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Business Plans For Dummies®, 2nd Edition

Visit www.dummies.com/how-to/content/business-plans-for-dummies-cheat-sheet0.html to view this book's cheat sheet.

Table of Contents

Introduction
Why You Need This Book
How to Use This Book
How This Book Is Organised
Part I: Determining Where You Want to Go
Part II: Sizing Up Your Marketplace
Part III: Weighing Up Your Company’s Prospects
Part IV: Looking to the Future
Part V: A Planner’s Toolkit
Part VI: The Part of Tens
Icons Used in This Book
Where to Go from Here
Part I: Determining Where You Want to Go
Chapter 1: Starting Your Business Plan
Getting the Most Out of Your Plan
Looking to the future
Accounting for your history
Anticipating your audience
Naming Your Planners
Using business planning software
Getting help with the plan
Putting Your Plan on Paper
Executive summary
Company overview
Business environment
Company description
Business strategy
Financial review
Action plan
Chapter 2: Charting the Proper Course
Creating Your Company’s Mission Statement
Getting started
Capturing your business (in 50 words or less)
Introducing Goals and Objectives
Why bother?
Goals versus objectives
Efficiency versus effectiveness
Management by objectives vs Management by exception
Management by exception
Setting Your Own Goals and Objectives
Guidelines for setting goals
Guidelines for setting objectives
Getting it right
Avoiding the pitfalls
Stretching for targets
Timing is everything
Chapter 3: Setting Off in the Right Direction
Why Values Matter
Tough choices
Lost and unprepared
The value of having values
Identifying Your Company’s Values
Investors
The rest of the crew
Existing beliefs and principles
Putting Together the Values Statement
The quick way to develop a values statement
The long way to develop a values statement
Creating Your Company’s Vision Statement
Part II: Sizing Up Your Marketplace
Chapter 4: Checking Out the Business Environment
Defining the Business That You’re In
Analysing Your Industry
Structure
Markets
Relationships
Finance
Researching your market
Recognising Critical Success Factors
Technology
Manufacturing
Operations
Human resources
Organisation
Services
Location
Marketing
Distribution
Government regulation
Outsourcing
Preparing for Opportunities and Threats
It’s a beautiful morning
Dark clouds on the horizon
Chapter 5: Taking a Closer Look at Customers
Checking Out Who Your Customers Are
The good customer
The bad customer
The other guy’s customer
Discovering Why Your Customers Buy
Understanding needs
Determining motives
Monitoring complaints
Finding Out How Your Customers Make Choices
Perceptions are reality
The five steps to adoption
Remembering the Big Picture
Dealing with Business Customers
Secondhand demand
Decision making as a formal affair
Forces to be reckoned with
Chapter 6: Dividing Customers into Groups
Defining Market Segments
Ways to Make Market Segments
Who is buying?
What do they buy?
Why do they buy?
Finding Useful Market Segments
Is the segment the right size?
Can customers be identified?
Can the market be reached?
Figuring Out How Market Segments Behave
Chapter 7: Scoping Out Your Competition
Understanding the Value of Competitors
Identifying Your Real Competitors
Competition based on customer choice
Competition based on product use
Competition based on strategy
Competition in the future
Tracking Your Competitors’ Actions
Determining their capabilities
Assessing their strategies
Predicting Your Competitors’ Moves
Figuring out their goals
Uncovering their assumptions
Competing to Win
Organising facts and figures
Choosing your battles
Part III: Weighing Your Company’s Prospects
Chapter 8: Establishing Your Starting Position
Situation Analysis
Identifying Strengths and Weaknesses
Frames of reference
Capabilities and resources
Critical success factors
Analysing Your Situation in 3-D
A glance at competitors
Completing your SWOT analysis
Measuring Market Share
Chapter 9: Focusing On What You Do Best
Describing What You Do
