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PocketWatch On February - 10 - 2011

 

This is the second in a series of articles that will hopefully educate readers and illuminate the process of doing business in a simple to understand, nuts-and-bolts way.

In the first article in this series, we explored the reasons why businesses get into trouble, mainly because entrepreneurs do not have the training to actually do the ‘business of business,’ and tend to micromanage themselves into a corner because that got them to the place they are now – being successful but working too hard for little return.

In this article, we will look at the next step to finding the way out of that quagmire – the Business Plan.

The Business Plan – Nonsense or Good Sense?

There are many good web sites and a lot of software out there to guide anyone in writing a Business Plan, so I am going to simply suggest to search out something that fits your needs and use those tools to write a Business Plan.  Many are free, and they all will fill the bill to some extent or the other.

My advice is to do it, and do it immediately.  Why?  For two reasons.

  1. It will force you to think through your business in a detailed way.
  2. You will need it if you ever want to talk to a bank or potential investors or partners.

Most Business Plans are fairly generic.  They have a Mission Statement, a summary of what your business is all about, a summary of the financial status of the business – past, present, and future – a marketing plan with some sense of who your customers are (the target market), and a vision for the future in terms of expanding your set of services or products.

Most Business Plans also contain something called a SWOT analysis.  For a good writeup of what that is, see http://en.wikipedia.org/wiki/SWOT_analysis for detailed information.  This is a clear-eyed analysis of the Strengths, Weaknesses, Opportunities, and Threats relating to your business.  To have a complete Business Plan, you must do a SWOT analysis.

It is my experience that most Business Plans are written – usually haphazardly and only in a positive light – and put in a drawer, never to be seen again unless the owner wants to visit a bank to get a Line of Credit or is trying to entice an investor or a new partner.  Big mistake!

A good Business Plan is exactly that, a plan.  It should be honest, truthful, factual, and objective.  Why?

Think about this…  All businesses use plans every day.  Contractors and builders, manufacturers, architects, artists, accountants, butchers, bakers, and candlestick makers… they all plan out their day, a project, a product, a service, or a meeting.  Yet, for some unfathomable reason, I have yet to meet a business owner that either has a current Business Plan or who reviews that plan on any regular basis.  We review our plans for those other things regularly to keep on track, yet ignore the Business Plan once it’s written! What is going on?

I believe we come back to what I said in the first article.  Owners are so wrapped up in the day to day struggle that they feel that this overall vision that is in their heads does not need revisiting, if they think about it at all anymore.  Just like that big picture of their dream I suggested they put on the wall to remind them of the underlying reason they are doing what they do every day, the Business Plan can be forgotten or thought of as a formality.  I submit that it should not be.

A proper Business Plan should be reviewed by the owner and updated at least once a year, and preferably every fiscal quarter.  The goals of the business may have changed, the vision for the future may be different, the financial picture has surely changed, and the SWOT analysis will be different over time.  By thinking these things through regularly, you will be forced to re-evaluate where you’ve been, what you are doing, and where you are going.  Taking a long, hard look at these things is invaluable to you directly, considering this is likely one of the most important things in your life.

The Business Plan is a key tool you need to make sure you are on the path you planned for.

The Organization Chart – We don’t need no stinkin’ Org Chart!

Oh, yes you do!

Even a one-person organization needs one.  A good Organization Chart is based on functions, not people, and it doesn’t even have to look like a chart.

Here’s an exercise:

List all the functions of your business in any order.  It may look something like the list below.

  • Sales
  • Customer Service
  • Marketing
  • Planning
  • Manufacturing
  • Accounting/Bookkeeping
  • Office work/administration

If you are one-person company, put your name next to each one of these functions.  If you are a multi-person enterprise, put the name of the person(s) responsible for each function next to that function.  There may be more than one name next to a function, and there may be overlap, and that’s ok.

