I’ve got my business plan right here!
That’s the most common response I get when I ask body shop owners where they keep their business plans. Of course, the comment is made while they’re pointing to their heads.
All too frequently, business planning is done only occasionally, usually while driving to and from work. The idea of writing a business plan seems like a good idea, but just never seems to get to the top of the “to-do” list. We think about creating a business plan. We seem to know that we need one. But the task seems too big and too complicated, and there always seems to be something more important or enjoyable to do, like watching TV or fishing.
Most shop owners who do complete a business plan do so in order to get a loan from a bank insured through the Small Business Administration (SBA). The SBA business plan format is the most commonly accepted format used today. Want to build or buy a building? Part of the application process is to complete an SBA business plan.
The SBA business plan is a great one. Unfortunately, however, once we’ve obtained the loan, that business plan is put in a drawer at the bank and filed away, never to be seen again. It may have helped get the loan, but it cannot help you run your business, respond to a changing market and make more money while locked away in a bank’s file cabinet. It’s a shame to waste all of that time and effort.
Get in the Game
Think of a business plan as a road map for your business. It should define your business, where your company is, where you want it to go, how you’ll get there and how the journey will affect your company’s finances and profitability. A good business plan will also provide measurement criteria that will allow you to check your progress during the course of your journey.
A business plan will help you make more money by forcing you to control expenses, plan for equipment investments, see how your decisions affect your bottom line, anticipate problems and cash flow issues well ahead of time, set clear goals and provide constant measurement as you strive to achieve those goals and obtain loans at more competitive rates. Also, keep in mind that a business plan comes in handy if you plan to buy, sell or transition your business to your children.
Operating without a business plan would be as careless as an NFL football team showing up on game day without a game plan. The competing team with a plan knows its own strengths and weaknesses. It has researched the other team and knows its strengths and weakness as well. It goes into the game looking for opportunities to match up its strengths against the other team’s weaknesses. And it’s ready to adjust its plan during the game if need be. Which team will win? Usually, it’s the team with a better plan. Just like a football team needs a good game plan, every business needs a good business plan.
Learn Your Lesson
Since you’ve now decided that writing a business plan is long overdue, you should look for some help.
Search “business plans” on the Internet and you’ll be amazed by the amount of business planning software is out there. You’ll read testimonials about how “The software built my plan for me! I just filled in the blanks and I got my loan approved in days! The banker was impressed by my professional-looking business plan.” That’s just software people selling software.
The software packages may help, but the best thing to come out of creating a business plan is what you learn about your business by building the plan. There’s no better way to understand a P & L statement and how money flows through the business than by building pro-forma (forecast) statements, the hard way. That would be you creating spreadsheets, probably with the assistance of your CPA or bookkeeper.
Bankers are aware of the “canned” business plan software. My banker said, “Well, those plans look great, colorful charts and all, but when I ask how the business owner came up with a 10 percent annual growth factor, they just say, ‘The computer figured it out for me.’” So do the work to learn the lessons.
Pick the Right Plan for You
• THE SBA PLAN. The SBA business plan is the most common business plan
format available. Visit www.sba.gov for free step-by-step help in
creating one. It has nine components: Executive Summary, Market
Analysis, Company Description, Organization and Management, Marketing
and Sales, Service and Product Information, Funding Request, Financials
and the Appendix. Most business plans written today are written in the
SBA format. SBA format business plans may have 30 to 40 pages. The SBA
format is a requirement if you’re looking for a SBA guaranteed loan for
large purchases: frame racks, booths, building, land, remodels and
• THE “OPERATING” BUSINESS PLAN. Many are intimidated by the SBA
business plan format. While it may seem simple at first, not long after
starting, the person writing the plan is deep into spreadsheets trying
to create three-year cash based on pro-forma Profit and Loss (P &
L) statements. Most owners of collision repair businesses aren’t
mentally wired to deal with spreadsheets. They would rather hit things
with hammers. That’s why they don’t create business plans unless they
really need to. They figure there has got to be a football game on or
something else to occupy their time!