Constructing a typical value chain
Comparing different value chains
Forging your own value chain
Staying in Business
Searching for competitive advantage
Focusing on core competence
Sustaining an advantage over time
Earmarking Resources
Chapter 10: Figuring Out Financials
Understanding a Profit and Loss Account
Revenue
Costs
Profit
Margins matter
Interpreting the Balance Sheet
Assets
Liabilities and owners’ equity
Growing Up
Examining the Cash-flow Statement
Cash in and cash out
What’s left over
Evaluating Financial Ratios
Short-term obligations
Long-term responsibilities
Relative profitability
Understanding Break-even
Chapter 11: Forecasting and Budgeting
Constructing a Financial Forecast
Pro-forma profit and loss account
Estimated balance sheet
Projected cash flow
Exploring Alternatives
The DuPont formula
What-if analysis
Making a Budget
What’s in the budget
Capital Budgets
How budgets are made
Using ratios to improve your budget
Analysing variances
Flexing your budget
Part IV: Looking to the Future
Chapter 12: Preparing for Change
Defining the Dimensions of Change
Economic trends
Technological trends
Political trends
Cultural trends
Anticipating Change
Trend forecasting
Scenario planning
Demographic time bombs
Doing a PEST analysis
Assessing the Effects of Change
Rolling the dice
Win or lose
Chapter 13: Thinking Strategically
Making Strategy Make a Difference
What strategy means
When strategy works
Applying Off-the-Shelf Strategies
Low-cost leadership
Standing out in a crowd
A focus on focus
Checking Out Strategic Alternatives
Up, down, or sideways
Leading and following
The Marketing Mix
Coming Up with Your Own Strategy
Chapter 14: Managing More than One Product
Facing the Product/Service Life Cycle
Starting out
Growing up
Middle age
Senior stretch
Where you are now
Milking cash cows
Finding Ways to Grow
Same product/service, same market
New market or new product
New product and new market
Understanding the adoption cycle
Protecting intellectual property
Managing Your Product Portfolio
Strategic business units
Aiming for the stars
Looking strong and attractive
Hastening slowly
Extending Your E-Penetration
Buying Out Competitors
Knowing why you want to buy
Understanding what you want to buy
Starting to look
Investigate and approach
Valuing the business
Limiting the risks
Managing the acquisition
Part V: A Planner’s Toolkit
Chapter 15: Planning in Turbulent Economic Times
Cycles and the Multiplier Effect
Downturns galore
Cycles are different
Anticipating trouble
Preparing for the Worst
Deleveraging balance sheets
Containing working capital
Pricing under pressure
Maintaining market share
Conserving cash
Keeping key employees
Selling off assets
Preparing for the Upturn
Acquiring competitors
Planning short-term for the long-term
Chapter 16: Making Your Business Plan Work
Shaping Your Company
Living the plan
Putting together an organisation
Developing procedures
Using advisors
Preparing Your People
Encouraging leadership
Developing skills
Creating a culture
Building a team
Rewarding results
Assembling your finances
Planning for the exit
Chapter 17: Learning from Others: A Sample Business Plan
Safari Europe: Business Plan
Part VI: The Part of Tens
Chapter 18: Ten Questions to Ask
About Your Plan
Are Your Goals Tied to Your Mission?
Can You Point to Major Opportunities?
Have You Prepared for Threats?
Have You Defined Your Customers?
Can You Track Your Competitors?
Where Are You Strong (and Weak)?
Does Your Strategy Make Sense?
Can You Stand Behind the Numbers?
Are You Really Ready for Change?
Is Your Plan Clear, Concise and Current?
Chapter 19: Top Ten Business-Planning
Never-Evers
Failing to Plan in the First Place
Shrugging Off Values and Vision
Second-guessing the Customer
Underestimating Your Competition
Ignoring Your Own Strengths
Mistaking a Budget for a Plan
Shying Away From Reasonable Risk
Allowing One Person to
Dominate the Plan
Being Afraid to Change
Forgetting to Motivate and Reward
Appendix: Glossary of Business and Accounting Terms

