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Financial Planning and Capital Formation
Business Plan FAQs
- What are the key strategic issues that organizations must address before or during the business planning process?
What are the problems that often hinder the development of a good, focused business plan?
- What will potential investors look for in the business plan?
- How much does an organization need to know about its target markets to properly inform the business planning process?
How should that knowledge be properly represented in the business plan?
- How much does an organization need to know about its competitors to properly inform the business planning process?
How should that knowledge be properly represented in the business plan?
- How sophisticated does leadership development planning need to be?
How should that planning be properly represented in the business plan?
- How sophisticated does organizational growth planning need to be?
What factors must be taken into consideration?
- How should emerging companies go about developing their growth projections?
- How can achieving economies of scale be properly incorporated into expansion plans?
- How far ahead should an organization look as it plans its development?
Is 5 years a sufficient horizon or should the organization be looking ahead 8, 10 or 15 years?
- How often should business planning occur and how should that be reflected in the business plan itself?
- What should be the board's role (as opposed to the staff leadership's) in the development and maintenance of a business plan?
- How long should a business plan be?
What other strategic documents should accompany a business plan?
1. What are the key strategic issues that organizations must address before or during the business planning process?
What are the problems that often hinder the development of a good, focused business plan?
- Around what particular strengths will management expand the organization and what constitutes the most important growth constraints or limits?
- What legacy does the organization hope to leave as its imprint? Can the organization answer the question "to what end"?
- How will organization-wide success be determined? What will be the vital benchmarks?
- What is the assumed time horizon for the plan and what are the contemplated service / market / management team evolutions to accomplish the broad objectives?
- Often organizations do not devote enough time to the business planning process — resulting in a poorly thought through plan.
- Organizations do not always include both board and staff in the planning process. Both viewpoints are needed to create a thoughtful plan. Additionally, the lack of an integrated process does not allow for deep agreement on the goals of the plan.
- Organizations often rely on anecdotal information rather than the collection of hard data. Definition of market size and stakeholder viewpoints need to be collected in a neutral statistically significant manner in order to assure planning that responds to market needs.
2. What will potential investors look for in the business plan?
- Focused mission in terms of target market selection and pursuit and appropriate match between service model / product attributes and customer demographics / motivations.
- Clear definition of competition and competitive advantage.
- Reasonable (sustainable) growth assumptions.
- Management team experience and depth.
- Strong historical operating results.
- Adequate capitalization and liquidity to support growth plans.
- Clear cash flow patterns.
- Ability to meet financial milestones and return on investment criteria.
- Identification / participation of other investors.
3. How much does an organization need to know about its target markets to properly inform the business planning process?
How should that knowledge be properly represented in the business plan?
- Many small businesses serve particular niche populations and niche selection is therefore critical to realizing actual demand for product or services. These decisions pose significant implications for potential revenue growth and subsequent operating results. Management should conduct sufficient research to understand customer motivations and demographics and accurately identify market segment size and anticipated growth rates as well as current market share distributions (among present service / product providers).
- Both qualitative and quantitative information is important. Size of the current market and projections of future market provide the baseline but qualitative information regarding customers' service / product desires — obtained in focus groups, interviews and surveys — is also important.
4. How much does an organization need to know about its competitors to properly inform the business planning process?
How should that knowledge be properly represented in the business plan?
- Competitive response, in some manner and at some level, is inevitable. The extent of competitive response will depend upon revenue growth (share capture), target market demographics, perceived threats on the part of competitors and competitive resources. Competitive response may change the anticipated demand pattern for products or services. Contingency plans should be presented in business plans if potentially strong responses are expected on the part of competitive providers.
- An organization needs to decide if it wants to be all things to all people or to serve a niche. Understanding the organization's role in the marketplace is essential to focusing service / product offerings.
- A good business plan clearly defines each competitor's strategy and the market's view of competition. From time to time thoughtful research of the competition leads to collaboration or merger.
5. How sophisticated does leadership development planning need to be?
How should that planning be properly represented in the business plan?
- This depends upon the magnitude of contemplated internal growth, new locations, etc. The business plan should identify future key staff additions based upon the growth plan and describe strategies and processes for developing or attracting future team members.
- A plan should also acknowledge that leadership development needs to occur at both the board and staff level. Clear strategies for each part of the organization should be included in the plan.
6. How sophisticated does organizational growth planning need to be?
What factors must be taken into consideration?
- Management should utilize rigorous planning and evaluation processes for key organizational decisions that pose long term implications such as target market selection, material changes to the business model, key staff requirements and additions, capital budgeting and facilities acquisition and financing. Management should also construct integrated financial models that are capable of assessing the impacts and resources requirements associated with alternative growth strategies.
- If the plan calls for major growth over a short period of time, strategies should be identified for assuring support for change.
7. How should emerging companies go about developing their growth projections?
- What are the target market growth rates and does the company's revenue growth imply capturing significant share from existing service providers? What competitors might be sacrificing share?
- What growth rates are the organization's anticipated capital resources likely to support?
- What historical growth rates have been experienced in like markets by like businesses?
- What are the practical physical capacities of existing facilities?
8. How can achieving economies of scale be properly incorporated into expansion plans?
- "Theoretical" scale economies sometimes fail to translate into reality. The niche orientation and customer demographics of some small businesses may significantly challenge the ability to achieve scale economies.
- A financial model should capture and clearly convey the potential impacts of possible scale economies.
- Central administrative functions might be consolidated and ultimately improve overall operating performance — these benefits tend to play out well down the time horizon.
9. How far ahead should an organization look as it plans its development? Is 5 years a sufficient horizon or should the organization be looking ahead 8, 10 or 15 years?
- This may depend upon such factors as the length of service contracts, approaching facilities requirements, time horizon of funding sources and anticipated changes in service model / served target markets.
- 5 years is a typical integrated planning horizon. Detailed forecasts may be presented for an initial 24 month period.
10. How often should business planning occur and how should that be reflected in the business plan itself?
- While a business plan may have a five year horizon, often a plan needs to be updated or changed more frequently. Proper attention to the benchmarks of the plan will indicate whether a plan needs to be updated or changed. Organizations often create rolling business plans.
11. What should be the board's role (as opposed to the staff leadership's) in the development and maintenance of a business plan?
- Defining mission and direction — answering the question "to what end?" Setting broad organizational and expansion goals.
- Approving capital formation strategies and making material capital allocation decisions.
- Helping evaluate key management performance.
- Defining key operating outcomes and benchmarks.
- Defining its own growth and development plan.
12. How long should a business plan be?
What other strategic documents should accompany a business plan?
- A plan should not be too voluminous. Consider organizing the information in a hierarchical fashion: summary — business plan — supplemental or support documents
- Other documents that should be developed in concert with the funding objective associated with plan development include: non-disclosure agreement, introductory letter, management references, list of potential funding sources (developed after discussing desired criteria) and a data-base to track dissemination of documents and discussions with prospects.
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