Byretorial - A business plan, just for you!

[The Byre]

Business plan? Too few to mention!

I have a collection of old pictures of Berlin before the War. It was, without doubt, the most beautiful city in Northern Europe. Within a handful of years, it was a pile of rubble and the people were forced to commit terrible acts, just to stay alive and feed their families, that was if they still had any family left to feed! It was the Southern Germans that mostly voted for Hitler, but it was the Northern Germans that get nearly all the post-war deprivation, as they were within bombing and artillery range of Allied and Russian forces. To say that Germany regretted voting for Adolf Hitler is to state the blindingly obvious!

(After the War, you couldn't find a single person that voted for the Nazi Party - but you could always work out who they were, because sooner or later, they would remind you that under Adolf, the trains ran on time!)

Right now, the Democrats are regretting voting for Hillary - but nowhere nearly as much as the Republicans are regretting voting for Donald. And just to rub salt into the wounds as his ratings fall, the New York Post filled its front page with a naked picture of Mrs Trump (from the days when she did these things for a living) and the hilarious headline 'The Ogle Office!' Inside the NYP were further nude pictures of Ivana doing some girl-on-girl poses with another brunette. (Everybody's favourite deluded bigot, Rush Limbaugh, stated in his weekly radio rant, that this may bring out the LGBT vote! Er, yer, right!)

And right now, Britons are regretting voting for Brexit - particularly as the leading lights in Europe are making unfriendly noises and behind the scenes are clearly telling Westminster that there will be no deal - except perhaps with Scotland. That would mean two long and completely uncontrollable boarders between the UK and the EU. Good luck with that one!

"You said you wanted to leave. Well, there's the door!" say the Eurocrats and the politicians. "Off you go and send us a postcard!"

With the economic prospects for the UK falling ever-lower, you can tell that the word 'Schadenfreude' is pure German!

Regrets? I have a few, but then again, too few to mention.

This forum is filled with cries for help from people who have done something that they now regret. Leases signed on shops that never took off; partnerships with total psychopaths and/or deadbeats; open-ended contracts to supply, but at a loss; investments in companies that turned out to be either bogus or turkeys; oversized deals with companies that now do not want to pay; you name 'em and hardly a day goes by without some poor wretch calling for help!

And each time, I am reminded of what Warren Buffett had to say on this subject - “The market, like the Lord, helps those who help themselves. But unlike the Lord, the market does not forgive those who know not what they do.”

At the same time, there is a constant stream of hopefuls, wanting to launch businesses and regretfully, many of these are destined to be total turkeys. The more seasoned and wiser heads here, point out the obvious pitfalls, such as expecting a return on investment only after a few years, or the need for investors to have an exit strategy. The number of people who sign contracts without actually taking the trouble to read the damn things, also never ceases to amaze and amuse me.

George Soros once said - “I’m only rich because I know when I’m wrong.”

Again and again, people setting out in business are told to write a business plan. Apparently, this will help banks and investors see the light and open their cheque books. To hell with 'em! I'm now going to show you how to write a business plan for the most imporant person you know!

I'm going to show you how to write a business plan for yourself! I'm going to show you how you can tell if you are wrong!

Even if you are not seeking outside investment, it is always a good idea to write down a business plan, if only so that you can focus your own thoughts. If you are seeking outside investment, having a solid business plan is a box that must be ticked. Having a poor business plan that is full of holes, or just does not make sense, is a great way to not get your business off the ground.

A bad business plan waffles on, for page after page, about company structures and numbers of employees, logistics and use of buildings, training requirements and marketing strategies. You name it and the bad business plan has it. IT requirements, structure of the management team, distribution strategy, brand development, the bad business plan has anything and everything, but it does not answer the one question that has to be answered - does this turkey fly?

