Business planning by patrick forsyth

■ Fast track route to writing and implementing rock-solid

business plans
■ Covers key areas of business planning, from understanding why a

plan is necessary and what issues it should address to compiling
the plan and using it to direct the business and ensure goals are met
■ Includes the low-down on key planning aids such as swot

analysis, the Boston and Ansoff matrices, and practical examples
and advice drawn from banks and accounting firms as well as
business practitioners and gurus such as Philip Kotler
■ Includes a glossary of key concepts and a comprehensive

resources guide

ENTERPRISE

Patrick Forsyth

02.09

Business
Planning


Copyright  Capstone Publishing 2002
The right of Patrick Forsyth to be identified as the author of this work has been
asserted in accordance with the Copyright, Designs and Patents Act 1988
First published 2002 by

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Contents
Introduction to ExpressExec
02.09.01
02.09.02
02.09.03
02.09.04
02.09.05
02.09.06
02.09.07
02.09.08
02.09.09

02.09.10

Introduction
What is Business Planning?
The Evolution of Business Planning
The E-Dimension
The Global Dimension
The State of the Art
In Practice
Key Concepts and Thinkers
Resources
Ten Steps to Successful Business Planning

Frequently Asked Questions (FAQs)
Acknowledgments

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02.09.01

Introduction
» A dose of reality
» The causes of failure


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BUSINESS PLANNING

‘‘If you’re not planning where you want to be, what excuse do
you have for worrying about being nowhere?’’
Tom Hopkins, American sales trainer
The information presented here is directed at those managing, or
involved in managing, small/medium sized business. Many people
regard such a manager as being in an enviable position. Often they
are their own boss, they are independent, able to be flexible, to
concentrate on the things that interest them, to organize matters
their way and generally get on with the job in hand. By contrast,
larger enterprises may seem slow, bureaucratic, committee driven and
steeped in rhetoric.
The reality is often all too different.
A DOSE OF REALITY
Under pressure, the manager of the small business often seems besieged
by a plethora of difficulties that conspire to make running the business
unnecessarily complicated. Paperwork, administration, taxation, legislation, the bank and more paperwork, administration, form filling. . . ;
the problems can be numerous, and may be all too familiar. Furthermore, a business – any business – ultimately stands or falls by its success
in the marketplace. It needs sufficient customers buying its products

and services often enough to produce both the necessary financial
return and the wherewithal to invest and secure future growth.
Now the manager doubtless recognizes this, but the process of
ensuring it happens can still prove problematic for a variety of reasons.
Senior managers may be specialists. Perhaps the business was founded
on engineering or design skill, and it is these things at which they
are best, but the business-generating and management process is less
their real forte; and as that process may seem complex and is certainly
time-consuming, this too may contribute to it being neglected. Besides,
business-generating activities cost money, real money, paid out in
advance with no guarantee that it will bring in results which will repay
and exceed it.
However, somehow any business must be made to work as a
complete entity; finance, marketing, production, and more must all
contribute and contribute effectively. There is one thing that can act as


INTRODUCTION

3

a foundation to all aspects of operating success – and that is planning.
This is not an overstatement, planning really is vital. Starting with a
blank sheet of paper as it were, it takes a little time to do; but not a
disproportionate amount of time given the advantages it bestows on
the planner. It needs to be done, done effectively, and then kept up to
date (this latter process is easier and less time consuming).
However, the problem is that planning can tend to seem somewhat
academic, fine if you have the time, but something a little cosmetic and
not really a part of actually running the business. With this attitude it

is easy to ignore it, do only lip service to it or just bypass or ignore it.
This is a mistake. As this work aims to show, planning is important for
practical reasons. A plan is not a good one if it does not help – really
help – direct and manage the business and make success, however that
is defined, more likely and more certain.
THE CAUSES OF FAILURE
If we look at things from a negative viewpoint for a moment, we can
focus on what makes a business fail. For new small business the causes
are well documented, the top ten are often quoted as:
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lack of experience and skill in the founder
lack of capital
uncontrolled expansion
weak management
credit and cash flow problems
wrong location
too high levels of capital expenditure
taking too much money out (as salary for the proprietor)
staff problems
over-complicated systems.