Next, who reports to who in your company.  Now we might have something that looks like this:

  • Sales – John (owner)
  • Customer Service – Bill (partner, reports to Owner)
  • Marketing – John (owner)
  • Planning – John, Bill, Mary (team, reports to owner)
  • Manufacturing – Bill (partner, reports to John)
  • Accounting/Bookkeeping – Mary (reports to John, owner & Bill, partner)
  • Office work/administration – Mary, John (team, reports to John, owner)

It may seem idiotic to do this now, with a three-person staff, but what happens at the next hire?  Something is going to be divvied up, and that new person absolutely needs to be informed of how the company and all the functions are intertwined.  When companies are small, this is sadly neglected, since “everyone knows” how it works, who is boss, and what goes on, but I am here to tell you, that is rarely the case.  New people take time to figure it out, and in that time, they can be undermined in who they report to and what their duties are, and it gets worse the larger the company grows, both in personnel and in complexity.

Create a functional Organization Chart of some kind, and update it any time there is a new hire, a change in personnel, or any other reason the functions change.

Getting in the habit of being absolutely clear at every step of the way is a way to avoid big personnel and functional headaches down the road.

Next time, we will explore the dreaded Job Description.

———–

Please contact me offline at microconsulting@aol.com with anycomments, suggestions or ideas for future articles that you may not want to share here.

——————

Related articles

Written by PocketWatch

I am a small town boy from northern Wisconsin, who grew up in the quintessential American family. Dad was a carpenter, mom stayed home, two brothers and a sister. Our politics, and we were political, was always Democrat. My dad always said all you had to do was to look at what each side was fighting for, and it was easy to see, even as a kid, that Republicans were all about big money and rich businessmen, whereas the Democrats were more about social solutions. I spent 6 years in the US Army in the VietNam era as an electronic instructor for NSA, worked as a Field Engineer for a computer firm based in Massachusetts, spent another few years building paper mills around the world for a firm from Washington state, drove long haul truck for a while, did 10 years of servitude in NYC for a large multinational market research company as the Business Manager, spent some more time on the road as a Business Consultant, and the last bit as the Business Manager for a manufacturing firm here north of Houston. I am trying to start up my own consulting firm using all my experience to help small and medium sized businesses stay out of trouble versus waiting until they get into trouble. No one teaches people how to properly run a business. Business schools and MBA programs really don't. There are very basic nuts and bolts that are either assumed or are ignored, and like the house built on sand, businessmen and entrepreneurs ignore these solid foundations at their peril. (Now retired and doing some substitute teaching at a couple of small K-12 schools here in northern Wisconsin. Living in a small hamlet of 340 people, quiet, peaceful, serene.)

37 Responses so far.

Click here to leave a comment
  1. KB723 says:

    PW, I finally had time to injest this info… I find that I have been coming here and saying Hello, having a couple cold ones and never taking care of why I came here to begin with.

    You post some really good info here, and it makes me wonder, cos both of my small business’s are run by myself. The biggest part of my sign company is by word of mouth. This helps, cos I also work full time. I do not at this time have a full 8 hours to go out and find work.

    My other small business, relies on my girlfriend for advertising and following up with customers. I have been making it a point lately to let her handle clients, even if I am with her. She needs to build that level of salemanship and a confidence in herself to do so.

    Both of my business’s are small and young. There will come a time that this info will be, the info I need to take into account.

    I am asking your permission that I can copy and paste your articles to one of my graphics programs, so I can make a small handbook.

    • PocketWatch says:

      Oh, and by the way, you may want to look at some of my responses to comments and merge them as notations or something. I give some more detailed explanations on certain points than are in the articles.

    • PocketWatch says:

      Permission granted, without reservation.

      This is a public forum, publicly accessed, so there is no copyright or other infringment implied or explicit.

      In other words, knock yourself out!

      If you have any questions that need to be answered in geater detail, see my email.

      Enjoy!

      8)

  2. choicelady says:

    I have run a small business though consulting, not sales. One issue that never gets discussed is how the owners’ interests engage with or conflict with that of the people whom they hire. Our contemporary capitalism assumes a sort of utility about employees -- they are simple, fungible commodities in the “labor market” but is that the best way to see them? There are numerous instances today of a different way to organize in which everyone from the owner to the janitor is seen as a partner in that business who can share in the decisions and in the profits. It requires an alteration of “mine-mine-mine” but the truth is there is NO such thing as the “self made man” (or woman) since every dime created in income and wealth has been made in no small measure by the employees. Even single person businesses get help from the society around them, but when you hire someone and they give full value, that is not just a wage relationship but a partnership.