I know, because in my distant past, I have written such plans and I have had to read even more. The bad business plan reads like a college essay, describing some fictitious product launch and covers every aspect in an attempt to gain vital points and get a better grade. The prospective investor has to wade through page after page of pointless detail, covering staffing, warehousing and of course, page after page of finance planning. At the end of all this, will be a somewhat optimistic prediction of future profits and at the front, an executive summery will outline how this is an opportunity that you cannot afford to miss!

(Just how often have I read or heard that statement!)

Over the years, I have noticed that successful business plans, that have investors reaching for their cheque books, or calling the bank to tell them to transfer vast sums and boards of governors nodding in unanimous agreement have five things in common. From proposed television stations costing hundreds of millions, to the launch of a new hot sauce just for the local deli, there are five things that keep cropping up in good business plans -

UDUBS (Up-side, Down-side, Unique selling point, plan B, Says who!)

1. What can I make? What do similar businesses earn in the same area and with the same level of know-how and investment. Is this business scalable?

2. What can I loose? Interest costs, opportunity cost, depreciation, etc.

3. What is the USP? Why would customers come to you and not the other guy?

4. What is plan B? Exactly how do you propose to pull the business around, if the customers stay away in droves? You will have to have this safety net,
to lessen the risk.

5. Says who? Either existing sales or some expert opinions are an absolute MUST on the viability of your plans from such people as market researchers, industry insiders, economists and experienced business people.

So, lets go through these one by one -

 

[The Byre]

So, lets go through these one by one -

1. What can we make?

This is the important one - just how much money can we make with this idea. Sometimes, this is called the upside and requires hard figures, with all costs and all types of costs. This is where you need your forward projections, including best and worst case projections and an answer to the all-important question ‘Is the business scalable?’

If you are pitching your business plan to others, such as banks and investors, you need hard and verifiable facts and figures here. It is here where lunatic optimism and the ‘If-we-only’ tribe takes over. “If-we-only get 2% of the market, then . . .” and there follows some wildly optimistic forward projection, assuming market shares that are ten or one hundred times more than reality would suggest. This is often combined with figures that ignore many costs that seasoned business people would never ignore, such as the replacement costs of capital equipment, or the costs of complying with future government regulations on safety or the environment. Even fundamental things like insurance or heating are often ignored.

In the ‘What can I make’ chapter of your business plan, it is a good idea to chart existing sales and profit growth over the foreseeable future. The foreseeable future means a couple of years, when it comes to sales, though other time frames come into play, when looking at such aspects as long-term development of equity. As an economist, I never tire of telling people that I can predict everything - except, of course, the future! The future is completely and utterly unpredictable, so stating your sales figures five or more years into the unknown is just not possible. You can project the figures, giving best and worst case scenarios, for a couple of years or so, but that is about all. After that, you might as well visit the voodoo woman who uses chicken entrails!

I can already hear the voices of some business people, stating that they have had five years of 20% p.a. growth and that they can safely predict further similar growth. They may even point to even longer periods of very steady growth, but sooner or later, such halcyon days will be over - particularly if another business realises what is going on and says to itself “We’ll have a piece of that!”

So, at first sight, your predictions and future projections may seem plausible and even reasonable, but all that can change very quickly indeed!

2. What can I loose?

What does the whole enterprise look like financially, if we have to pull the plug at some future date? We can buy a house and rent it out, but if we find no tenants, we can sell the house. We can build a factory, hire the workers and make widgets, but if, after a year, we have not been able to sell those widgets, what will it have cost us and what do we do with the factory?

There are of course, exceptions and a really strong patent on a must-have technology could be one such exception, but nothing in this world is certain. Rock-solid patents in a key aspect of your product technology may protect you from predators today, but change and disruption is the rule and not the exception. As Forest Gump said, shit happens! It could be drastic change in your costs, natural disaster, disruptive technology, or government legislation. There is always the possibility that the whole thing falls to bits and a figure needs to be put on this.