Each of these headings could be developed into a list, and perhaps into
a tale of woe. But one thing is clear: every single one of these areas
can be made into less of a problem area through some judicious
planning.
Planning has positive merits and, make no mistake, it is also in the
nature of insurance – it can prevent you running into trouble.


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BUSINESS PLANNING

So, let us end this short introduction by quoting some well-known
words explaining the need for planning and why it is worthwhile to do
it. Lewis Carroll wrote, in Alice’s Adventures in Wonderland:
‘‘Would you tell me, please, which way I ought to go from here?’’
‘‘That depends a good deal on where you want to get to,’’ said the
Cat.
‘‘I don’t much care where – ’’ said Alice.
‘‘Then it doesn’t matter which way you go,’’ said the Cat.
‘‘ – so long as I get somewhere,’’ Alice added as an explanation.
‘‘Oh, you’re sure to do that,’’ said the Cat, ‘‘if only you walk long
enough.’’
Elegantly and memorably put, and the Cheshire Cat’s logic is surely very
clear. Planning is essential as a basis for a well-run business; you need
to plan and do so effectively – it enhances the likelihood of achieving
what you want.

02.09.02

What is Business
Planning?
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A business plan defined
The dynamic business environment
What is competition?
Limited resources
Driving the business
Operations must be controlled
Summary


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BUSINESS PLANNING

‘‘If you reach for the stars, you might not quite get one, but you
won’t end up with a handful of mud, either.’’
Leo Burnett, founder of Leo Burnett Advertising Agency
The process of running a small/medium sized business was never
easy; and the competitive pressures of recent years, and many market

recessions also, have combined to make it downright difficult. If the
business you manage is your own, you know also that it is vulnerable,
as good as its last month’s sales – and there is a great deal hanging on
its success. Such a feeling is only marginally reduced if you manage the
business for someone else or share the risk.
So, how do you make sure of your success? There is, regrettably,
no magic formula and, as such, it is not the intention here to suggest
otherwise. Success depends on a number of things: such as what you
sell; where it is sold; how you sell it; and the quality of every kind
of service which is involved before, during or after the sale. All are
important. So too are the processes of ‘‘bringing in the business,’’ many
of which are usually encompassed by the word ‘‘marketing’’. People are
important too, from their recruitment to their effective management,
plus a whole raft of other things from design and innovation to
administration.
We begin to paint a complex picture here. So, what of planning?
Planning is the foundation to success. It underpins the complexity of
business. It makes sure that it is well organized and well directed,
and thus running it is easier and more certain to be successful – and
thus will meet its goals. A clear definition quoted from the Oxford
Dictionary of Business appears below.
A BUSINESS PLAN – DEFINED:
‘‘A detailed plan setting out objectives of a business over a
stated period, often three, five, or ten years. A business plan is
drawn up by many businesses, especially if the business has
passed through a bad period or if it has had a major change of
policy. For new businesses it is an essential document for raising
capital or loans. The plan should quantify as many of the objectives as possible, providing monthly cash flows and production

WHAT IS BUSINESS PLANNING?

7

figures for at least the first two years, with diminishing detail
in subsequent years; it must also outline its strategy and the
tactics it intends to use in achieving its objectives. Anticipated
profit and loss accounts should form part of the business plan
on a quarterly basis for at least two years, and an annual basis
thereafter. For a group of companies the business plan is often
called a corporate plan.’’
Business planning is, or should be, a response to four specific factors,
examined here briefly in turn.
THE DYNAMIC BUSINESS ENVIRONMENT
No business operates in a vacuum, cut off from outside influences,
and any business must therefore be managed in a way that recognizes
the many influences – some positive, others less so, or downright
negative – that surround and affect it. A whole range of different
influences are involved, listed, and commented on here under six
headings.
» Economic climate: Financial factors may frequently seem restrictive
and they often are. Think of borrowing-rates, taxes, operating costs,
etc.; whereas positive economic situations prompt higher spending
and help business.
» Technological developments: These may be positive or negative, for
example technological development may assist (as word processors
have assisted the quality of presentation), but keeping up often
necessitates investment and training. There is also a high degree of
uncertainty; who can accurately predict the future development of
the Internet or dot-com companies?