    So even small businesses need to rethink the commodification of its employees and begin incorporating them into a much larger frame of reference based on cooperation and respect.

    Pipe dream? Nope. Even the cynical ESOPs that pretend to ‘share’ profits don’t work. But true trust and partnership do. Cases in point -- ESOP/distant management = United Airlines. Worker ownership and management = Southwest Airlines.

    You decide.

    • PocketWatch says:

      I cannot disagree.

      What I am building to is actually a hybrid of that philosophy that is easy to manage and understand.

      I recognize the inherent risk that the owner has invested in his or her business, and do not begrudge the profits that flow from taking that risk.

      What you all will see as this series progresses is an idea about business.

      At some point, usually through the Business Plan I talk about, the owner makes a decision… What is a reasonable Net Profit? 5%? 10%? 15%? What?

      That result has to be dependent on a clear understanding of the basic fundamentals of the business, what the financial picture really is, what is foreseen over the next fiscal year, and a dedication to make that vision happen. In addition, it is predicated partly on historic worker productivity and overall costs of labor.

      Once that determination is made…. say a 10% Net, the next question comes up.

      What if we can encourage worker productivity and engagement in that plan to boost the Net from 10% to 12%? What should we do with the “extra?” If the workers decide to just show up and meet their expected metrics (which they should be totally aware of), they deserve their basic pay, no problem. What if, however, they start to look at their work, figure out ways to do it better, be more productive, be safer, and produce less waste to get that “extra” 2% Net?

      My system says that the 2% needs to be split between the owner, who still has that risk in play and was smart enough to adopt a system that works so well, and the employees that actually contributed above and beyond their metrics.

      8)

  3. david p canada says:

    Excellent, Pocketwatch.

    Valuable insight into organizing micro- to small business management. Good and bad decisions have a cascade effect that WILL make or break any company or organization.

    I my children and anyone else who will listen to handle debt like a stick of dynamite (useful on occasion but not to be messed with), be a servant to everyone (which makes you indispensable to everyone), and put family and relationships first.

    And money does not define success. If you can make your neighbor’s life better, just do it.

    • PocketWatch says:

      Thanks David.

      These priciples are for business of nearly any size, really, but are often forgotten or abandoned when businesses go corporate, and that’s a shame.

      8)

  4. audadvnc says:

    Ooh, this looks good. I like the direction this site is taking.

    • PocketWatch says:

      Thanks!

      I asked the powers that be here before starting this, because I did not and will not make this some sort of fancy commercial.

      This is about sharing information, and educating people about how it CAN be done as well as getting some understanding about business in general.

      Our politics are so wrapped up in business. When people say that “business will be hurt” by this or that policy, how is the layman to know what’s true?

      There is no magic here. Con artists and greedy consultants make it seem so. It’s not.

      In the end, it does take some knowledge and experience to put it all together, but people will see in the end, usually with that palm slap to the forehead, “why didn’t anyone TELL me?”

      Well, I’m tellin’ ya! LOL

      8)

      • Abbyrose86 says:

        SO true PW.

        Education and understanding of business concepts is imperative for people to really understand how business is REALLY affected by public policies.

        Platitudes are often used and it confuses people who don’t have the appropriate knowledge.

        I applaud you for this series.

        Sharing the basic information IS a good thing and actually provides opportunity for people to go out and learn more about the concepts.

        Keep up the good work!

  5. Thefoxislaur says:

    PW…I concur with all here, this is a great series. You are a terrific writer as well as a consultant. As I said, this site is tailor made for you. Your enthusiasm shows as well:)

  6. Mightywoof says:

    I like how your mind thinks PW!! I’ve been ‘retired’ since ’88 but back in the day, when I worked for a large bank, most of what you’ve talked about so far was common knowledge and in practice -- it makes me wonder why this knowledge appears to have been lost….. but I’ve never seen it put so clearly and succinctly before and applied to small/medium businesses. Congrats on a great series -- I’m looking forward to the rest.

