Yesterday we learned that business owners do “business planning” because they’re trying to answer one of 4 fundamental questions. Today, let’s look at the 4 types of planning tools that answer those questions.
1. A BUSINESS MODEL helps us understand if what we’re doing makes business sense.
Simply, a business model tells us if we’re going to make money.
“I buy pencils for one dollar and sell them for seventy cents.”
“It costs us $100 to acquire a new customer who will pay us $700 in the first year. It costs us $300 to deliver one year of service. Our overhead costs us about $200 a year for each customer.”
Understanding a business model is powerful. It can prevent a new business from starting, as in the first example. It validates when we’re doing something right (the second example). It serves as the basis for focused improvement: “Becoming 10% more efficient at service delivery will generate an additional $30 gross profit per customer.”
Business models are often taught to startups as a way to assess whether a business idea is worth pursuing. But being able to sketch out a business model is a very useful tool for a business owner at any stage. Owners can quickly highlight ways to fine-tune a business, point out potential difficulties, and even uncover new business opportunities.
Business models can be quickly sketched on paper, or created with several purpose-built software products, several of them free. Google “business model canvas” to find templates and software.
Interestingly, a business model diagram (or “canvas”) is now the first thing some investors want to see.
2. A STRATEGIC PLAN discusses differentiation over the long-term.
A business strategy tells how a company will generate value in a way nobody else can.
A strategic plan answers, “Who are we important to?”, “Why?”, and “How will we stay important to them?”
It tells us how we will create a unique and valued space in the market, and then defend that space against all comers.
It is concerned with the medium- and long-term. It tells us to focus on certain key things, to become better than anybody else at those things, and to ignore everything else.
A strategic plan has traditionally been the tool of large consulting firms and larger companies. These firms have enormous momentum, and require long timeframes and significant investments to alter course.
Smaller firms benefit from this type of thinking, too. Having customers that perceive our offerings as unique and valuable is necessary for long-term success. Achieving this takes insight, focus and discipline.
How will YOU create unique, valued and defendable offerings?
3. A PROJECT PLAN helps us get things done.
All the high-falutin’ thinking in the world has zero value unless we can execute.
Successful business owners break their goals down into bite-sized pieces: projects and tasks. They let their team know who’s responsible for what. They communicate expectations such as completion dates. They use metrics to monitor progress along the way.
Project plans range from very detailed and formal to casual and dynamic. Traditional approaches use paper and linear models; modern approaches use software that supports a fluid, organic model.
Regardless of the approach, a project plan tells the team who needs to do what by when.
4. A CASH FLOW PROJECTION tells us if we have sufficient fuel for the journey.
Can we afford to get from here to there?
A cash flow projection is the most potent (and underused) arrow in the business owner’s quiver. It points out ahead of time when we may not have enough money to pay our bills. It tells us if we can afford to invest money in equipment or marketing or expansion.
Further, it helps us fine-tune our operations, to squeeze more juice from the orange.
Even further, it shows us where to invest excess cash in our business to accelerate growth and profit.
A cash flow projection is required by virtually every lender and most investors. It doesn’t guarantee that their loan or investment will be repaid. But it does demonstrate that the business owner has at least thought about it, and is sophisticated enough to warrant their consideration.
After all, isn’t business about making money? Or, at the very least, about not running out of money?
Let’s bring these pieces together…
…in tomorrow’s post. How can we most effectively use these 4 planning tools? And, finally, just what IS a business plan?
WANT TO LEARN MORE ABOUT PLANNING?
Join me on January 19 for a free 60 minute live training on business planning.
Woo hoo! 🙂
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