3. What is the USP?

What is your unique selling point? What sets you apart from all the other similar businesses? It could just be that you are a nice person and loved by all, or it could be that you have a deep knowledge and understanding of the business that others would find difficult to copy. Or it could be a patent or other unique technology. As USPs go, it is often better to be a nice person, than to have some special technology that could be compromised, copied or become outdated.

Being nice or clever may seem not much of a unique selling point, but having a technical advantage may not last very long. Being liked by others and having an attractive personality should last a lifetime! Just think of the way that companies like the Virgin Group or Dyson use the images and personality of their founders to market their goods and services.

Sometimes, your USP can just be a different way of combining fairly ordinary and boring services and building up experience in that combination that others would find it hard to copy. For example, a financial services company that not only pays certain types of costs, such as energy or transport, but can reduce these costs by bundling your usage with others and therefore getting a better price. Some companies will even manage energy costs and renovate the customer’s buildings in order to reduce those costs, providing one attractive package of reduced costs and renovation.

To provide such ‘cross-platform’ services requires specialist knowledge and experience that potential competitors could find very difficult to copy and be considerable barriers to entry into the market.

It is important to remember that USPs are dynamic, they change with changing circumstances. Your new widget may be the cheapest or the best this year, but next year will bring new entrants into the market and changes in widget technology that can shuffle and deal the cards anew. Within your business plan, there has to be some mechanism for maintaining, developing and servicing your USP. Your new hyper-widget may be replaced by a virtual software widget and this year’s advantage may become next year’s disadvantage.

Your USP has to not only be a USP today, but be capable of being adapted and developed, so that it remains a USP tomorrow. Intel became a great company, not because it had some patents and other intellectual property, but because it had a system in place that created those patents. Patents run out and can be copied or otherwise circumvented, but a system and company culture is very, very difficult to duplicate.

 

[The Byre]

4. What is plan B?

What happens when the customers stay away in droves? What do you plan to do to turn your ship around, if things do not turn out the way you expected? If you are asking others to invest a substantial sum in your new idea, plan, company or whatever, you can hardly expect them to live with the idea of loosing their entire investment, if things don’t turn out the way you said they would! Of course, if the investment is extremely small and therefore with little risk of losses, taking a punt on an idea may well be worth it and many successful businessmen have started with a string of minor failures, only to hit upon a plan that worked and were able to expand that business into something successful.

But in all businesses, there come stages where things just have to be done differently and taking that step may need investment. Many businesses find themselves forced into a plan B without even realising that it has happened. High on this list are radio stations and newspapers faced with falling advertising revenues. Rather than reduce size and therefore reduce perceived value for the readers, the media have been launching events, selling goods and doing other things that could generate at least some profit.

Back in the 60s, when pirate Radio Station ‘Radio Caroline’ was launched off the English coast, the station sold T-shirts, car stickers and fan-mags and books about the station and even ran ‘The Caroline Club’ at a profit. At its peak, the station had 30m regular listeners across Europe, so capitalising on this popularity was not too difficult. The lack of advertising had more to do with politics and perceived image, then with having a poor product.

Magazines with falling readership have a different problem and there is a temptation to try to capitalise on a readership (or in the case of TV and radio, viewers and listeners) and in doing so, indulge in spending that only serves to hasten the ultimate demise.

I once worked for a publisher of a magazine in computer graphics that was, to be honest, going nowhere fast. Articles were written by fairly low paid freelance journalists, rather than by computer graphics experts who knew what they were talking about. The print quality was good, but not outstanding and, possibly worst of all, the design of the layouts had to be slammed together in a rush by one man who had several other magazines to worry about. That meant poor design in a magazine about design and circulation fell to just a couple of thousand!

Rather than just close the magazine, or fix the problems and possibly bundle something of value with the magazine, such as a CD of stock images, or some trial software (back then that sort of thing still worked - it does not work any more!) the owner decided to launch a high-profile trade fair all about computer graphics.