    The bank I worked at put a management strategy in place in the early to mid 80’s that was, imo, totally brilliant. It addressed the problem of over-/under-management and categorized the management style to be used with the skill/knowledge level of the employee. It was based on a system being marketed by an American and for the life of me I can’t remember his name -- Ken something. If I can find it searching online I’ll let you know although I realise that personnel management is not your ‘thing’ -- who knows, it may inspire someone in here to tackle the problem from another pov! Anyhoo -- it significantly bit into the morale problem at the bank!!

    Once again -- thanks for writing this PW!!

    • Mightywoof says:

      So there I was searching around the web for this management theory I mentioned -- a difficult task when you cannot remember the name of the person whose theory it was (and I’ve been trying to remember his name for years) -- when, in a blinding flash it leapt into my mind (thank goodness -- I’ve been having CRAFT moments for years!!) …….. it was Ken Blanchard and his theory works

      Situational Leadership for Organizational Development

      http://tinyurl.com/22s53kc

      • PocketWatch says:

        Just took a look at that link.

        He has it right, for sure. What you will see when I am finished building the structure I am attempting to explain, that what he is saying is what I am trying to do as well.

        Down the line, you will see that by having an OrgChart leads to detailed Job Descriptions that tell each employee not only their duties but responsibilities and give them very specific performance metrics.

        Those metrics evolve directly from the Business Plan and a detailed annual Financial Plan, which is generated by the Business Plan.

        That, in turn leads to a system of regular evaluation of performance. Exceeding those metrics leads to sharing in the profits that are generated by the increased productivity of which ever group they are in.

        Also, since that sharing of “excess profits” (as opposed to the ‘planned profits’ of the Financial Plan) amounts to every group within the company and every individual in each group becoming entrepreneurs, the system, if properly applied and managed, becomes self running.

        And the owner is left with having very little to do other than promote the business, run a staff meeting once a week, review the financials, and sign checks. Oh, and deal with only major problems that affect the whole company. The owner can rely on his people to handle everything else, because it is in their own personal and financial interest to do so.

        I know I am giving it away a bit here, but THAT is what I’m aiming at. Anyone that skips these first steps will have a tough time creating the system I’m proposing.

        8)

        • Mightywoof says:

          I have every intention of following your series pw!!

          SI has obviously evolved beyond my experience with it back in ’88 but I well remember being managed by folks who either told me every step of everything I had to do even though I’d been doing it for a while and already knew this stuff and by folks who just gave me a job I’d never done before and left me to sink or swim ……. both situations left me PO’d and demoralized.

          Some managers intuitively know how to do SI -- my second manager in Canada, a woman from Quebec, was like this -- when I first joined her department she taught me eveything I needed to know and, when I thirsted for more, she taught me more ……. BUT -- she then left me alone to do my job, she’d stop by to chat and, if I had a problem or needed to vent, her door was always open. When SI was formally adopted by the bank it felt so right because I’d already experienced it

  7. escribacat says:

    Another illuminating post, PW. I’m willing to bet that very few little start ups bother with these things. As you said, “everybody knows.” I’ve worked for quite a few software startups — most of which went belly up. I’ll never forget one of them — there were four partners, all egomaniacs. I think there were four of us employees. The four partners would go into a room and argue all day, horrible nasty vicious fights. We employees would be plunking away at our computers, shaking our heads and muttering “Too many chiefs and not enough Indians!” Finally one of the partners staged a coup (with the help of the single client) and that company ended up doing quite well … once the other partners had been disposed of.

    • PocketWatch says:

      Yup.

      One of my engagements was a family business…

      Dad had bought the thing from his alcoholic brother, and his three kids worked there as well as one road crew.

      Dad wanted to retire, and just hang around to guide things from time to time, and let the kids take over, going from hourly employees to owners.

      One little problem… the kids could not be in the same room with one another without near fistfights breaking out. They simply had issues with each other going back a long way, and never learned how to get along.

      THAT was a challenge. I got it worked out, though, by staging 5 minute practise business/staff meetings every day and refereed. Took nearly a month, but now they are doing very well, and Dad sits in his loft/office with his big flatscreen and his grandkids…

      That kind of thing makes me soooo happy!