There’s a simpler way. In DuPont’s SMART Money III, we teach the
creation of a kinder, gentler business plan. This “business plan lite”
is formatted in a much simpler manner than the SBA plan. There are only
five components: Value Proposition, Current Circumstances, Goals, COTs
and Tactics, and Financial Implications. This plan can be written in
eight to 12 pages.
So, you have a choice: create an SBA format business plan or something
simpler. It’s up to you and depends on your individual circumstances.
Are you looking to expand with a new location? If you’re building or
buying a building, you’ll need to complete a full SBA business plan. If
you’re just trying to get a hold on your day-to-day operations, I would
say go with the “mini” version – but build the “mini” plan so that it
can be upgraded to a full SBA format plan should more detail be
required in the future. Either method answers the questions: Who are
you? Where are you? Where do you want to go? How are you going to get
there? How will you measure your progress? What are the financial
implications of your plan?
Whether you’re building an SBA plan or the “operational” version, the first step in creating a business plan is to pick a business plan development team. It shouldn’t be just you because, let’s face it, most of us are ill-equipped to create financial spreadsheets. Creating a good business plan is a process that requires many skills. Let various people you trust contribute their talents to your plan-building process.
You’ll want your CPA or a good bookkeeper on the team. Good accountants have been down this road before and they live in a spreadsheet world. You and the bookkeeper will want to create a one-year, month-by-month, pro-forma P & L and a one-year, month-by month, pro-forma cash-based P & L to use as a pro-forma cash flow statement. Most of us reading that will say, “Huh? What the heck is all that?” But to an accountant, this is familiar territory. If you really want to learn how your business works, let your accountant help you build the statements. It’s an amazing and eye-opening experience.
Another member of the team should be your banker. Have him or her review your work and offer input and ways to improve the plan. This is especially important if you’re building the plan to obtain financing. But even if you’re not, the banker’s input is valuable and, in most cases, free.
Other team members should include trusted key employees, suppliers and even customers. For example, your paint company may have business development specialists who can help.
A value proposition is a statement of the core values of your business. Also called a mission statement or USP (Unique Selling Proposition), this three- or four-paragraph statement defines your business and indicates why customers buy from you. It will reveal to you how you’re different from your competition and how your business is viewed from the outside by customers, the community, insurers and vendors. In essence, it represents who you are.
Putting this down on paper takes some work. You really can’t just sit down and write it. Ask customers why they chose your shop. Ask key employees how your business compares to others they’ve worked for. Talk with your vendors, accountant and banker. Visit your competition and see how you compare to them. I would even suggest that you look at other businesses outside of collision repair in your market to see how you compare to them.
After doing all this, review your discoveries with your business plan development team. How does the reality of your business compare to what you want your business to be? Try to boil down your findings to three or four short paragraphs. Some separate this into two statements: a vision statement (what you want the business to be) and a mission statement (how you’ll achieve your vision for the company).
Have others review your value proposition. Refine it until you’re satisfied that it truly represents your business’s core values. Share it by printing it out on letterhead paper and distributing it to all employees to read and sign. Finally, frame it and hang it in the office.
Where Am I?
Next, define where you are. With your team, determine the current circumstances for your business in four areas: marketing, operations, management and financial. Break out each of the areas and briefly outline where you are currently.
Marketing. What are you currently doing, and how is it working? What’s your close ratio, by shop and estimator? What are your current sources of business? How much are you spending on marketing, and how is that money being spent? What opportunities for expanding marketing sources are available?
Operations. How is your company staffed? How is the shop equipped? What current issues or needs in the operation of the business need to be addressed? What are the current production bottlenecks?
Management. How is the company managed? What SOPs are in place, and are they being followed? How are decisions made, and who makes them? Who’s responsible for what? What current issues, from a management perspective, need to be addressed?
Financial. Summarize your business’s current financial status. Are the current financial statements properly formatted? Does the company’s ownership and management truly understand what each line of these statements means? Do you have forecasts? How do current gross profit percentages compare to industry targets? Which numbers need to be improved?
