A different approach to business plans

I wrote a short note to an old Marine Corps buddy who is launching a new business. This is what I wrote.

Here are a few things for you to think about as you get rolling.

You need to develop a one sentence description of your venture that captures the essence of what you plan to do. If you want to dust off your old field manual and use SMEAC that will work. Just be sure you cover the Who, What, Where, When, Why, and How.

Be sure you have a clear vision of what you are trying to accomplish. In the business planning world, this is called a vision statement. Figure out something that helps share your vision that is memorable and short. KISS is the acronym to remember for this one. “Keep It Short and Simple.”

You also need to have a clear understanding of your mission. One way to do this is to take the time to write out a simple mission statement.

If all of this sounds like the beginning of a formal business plan, that is because it is. Here are the basic components of a plan.

Summary
Overview of the business
Analysis of the market
Description of products
Organization and management
Marketing and sales plan
Financial details

If you have experience with business plans, most of this should be familiar, but what is SMEAC? If you have a military background, then you may recognize SMEAC as a Five Paragraph Order. The Five Paragraph Order, or some variation, is the format for virtually everything the military does. The initials stand for:

Situation
Mission
Execution
Admin and Logistics
Command and Signal

The armed forces are large bureaucratic organizations, and it is easy to poke fun at them. However, two things that the military does better than most are organizing and planning. For example the basic administrative tasks of military units are divided into four parts: 1) Personnel, 2) Intelligence, 3) Training and Operations, and 4) Supply. Those four groupings are clear, concise and complete. One of the ways that the military accomplishes its organization and planning tasks so well is that it has developed consistent methods and proven them over time. The processes are also simple and easy to remember. For example, when troops need to report enemy intelligence, they simply remember the acronym SALUTE which stands for Size (of the enemy force), Activity (of the enemy), Location (of the enemy), Unit, Time, and Equipment (of the enemy). This is simple and easy to remember. It also provides all of the information necessary.

SMEAC is an easy to remember way to organize a plan. It will work with big projects and small projects. It is simple, and it contains all of the elements that would normally be included in a business plan. The following explanation is simplistic, but it will help you to understand the concept.

Situation
This section is exactly what it sounds like. It is the section where you will provide an overview of the relevant facts and provide background information. This is also the place where you would explain the business opportunity.

Mission
This section is where you will explain what you will do. You do not need to explain exactly how you plan to do it. You will explain how in the next section.

Execution
In the previous section, you described what you were planning to do. In this section, you will describe how you will do it.

Admin and Logistics
This section will include the details to support what you say you will do in the Mission section. It will tie to how you plan to do it as described in the Execution section.

Command and Signal
In this section you will describe your organization.

As you can see, the Five Paragraph Order is clear, concise and complete. I’m not suggesting that you use it instead of the business planning formats that you already use for two reasons. The first reason is that if you are already comfortable with a process that works, you should stick with it. (If what you are already doing does not work, that is another matter.) The second reason is that most of the other people that you show your plan will be more familiar with a more traditional format. Even so, it is useful for you to understand this way of organizing your plan. It will help you to write a more complete plan and to write it more quickly. SMEAC is also so simple that you may find that you are able to take the time to plan that you may have done without planning in the past.

Borrowing money for your business

All businesses borrow. They need cash for operations, and they need cash to invest in assets so they can build the business. Businesses can get the cash by they need by making a profit. However this may not be enough for growth.

Generally speaking, businesses borrow for one of three basic reasons. They need money to:

• Get started
• Grow
• Smooth out cash flow

When you started your business, you may have borrowed from family or friends. You may have used your credit cards. It could be that your business is a professional services business, and you were able to start small with just a few clients, and it really did not take much money to get started. Perhaps you turned your hobby into a business. Now you’ve reached the point that you need some money to get to the next level. Maybe you are an attorney and you are ready to hire a paralegal. Maybe you need a new lathe for your woodworking shop, or a new delivery van for the catering business. What do you do?

Good news! Even though you have heard all of the bad news about tight credit, there are plenty of things you can do to make it easier to borrow money. There are only two things you have to know.