Up to that point, the magazine and the whole publishing operation could still have been made commercially viable; as it was, the fair was a total bust! The exhibitors only agreed to come, if stands were extremely cheap, if the publisher guaranteed visitor foot-fall and if they were given free advertising in the magazine. The foot-fall fell foul. The visitors never came, at least not in the numbers promised and the entire publishing operation collapsed under the debt. Plan B was not an additional source of income, but a deadly millstone.

In other words, your plan B should not involve you in significant additional expense. If it does, then it is not a plan B, but another plan A!

You may also need a plan B for various stages in the development of a company, for example, for a small manufacturer, to cover some of the risk involved in building a new production facility, or the risk for a one-man company who has been making products in a workshop, to finance the mass production in a proper factory. One small food manufacturer in Germany, who began after the war, making jam on the kitchen table, when the time came to build a proper factory, did not seek to ramp-up marketing costs to cover the increase in production, but took on contract work from a larger competitor. One factory became two and then to bigger facilities, but each time, it was done with additional products and additional markets and outside contracts to cover the eventuality of disappointing sales.

5. Says who?

So, what evidence do you have, that this is a good business? Do you have market surveys, performed by researchers who have experience in the field? The written opinion of an experienced businessman or consultant in your field and location is a very good thing to have, but there is one ‘says-who’ is better than anything else you can drum up. It is better than all the studies and surveys and expert opinions combined, no matter how authoritative these might be. Your books!

The very best expert opinion you can bring to the table, to prove that your business is a viable investment, is a proven track record of sales and profits.

I will go further - only a fool invests in a business without any record or hope of profits. No sane person will lend a large amount of money or invest a significant sum in an enterprise in order to find out if it might be profitable.

If you are looking for outside investment or funding, proving profitability is your job. When I started my very first proper business, I went to the bank and asked for a loan. I was asked one simple question - “What proof do you have that this business will achieve what you hope and will go on to make a real return on investment?”

The bank employee went on to state that she did not want my opinion, my hopes or my arguments, but proof of some sort, such as existing turnover, expert opinions, or orders for goods. I didn’t have an answer to that question, so I didn’t get the loan and I had to wait a short while and save up the money. (Had I got the loan, I would have saddled my business with a debt that it would not have been able to service, but that is another story!)

If the boot is on the other foot and you are approached by a friend or member of your family, looking for a loan or an investment in a business, it is a good idea to ask them exactly the same question and even expect them to present you with a proper business plan with forward projections and cash flow predictions and all the other bits and pieces that every business plan should have, as well as the five points outlined here. They may not love you for it, but it will definitely focus their thoughts and discipline their approach. It is also a great way to get them off your back and kill a nit-wit idea stone dead, when that 18-year-old nephew wants to set up as a mobile DJ, instead of going to college!

And if you follow my UDUBS plan and even if you do so, just for yourself and nobody else, instead of posting a sad story of unpaid debts and bailiffs at the door, you can smile and say "but then again, too few to mention!"

 

[simon field]

I need a spliff.

 

[Newchodge]

I need a spliff.

'Sigh' Pass it over, mate

 

[Deleted member 226268]

Right now, the Democrats are regretting voting for Hillary -



Look like a lot of people over there will soon regret voting for Hillary......

We don't need yet another unstable psychopath in control of the USA Warmongering
and World domination hegemonic military Machine.

 

[Newchodge]

While I understand your opinion, would you REALLY prefer Trump???

 

[Deleted member 226268]

While I understand your opinion, would you REALLY prefer Trump???

The Americans don't really have much in the way of choice..do they !


Money grabbing political families / dynasties who don't care about the desperate state that the USA is in right now...
except for their bank balances and ranches ........

-V-

Irrepressible Loud Mouth who does not need any more money, but does actually care
about the decline and collapse of the USA.
Well, for now anyway ....

.

http://fortune.com/2016/02/15/hillary-clinton-net-worth-finances/