This article was originally published on SBA.gov. It’s been republished here with permission.
Good news: Here is a simple process, with five easy steps, that will help improve your business. It’s easy to do and if you’re not doing something like it already, then this simple addition to your process will offer you substantial business improvement.
Step 1: Visualize your main story
Take a step back from the business and visualize the main business story. Imagine the ideal customer, what they want from your business, how they find you, and how your business’s unique qualities matches what that specific person wants.
Don’t make this hard, and don’t sweat the details. You don’t even have to write it down, although writing down a few key bullet points can be really valuable for reminding yourself—and others later—about strategy.
Do make it strategic. Real business strategy has three elements mixed together: identity, target market, and business offering. Your identity is what is unique about your business, and your target market and business offering should be strategically defined. Strategy is about focus, so also focus on who isn’t in your market and what you don’t do. Who isn’t in your market is as important as who is, and what you aren’t doing is as important as what you are doing. For example, if your restaurant is about a quiet, leisurely, gourmet dining experience, don’t offer take-out or drive-though, and don’t have kids eat free.
Step 2: Identify your main assumptions
Don’t make this one hard, either. Take a step back from the business for a moment, and think about the assumptions you make all the time. Are you assuming a healthy economy, for example, or strong regional growth, or good weather for growing lemons? List these key assumptions. Don’t go into too much detail, as you’ll run into diminishing returns. What you want is a good list to help with regular review and revision (see step 5 below).
Step 3: Set your milestones and performance metrics
Milestones have to do with dates, deadlines, and specific task responsibilities. You should write these down for yourself and, if you have a team, for your team members. You don’t really get accountability into the business without writing down and agreeing on what’s supposed to happen, when it will happen, and who is supposed to do it.
Even if you’re running your own business entirely by yourself, you still need to list milestones so you can track progress later. I’ve learned the hard way on this one, both in my one-person consulting business that I ran for 14 years, and for the 50-person product business it became. If we don’t write our intentions down, we lie to ourselves later about what we thought we were going to do. I hope that’s just me and not you, but I doubt it.
Performance metrics add backbone and accountability. Some are about basic business performance, including sales, direct costs, and expenses. However, it’s valuable to go beyond the basic metrics. For example, tracking leads, website visitors, traffic, meals served, trainings, trips, conversion rates, orders, presentations, incoming calls, minutes per call, and so forth. These key performance metrics help you stay on top of the pulse of your business.
Step 4: Manage your business’s cash
Profits alone don’t guarantee cash. For example, you can be profitable, but have too much cash tied up in accounts receivable or inventory, so you end up without enough money to make payroll or cover necessary expenses. To manage cash, you need to project sales, direct costs, expenses, extra spending (for loan repayment, buying assets and similar), and extra income (from borrowing, bringing on a new investment, selling assets, and so forth).
On this one too, don’t try to predict the future. Instead, try to lay out how sales, costs, and expenses relate to each other, so later when sales are different from expectations, you have an easy time of identifying the related changes you need to expect. Think of what drives sales, such as pricing, marketing expenses, traffic, conversions, leads, pipelines, and so forth. And don’t go into too much detail because, as with assumptions above, you’ll run into diminishing returns if you do. For example, a restaurant shouldn’t worry about projecting sales for every menu item, but should summarize and aggregate for dinners, lunches, drinks, and other. Similarly, a bookstore doesn’t need to project sales by title, author, or subject, but rather hard cover, soft cover, magazines, and other. Keep your categories manageable.
Step 5: Review, revise, repeat
Set a specific day of the month, such as every third Thursday, to review results and revise as necessary. If you’re working with others, make sure they know about this regular monthly meeting, and only miss it for good business reasons.
Start your review meeting with your list of assumptions. Identify whether assumptions have changed and how, and what that means for your business.
Include a review of milestones for the past month, including whether or not expected milestones were reached. Then look at milestones for the next month, to review expectations and compare the milestones with the underlying assumptions.
Finally, review performance metrics. Track and manage the difference between actual performance and established expectations.
And now, lo and behold, you have a business plan
I didn’t use the words “business plan” in the title or first paragraph, because I didn’t want you to be distracted by the myth of the formal business plan document. Too many business owners read the words “business plan” and dismiss the idea, thinking of some difficult write up reminiscent of a term paper, that they don’t need unless they are applying for commercial credit, seeking investment, or dealing with issues like selling the business or managing a divorce settlement.
The real business plan, however, is as simple as these five steps. If you keep this business plan fresh and up to date, it optimizes management of your company. Finally, when you do need a formal plan, you can take this real business plan and dress it up with more description and explanations for outsiders, and print it as a formal business plan document.Click here to join the conversation (1 Comments)
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