1. Know yourself and your business.
2. Know your banker.

Know yourself and your business
You need to know about yourself and your business for two reasons. You need to be able to make good plans, and you need to be able to present those plans to whoever is going to lend you money. Give your CPA and bookkeeper a call and get a copy of your most recent financial statements. While you are at it, get copies of the previous few years. Look at everything and not just the P&L. If you don’t understand financial ratios, ask your CPA to explain them. The ratios are tools that you can use (and your lender will use) to evaluate the relationship between your debt and your assets, how much debt service you can handle, how you manage your cash flow, and whether your business is profitable. If you are a sole proprietor or a partnership, you will also want to review your personal financial situation. If you are not sure how to prepare your own personal financial statements, ask your CPA or bookkeeper for help. You should expect to pay a fee for these professional services, but trying to save a little in the beginning could cost you later.

 Once you understand your current situation, you can start working on the future. If you put together a business plan when you started your business, then this part should be easy. All you have to do is update your plan. If you don’t already have a business plan, then develop one. You can do this yourself. There are guides and templates available in many places. You can purchase planning software. You can also ask your CPA for assistance. The Small Business Administration provides a template. Another place to look for help is the Service Corps of Retired Executives (SCORE). This is a link to their template gallery.

However you develop your plan, it will contain these basic parts.

• Summary
• Overview of the business
• Analysis of the market
• Description of products
• Organization and management
• Marketing and sales plan
• Financial details

With a good understanding of your business and a business plan, you will be prepared to get to know your banker.

Know your banker
What does it mean to know your banker? In this case it means a few things. Some of them may not be possible right away because they take time. Some of them you can do immediately.

• Develop a relationship with the bank and with the people in it.
• Get to know everything your bank can do for you.
• Understand what your banker needs from you.

Develop a relationship with the bank and with the people in it
This should be obvious. Remember the movie, It’s a Wonderful Life. Think about the contrast between George Bailey at the Bailey Building and Loan Association and Mr. Potter. Find a bank that wants to get to know you and your business. Figure out who the George Bailey’s in your community might be, and avoid the Mr. Potters.

The other part of this is, once you find your version of George Bailey, you need to be a loyal customer. The bank will not want a relationship with you unless you demonstrate that you want a relationship with it. You should do most of your business with your new bank. You should also try to do it in person. When you walk in the door, you want the people in the bank to recognize you. Loyal customers are as important to your bank as they are to your business.

Get to know everything your bank can do for you
Many business people simply cannot imagine the range of services available at even the smallest community bank or credit union. Most people know about checking and savings accounts. They know about money market accounts and CDs. People know about loans such as mortgages, auto loans, and personal loans. However, did you know that many banks also provide merchant services? Did you know that your bank could help you install an ATM in your store for customers? Did you know that your bank can probably set up a lockbox arrangement so that customer payments can go directly to the bank and your account? Did you know that your bank can probably help with cash management tools such as zero balance accounts? If you need access to cash, did you know you could set up a line of credit instead of borrowing with a term loan? If you take the time to get to know all of the products and services your bank offers you might discover some new ways of managing your cash.

Understand what your banker needs from you
The simplest description of banking is that banks take the money deposited by some customers and lend it to other customers. They pay interest on deposits, and they charge interest on loans. They make money when the interest they charge is greater than the interest they pay. They lose money when customers do not pay back their loans. This means that your banker needs you to deposit money. Your banker also needs you to borrow money and pay it back. If you want to borrow money, you have to make the case that you will do just that.

That is why your first steps were getting your financial statements together and developing your business plan. You will need your financial statements and business plan to make your case. You will typically need the current year and the previous two or three years. Ideally your financial statements will demonstrate that you are solvent and have appropriate liquidity. They may also show how you handle payables and receivables. In short, the statements will explain your current situation and your history. If the statements reveal any serious flaws in your operations, be prepared to explain them.

Your business plan will tell the story that you hope will unfold. You will describe your company and your customers. Your plan will describe your products and why customers will buy them. It will explain your marketing and sales plans. Finally, your plan will make clear how you will use the money you borrow. This is the most important part because it will also explain exactly how you expect to pay the money back.