (202) 205-7064. For the hearing impaired, the TDD number is 202-205-7333.
The Following is the SBA recommended business plan outline;
What goes in a business plan? The body can be divided into four distinct sections:
1) Description of the business
Although there is no single formula for developing a business plan, some elements are common to all business plans. They are summarized in the following outline:
Elements of a Business Plan 1. Cover sheet 2. Statement of purpose 3. Table of contents I. The Business A. Description of business B. Marketing C. Competition D. Operating procedures E. Personnel F. Business insurance
II. Financial Data A. Loan applications B. Capital equipment and supply list C. Balance sheet D. Breakeven analysis E. Pro-forma income projections (profit & loss statements) Three-year summary Detail by month, first year Detail by quarters, second and third years Assumptions upon which projections were based F. Pro-forma cash flow
III. Supporting Documents Tax returns of principals for last three years Personal financial statement (all banks have these forms) For franchised businesses, a copy of franchise contract and all supporting documents provided by the franchisor Copy of proposed lease or purchase agreement for building space Copy of licenses and other legal documents Copy of resumes of all principals Copies of letters of intent from suppliers, etc.
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