      Clear responsibilities, total accountability, and metrics to meet go a long way to resolve these kinds of situations. It’s when everyone is responsible for everything, you end up with no one being responsible for anything.

      8)

  8. SueInCa says:

    PW
    This is an excellent series. It is very generous for you to provide this insite into your profession and that of the business owner. Even if someone is not interested in going into business themselves, it helps to see things from the perspective of many small business owners.

    My brother used to own a wrought iron welding business and he actually found a class at a Jr. College in Sonoma CA that he was able to attend to help him out. You are right though, he has a Masters degree in Education but he desperately needed help running the day to day.

    He recently sold the business for over two million dollars after running it for 16 years. Not much in the corporate world, but enough to give him a good retirement at 58.

  9. BigDogMom says:

    PW, great part 2, nice simple plan for any size business and your right most business plans are pie in the sky dreams, SWOT is sometimes hard for people to pin down. But it is a good exercise for them to really look at themselves and their business.

    Will you be discussing Human Resources in the future and the need for employee handbooks with the rules of the road? I find that I wind up writing these for my clients because the employees usually coming wanting to know what they can and cannot do, when they are given paid holidays and at what rate, etc…even if there are only one or two employees, it’s always best to set something up for them, then both owner and employee are on the same page.

    • PocketWatch says:

      I will talk about Employee Handbooks in passing. There are a lot of legal issues surrounding EH’s, and I am not an expert. Typically, you can download a template and fill it in.

      Having said that, Part 3 is about Job Descriptions, which dovetail into EH’s, and more directly, into what I posted above, which is the functional Org Chart. As a preview, JD’s are NOT a simple one paragraph summary of a job… mine usually take 3 or 4 pages and are very detailed, leaving no doubt about what a person is supposed to be doing, who they report to, and what actual measurable metrics they are expected to attain.

      A warning (sort of) to those that think they can skip a step… if you have no OrgChart, it is difficult to do Job Descriptions. If you have no Business Plan, it will be difficult to do a real and detailed financial plan (which will come down the road a ways).

      I keep saying all this fits together, and I mean it.

      Do you really want to get out of the 80 hour a week rut, or not?

      8)

  10. Plutocrats really suck says:

    “We don’t need no stinkin’ Org Chart!”

    Ha! That is about how I feel about it too. But as you said, it’s only a couple of us so everyone knows what to do and when. It’s not even discussed really. I had never even given it any thought. Then again, I never had to borrow money from the bank. (knock on wood) Plus we are all artists, we’re allowed to be flakey . :]

    • PocketWatch says:

      Oh, and “not for nothin'” as my NY friends would say, there is a reason why so many artists are broke or die broke…

      Food for thought…

      8)

    • PocketWatch says:

      I know….

      But having said that, it’s a good exercise to list functions and divvy up the responsibilities on paper. If for nothing else, it may tell you you are missing something.

      8)

  11. funksands says:

    PW, great post. I myself am a recovering business plan-aholic. My business plans would grow in complexity and length yearly. By 2008 it was 14 pages long.

    For a three-man operation.

    I found a book that changed my life. The One Page Business Plan. It took my 14 pages and distilled it down to one page.

    It isn’t for everyone, but the clarity of thought behind it was extremely helpful for me.

    Sorry for the plug, but a business plan is critical to long term success in whatever business you have, and in my opinion the less moving parts the better.

    http://www.amazon.com/s/ref=nb_sb_ss_i_0_22?url=search-alias%3Daps&field-keywords=one+page+business+plan&sprefix=one+page+business+plan

    Even better if you can find someone to act as coach, consultant, and accountability partner to make sure you execute your plan.

  12. Silentdances says:

    A big thank you for this. Very helpful and much more detailed (and clear) than when I tried to get other folks to explain it to me.

    • PocketWatch says:

      You’re welcome.

      What you will find over time is that I try and leave nothing out that is important, and that everything will tie together.

      If I didn’t think it mattered, I wouldn’t write about it. This is important stuff if people want to “do it right.”

      8)

  13. Caru says:

    A nice addition to the series. You’re a good writer. :)


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