Cheat Sheet

Business Plans For Dummies®, 2nd Edition

by Paul Tiffany, Steven D. Peterson, and Colin Barrow

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About the Authors

Paul Tiffany is the managing director of Paul Tiffany & Associates, a Santa Rosa, California-based firm that has offered management training and consulting services to organizations throughout the world for the past fifteen years. In addition, he has taught business planning courses at some of the top business schools in the country, including Stanford, Wharton, and The Haas School of Business at the University of California, Berkeley, where he currently serves as adjunct professor. He holds an MBA from Harvard University and a Ph.D. from Berkeley. He can be reached by e-mail at tiffany@haas.berkeley.edu.

Steven Peterson is a senior partner and founder of Home Planet Technologies, a management training company specializing in hands-on software tools designed to enhance business strategy, business planning, and general management skills. He is the creator and designer of The Protean Strategist, a state of the art computer-based business simulation. The simulation creates a dynamic business environment where participants run companies and compete against each other in a fast-changing marketplace. Each management team in the simulation is responsible for developing its own strategy, business plan, and program to make the plan work.

Steven has used The Protean Strategist to add excitement, hands-on experience, teamwork, and a competitive challenge to corporate training programs around the world. He has worked with both large and small companies on products and services in industries ranging from telecommunications to financial services and from high technology to consumer goods and industrial equipment. He can be reached by e-mail at peterson@HomePlanetTech.com.

When he’s not planning his own business, Steven is planning to remodel his 80-year old house or to redesign the garden. And he confesses that of the three, the garden proves to be the most difficult. Steven holds advanced degrees in mathematics and physics, receiving his doctorate from Cornell University. He teaches part-time at the Haas School of Business, University of California at Berkeley, and lives in the Bay Area with his long-time companion, Peter, and their long-lived canine, Jake.

Colin Barrow is Head of the Enterprise Group at Cranfield School of Management, where he teaches entrepreneurship on the MBA and other programmes. He is also a visiting professor at business schools in the US, Asia, France and Austria. His books on entrepreneurship and small business have been translated into fifteen languages including Russian and Chinese. He worked with Microsoft to incorporate the business planning model used in his teaching programmes into the software programme, Microsoft Business Planner, now bundled with Office. He is a regular contributor to newspapers, periodicals and academic journals such as the Financial Times, The Guardian, Management Today and the International Small Business Journal.

Thousands of students have passed through Colin’s start-up and business growth programmes, raising millions in new capital and going on to run successful and thriving enterprises. He is a non-executive director of two venture capital funds, on the board of several small businesses and serves on a number of Government Task Forces.

Dedication

Paul Tiffany:

For the thousands of students and executives whom I have taught in the past, and who have provided me with constant inspiration and insight about the challenges facing management in the modern world.

Steven Peterson:

To my parents, Mary and Pete, for always being there to encourage and support me in whatever path I chose to pursue. Your love and devotion to each other and our family are beyond measure. And to my sister, Susie, for her deep and constant friendship, and for giving me the chance to be a big brother and an uncle.

Authors' Acknowledgments

I would like to thank everyone at Wiley Publishing for the opportunity to write this book – as well as their help, encouragement, feedback, and tireless work to make this all happen.

– Colin

First we would like to express our gratitude to Peter Jaret for the many hours he spent reading, editing, asking questions, and making suggestions. His insights were always on the mark, and the book reflects his own immense talents as a writer. We would also like to thank Rick Oliver for his care in reviewing the book, and for all his astute comments and advice. His continued enthusiasm for the book is gratifying and greatly appreciated.

Special thanks go out to three of our editors. To Barb Terry for starting us out on the right track. And to Tere Drenth and Colleen Rainsberger for keeping us on course and on schedule. While we didn’t always show it at the time, we really appreciate all their energy and hard work.

We are grateful our publisher for giving us the chance to write the book in the first place, and for allowing us the extra time to make it as good as it is.

We would also like to thank the talented staff at our publisher for taking care of all the important details. To Kathy Simpson for copy editing and Donna Love for assisting with several chapters. To Joyce Pepple and Heather Dismore for dealing with all the permissions. And to Ann Miller for seeing that the bills got paid.

Paul would also like to thank his family for their support during this project – for Janet, and for his children, Ann, Rafael, Roland, Brandon, and Mariah.