In the beginning stages of creating an operational business plan, the statement of current circumstances doesn’t need to be more than a paragraph or two for each of the four key areas listed above. It can even be done in outline form. Also, it’s okay not to know some of the information needed to measure your business. For example, every shop owner/manager should know the close ratio for the shop and each estimator. If you don’t know that number, in current circumstances you simply state that the close ratio is currently unknown. Knowing the close ratio then becomes a goal and objective.
Goals and Objectives
Once you’ve defined your business with a value proposition and summarizing your current circumstances in the four categories noted above, it’s time to determine your goals and objectives.
Goals and objectives should be organized in the four categories outlined in “current circumstances.” Many initial goals and objectives will be discovered during the development of current circumstances.
Perhaps you don’t have a good list of business sources. The goal, then, developed from current circumstances, is: “Develop a good source report.” Maybe you don’t really understand financials. If that’s the case, the goal would be: “Meet with accountant, review financial statements and make sure they conform to industry standards.” Perhaps a management issue is poor on-time attendance issues in the paint shop. The goal, then, could be: “Increase on-time performance in the paint shop.” Other goal possibilities include: “Increase sales to $180,000 per month to achieve a net profit of $15,000 per month.” “Build a monthly pro-forma P&L based on available sales days per month.”
Goals should be clearly spelled out and written, agreed to by those who need to achieve them, achievable and flexible. Measurement criteria should be included in the goals.
COTs and Tactics
Now that we’ve developed some goals, we need to determine how we’re going to achieve them. A COT, or Critical Operating Task, is a simple statement of what we’re going to do to achieve a goal. A tactic is a statement of who’s going to do it, how they will do it and when it will be done. For example:
Tactic 1: All estimators to perform P-page audit for not included items on each estimate, immediately.
Tactic 2: General manager to determine close ratio by estimator within 30 days. General manager to locate sales training for estimators and schedule attendance within 90 days.
As you can see, each goal may be supported by multiple COTs, and each COT may be supported by multiple tactics. It’s a good idea to keep it simple with clearly spelled out goals and actions.
This is where we enter the world of spreadsheets. Work with your accountant to get your financial statements in order. Then, create a forecast tool that allows you to compare actual financial performance to the forecast target, line by line. You can review performance at the close of each month, finding problems quickly so that you can correct issues well before they become big problems.
Most of us need help developing and using these financial tools. Building them will teach you more about the inner workings of the business than you can imagine.
The above steps illustrate the development of the “operational” business plan. The same steps should be followed if building the SBA format plan. To minimize:
• Keep the plan simple. The simpler plan has a greater likelihood of being used.
• Review the plan monthly in the beginning. After running it for awhile, you can make reviews quarterly.
• Use your team! Stay in touch and have roundtable reviews.
Plan month-by-month for the next 12 months, quarterly for the next year. Unless you’re creating an SBA plan, don’t bother looking more than two years down the road.
No plan is perfect. Be flexible!
I developed a good business plan for a paint store I opened a few years ago. The plan was perfect, I thought. A bank reviewed the plan and gave me a $50,000 unsecured line of credit before I even had a business license!
Reality hit the first week the store was open. Because the plan was detailed and flexible, we could see the errors immediately. Forecast inventory levels were too low and sales, while good, were not as good as forecasted.
Because we had a plan, we were able to react quickly and properly and most importantly, profitably. Thank the bank for the credit line. We needed it!
Every business should have a business plan. Why? To make more money! Your business plan provides the road map to take your business from wherever it is today to where you want to be tomorrow.
It will take two to six months to create a good business plan. Once created, review it regularly to see how your business is performing relative to the goals you’ve set. Don’t ever stop!
Hank Nunn is the President of H W Nunn & Associates, a collision industry consulting company. Hank is the sales and marketing manager and facilitator for the DuPont SMART Seminar series. Hank may be contacted at [email protected]