Business Planning

As a kid, I remember my dad--the quintessential methodical, organized engineer--sitting me down at the kitchen table for his favorite bi-annual lecture: "Planning For Your Future."

His yellow legal pads would be filled with charts and diagrams and statistics illustrating how I needed to start investing immediately and planning for a lucrative professional career (preferably a sensible one such as engineering), as studies showed that government funds would dry up before I retired, statistics predicted my marriage would end in divorce, leaving me to support myself and my children, and pundits speculated that the price of housing would explode, rendering me destitute and homeless, begging for change to feed my three starving children--all of which could be prevented if I started planning for my future right now.

Of course, I didn't listen. Between my weekly allowance and part-time summer job, I was flush. I was living high on the hog for a 16-year-old. Years later, I realized that his advice was prudent. I didn't end up living out of a cardboard box (although my first apartment in New York came close), but I would have benefited from starting to plan a little sooner.

The same rings true for many small businesses, which often fail to implement formal business-planning processes in the first few years of their growth, or ever, but which would likely benefit from starting the planning process earlier.

Most solution providers agree that setting and managing goals is the best way to ensure growth and success, yet more than half of them, many of which are smaller businesses, operate without a formal annual business-planning process, according to the 2007 VARBusiness State of the Market survey.

As expected, the smallest VARs are the most likely to lack formal planning processes. About 60 percent of companies with less than $1 million in revenue operate without them, according to the survey. Still, that figure only drops to 50 percent for companies with $1 million to $10 million in annual revenue. And even 20 percent of companies with more than $10 million in revenue lack a formal process.

"When you're trying to just bring in revenue every month, formal business planning seems like something you don't want to spend a ton of time on," says Steve McGovern, CIO of Practice Wise, a consultancy for ambulatory medical firms in Tualatin, Ore.

Business planning, though, will eventually become essential for many IT solution providers, which tend to specialize in providing tailored solutions to local and regional businesses and can quickly tap out their immediate markets, McGovern says.

"VARs are very niche-focused; you take someone else's products and find a niche. It's easy at first, and then all of a sudden you realize a niche is a niche for a reason--there aren't a ton of customers," he says. "Then you have to sell them something different that you think they need or you have to find somewhere else to apply what you have learned."

Practice Wise is now looking to expand its market reach and is formalizing its business-plan process to help provide a road map for its growth.

Most solution providers seem to agree that if a business wants to grow or expand, a formal planning process is essential.

"If you're serious about solving problems and growing to be profitable or to be bought or to achieve an IPO, a business plan is the first thing anyone wants to see. It shows how professional an organization is," says Mike Johnson, director of the Western U.S. region for systems integrator QStar Technologies. "It shows if a company knows what they're doing or if they're just content riding on the coattails of vendors. Unfortunately, a lot of solution providers and systems integrators live hand to mouth, not looking past a 30- to 90-day window."

Often, businesses write their first plan when they're seeking external funding and need documentation to present to investors and banks. But business-planning experts say a formal planning process that involves a written plan and a consistent review of that plan can benefit businesses internally, as well, by helping them set goals, allocate resources, handle obstacles and measure growth more effectively.

"Given the way we as humans work, it's hard to review what you were thinking six months ago, or even three months ago, because our mind plays tricks on us," says Tim Berry, president of Palo Alto Software, a provider of business-planning software.

NEXT: Excuses, Excuses

Of those VARs that don't have a plan, their reasons sound an awful lot like the excuses VARBusiness reporters give their editors when stories are past deadline:

"I have it all written out in my head..."

"I started it, but I didn't have time to finish it..."

"I got frustrated and quit because I couldn't get it perfect..."

Palo Alto's Berry says many businesses are discouraged by the concept that business plans must be perfect...or right.

"When people think of a plan, they generally think it's way more difficult than it ought to be. If you're a company with only five people, you don't need to be writing long-winded texts about your organizational structure and history," Berry says. "Also, business plans are always wrong. That freaks people out. The plan will be wrong because you're guessing the future, and none of us guesses well. That doesn't mean it's a waste of time, because the process that follows forms the real value. You can see where your assumptions were wrong," he says.

Best Practices For the Plan

The first step to writing a business plan is deciding the purpose and audience for it, says Martin Lehman, a volunteer with SCORE, a nonprofit group that counsels small businesses.

"Are you trying to convince someone to lend you money, do you want to put your thoughts and goals down on paper, or do you want a road map?" Lehman says.

Once you choose your audience, that will guide the plan's overall tone and structure.

Although the content of the plan will vary from business to business, some common elements include a description of the business and what problem the business solves; intended market and competitive market information; marketing strategy; financial information; management details and relevant supporting documents.

There are a variety of online resources--templates, outlines, articles and tips--provided by agencies such as the U.S. Small Business Administration and SCORE. There are also software tools available, such as Business Plan Pro, from Palo Alto Software; Plan Write, from Business Resources Software; and JIAN Tools for Sales' BizPlanBuilder.

According to the VARBusiness State of the Market survey, of those companies that do have a business plan, most respondents wrote the plan themselves. About 60 percent also involved senior management in the planning process, and about 40 percent involved additional staff members. Nearly 20 percent used outside consultants, 17 percent used vendors, 14 percent sought help from financial sources, and 11 percent included distributors in the process.

Business-planning experts say that, while consultants or other third-party sources can provide help, it's important for the business owner to own the plan. And while the breadth of the plan will determine how long it will take to write, developing a thorough plan will take time.

"If you want to make it really detail-oriented, it will take at least a good two to three months," Johnson says. "You can put together a template in weeks, but putting in the meat-and-market analysis takes about 90 days."

After the plan has been written, it's important to set up a formal review process, experts say. According to the State of the Market survey, half of businesses with plans review them quarterly and about one-quarter of businesses review them on a monthly basis.