– Paul and Steven

Publisher’s Acknowledgements

We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.

Some of the people who helped bring this book to market include the following:

Commissioning, Editorial, and Media Development

Project Editor: Simon Bell

(Previous Edition: Daniel Mersey, Amie Tibble)

Commissioning Editor: Samantha Spickernell

Assistant Editor: Jennifer Prytherch

Content Editor: Jo Theedom

Technical Editor: Laurence Thomas

Production Manager: Daniel Mersey

Cover Photos: © Loungepark/Getty Images

Cartoons: Ed McLachlan

Composition Services

Project Coordinator: Lynsey Stanford

Layout and Graphics: Carl Byers, Ana Carrillo, Joyce Haughey

Proofreaders: Caitie Copple, Melanie Hoffman

Indexer: Cheryl Duksta

Introduction

So you pulled this book off the shelf and decided to give us a try. Good move. You’ve come to the right place. Believe it or not, we don’t need to read tea leaves to know a bit about your background. In fact, we’d go so far as to suggest that you probably find yourself in one of the following situations:

check.png You have a great idea for a brand-new gadget and can’t wait to get your own company up and running.

check.png Your boss just turned over a new leaf and wants a business plan from you in three weeks.

check.png You’ve always run the business without a business plan, and you’re the one who turned over the new leaf.

check.png You thought you had a business plan for the company, but it doesn’t seem to be doing the job that it should.

Are we close? Whatever your situation, you’re not going to need those tea leaves to make a business plan, just read this book instead. We can’t tell you the future of your business. But the business plan that we help you put together prepares you for the future. And we’ll be with you every step of the way.

Why You Need This Book

You may not know how to make a business plan just yet, but you’re smart enough to know that a plan is important. We know, from years of working with companies large and small, that a business plan is crucial – it’s the only way that you can get where you want to go.

This book helps you create your business plan step by step. Along the way, you may discover things about your business that you never realised – things that just may help you beat the competition. We even throw in a few laughs as well.

Sure, for some of you, a business plan is something that you’re required to put together to raise money for a startup company. At best, it’s a formality; at worst, it’s a real pain in the neck. But a business plan isn’t just there to raise money; it’s also a powerful tool – one that’s bound to make your company a better place to work and your business a more successful operation.

Is a business plan magic? No – no sorcery here. A business plan works because it forces you to stop and think about what you’re doing. It prompts you to figure out what you want your company to be in the future and how you intend to make the future happen. Then your plan acts as a template, guiding you through the steps required to meet your goals. For example:

check.png A business plan requires you to look carefully at your industry, your customers and the competition to determine what your real opportunities are and what threats you face.

check.png A business plan takes a good hard look at your company as well, so that you can honestly and objectively recognise its capabilities and resources, its strengths and weaknesses and its true advantages.

check.png A business plan coaxes a financial report, a forecast and a budget out of you, so that you know where you stand today and what the future holds.

check.png A business plan prepares you for an uncertain future by encouraging you to come up with business strategies and alternatives to increase your chances of success down the road.

How to Use This Book

Business Plans For Dummies will help your business succeed no matter who you are or what your job description is, whether you’re part of a large corporation or a one-person show. Depending on your situation, you may find yourself dipping into and out of the book in different ways:

check.png If business plans are new to you, you may want to start at the beginning and let us be your guides. We take you from your company mission all the way through to making your business plan work, and we keep your head above water the whole way.

check.png If you’re a little more experienced, you may want to head straight for one of the more interesting watering holes: how to recognise the critical success factors in your business, for example, or where to look for your company’s strengths and weaknesses. After dipping in anywhere along the way, you’ll most likely discover yet another section where you want to spend some time.

Just remember – no matter where you find yourself, it’s never too late to start a business plan, and it’s never too late to make the one that you have even better. In each case, you can find what you’re looking for between these bright-yellow covers.

How This Book Is Organised

Business Plans For Dummies is divided into six parts, based on the major elements of your business plan. You don’t have to read all the parts, however, and you certainly don’t have to read them in order. Each chapter is devoted to a particular business-planning topic, and you may need some chapters more than you do others. Feel free to skip around; pick and choose what you’re really interested in.

Part I: Determining Where You Want to Go

Before you can put together a business plan, you have to decide where you want to end up in the future. This part helps you get on track right away by establishing a mission for your company, along with business goals and objectives. Then we help you examine your company’s values and your vision for the future.

Part II: Sizing Up Your Marketplace

To make a useful plan for your business, you have to know something about the market you’re going after. In this part, we help you examine your industry and figure out what it takes to be successful by identifying where your opportunities and threats come from. We also help you analyse your customers, so that you can understand who they are, what they need and how you can group them to better serve them. Finally, we help you scope out your competition, trying to determine exactly what you need to win.

Part III: Weighing Up Your Company’s Prospects

In this part we turn our full attention to your company. We help you look as objectively as you can at your capabilities and resources, identifying the strengths that you can count on and the weaknesses that you need to deal with. We also help you zero in on what you do best, enabling you to figure out the real value that you provide for your customers and the true advantage that you have over your competitors. Finally, we guide you through your finances and help you put together a financial forecast and a budget.

Part IV: Looking to the Future

The main reason why you make a business plan in the first place is to get ready for what lies ahead for your business. Part IV helps you look into your future and prepares you for change. We introduce several standard alternatives and show you how you can use them to come up with strategies of your own. And we consider the different directions that you can take as your company grows bigger.

Part V: A Planner’s Toolkit

Your business plan is no good if you can’t put it to work. In this part, we help you shape your company to be as efficient and effective as it can be. We also help you prepare the people in your company so that they have the skills they need to accomplish the goals set out in your plan. Finally, we show you a sample of a real business plan, so that you know – start to finish – what you’re aiming for.

Part VI: The Part of Tens

The Part of Tens is a collection of reminders, hints, observations and warnings about what to do – and not to do – as you work through your business plan. These chapters focus on the big picture, so look at them whenever you need a little perspective on where you stand and where you’re headed, especially if the road ahead starts to look a little bumpy.

Icons Used in This Book

To guide you through your business plan preparation, we include icons in the left margins of the book. Here’s what they mean:

aheadofthepack_consulting.eps This icon indicates tips to put you way ahead of the competition.

jargonalert.eps Wherever you see this icon, you find definitions of business-guru terms.

example_smallbus.eps This icon calls your attention to illuminating examples from the business world.

manager'stip.eps This icon flags situations that apply mostly to large companies, but that may help small companies as well.

warning_bomb.eps Ouch!, you may get burned unless you heed these warnings.

remember.eps This icon serves as a friendly reminder that the topic at hand is important enough for you to note down for the future.

online.eps This icon lets you know about websites from which you can download free financial spreadsheets, tables and other useful goodies. These can help take the grunt and groan out of number-crunching cashflow forecasts, ‘what if’ projections and other tedious but vital repetitive calculations, as well as keep you up-to-date on important rules and regulations.

Where to Go from Here

Take a minute to thumb through this book and get comfortable with what’s inside. Then pick out one or two chapters that tickle your fancy. Better yet, turn to a chapter that you already know something about. Or, if you’re really daring, turn the page and start at the beginning.

Don’t forget to use the table of contents for a chapter-by-chapter breakdown. The index is also an excellent place to turn to find a specific topic right away.

Part I

Determining Where You Want to Go

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In this part . . .

No matter what you’d like to finish, from wallpapering the bedroom to hooking up the DVD player, it’s awfully easy to pass over all the preliminary stuff and jump right into the thick of the project. Let’s face it, the preliminaries are a bit boring. But for the really important things in life – and in business – preparation is everything. So preparing to do your business plan ranks right up there in importance with each of the other major steps as you create a plan.

In this part, we help you prepare to plan by looking at what a business plan is all about. First, we look at how to establish a mission for your company and develop business goals and objectives with all your stakeholders in mind. We also point out why values are so important to your company, and show you how you can use your company’s values. Finally, we look at how a vision for your company gives you something to aim for and a direction to take.