» Social changes: Changes here again may have a variety of effects,
as with the demographics of the ageing population in the UK
and elsewhere, which may provide opportunities (retirement
homes/holidays) or reduce the potential in other sectors.
» Political dictates: Government may affect company operation and
markets also, with legislation on anything from the compulsory
testing of pharmaceutical products to safety measures governing car


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BUSINESS PLANNING

tires, and other areas, for instance the prevailing or future level of
spending on schools or oads.
In recent years another influence has been added to this list.
» Environmental considerations: The green movement has affected
many product areas, with advertising featuring recycled paper (toilet
tissue/stationery) or the omission of harmful chemicals or additives
(CFCs have now largely disappeared from aerosol products).
Amongst all the factors that can logically go under these headings
opportunities abound. It is an area that repays regular consideration.
Another factor affecting all businesses is:
» Competitive pressures: a broad view needs to be taken of what
constitutes competition (see box); action from any quarter can affect
your business unexpectedly, directly, and rapidly. Further, it may
be sensible to link customers to this heading. The market – the
world of customers and potential customers – is essentially dynamic.
Customers are fickle, their loyalty hard won and easily lost. Change is
the norm. Responding to it is essential, or even long-term customers

will go elsewhere.
WHAT IS COMPETITION?
It may seem obvious, but it is worth asking – what exactly is your
competition? Consider an example: for someone who makes pens
or undertakes printing, then the competitors are surely other pen
manufacturers and printers. Yes; but competition is broader than
this. Consider the pen manufacturer, who makes, let us suppose,
medium-priced ballpoint pens. His competitors – and there are
probably 10 or 20 of them – make similar pens. But what about
fountain pens, roller balls and fiber tips? And pencils? These are
competitors too, as are dictating machines and word processors,
and, of course, other writing instruments throughout the range of
all prices, from throwaway ballpoints to solid gold fountain pens.
These days a stylus on a palm size computer may substitute for


WHAT IS BUSINESS PLANNING?

9

the use of other writing instruments (in the UK a recent survey
reported that more than 50% of people less than 25 years old had
never written a letter by hand).
Still further factors must be included to define competition
completely. Many pens are given as presents, so competition
includes alternative present choices, a book, a music CD, a necktie
and so on. Many more are given as business gifts, so competition
here ranges from pen pots to calendars. No doubt this picture
could be extended. Certainly you can consider in a similar way
any product or service your organization may provide; it may be

a sobering thought and produce a longer list than might first be
imagined.
Planning has to accommodate all these kinds of things, and more; and
still work effectively for you.
LIMITED RESOURCES
In any organization, even a small one, there are different resources,
especially people, time, and money, competing for attention. All sorts
of options exist. Do we spend more on research and development or on
new computer equipment? Do we extend our business geographically
or concentrate on better exploiting the areas we are in now? Such
questions and relationships are almost endless and often more than a
limited choice between two decisions is in question.
Often only one course of action can be taken. Resources are not
interchangeable. If George is to set up a new office, then he cannot – at
least at the same time – be doing something else that demands the same
time. Planning must address this situation. It is planning that produces
a basis for such decisions, and leads to the allocation of resources and
the focus on whatever are decided to be key activities.
DRIVING THE BUSINESS
Any business has a certain momentum. But its operation should not
be either a case of an automatic perpetuation of the status quo – more
of the same – or of constant reaction to circumstances. This latter
is particularly to be avoided if it constitutes unthinking reaction to


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BUSINESS PLANNING

difficulties – a process that can sometimes best be described as panic.

Similarly, even if thought is involved, constant ‘‘firefighting’’ prevents
time being spent on what really matters.
Planning, and the existence of a sound plan, gives the business
direction and helps ensure that the expertise and the right action are
lined up behind what matters, so that those things that support the
core of the business are given full attention.
OPERATIONS MUST BE CONTROLLED
A fourth point addresses the question of management control. Any
business must know how it is doing. This is not just for the satisfaction
of ‘‘keeping the score,’’ as it were. Control is designed as a final part
of the process of hitting objectives. If the signs are that all is not going
well, this is flagged by the control system. This should give sufficiently
early warning for corrective action to be taken to ensure that progress
towards goals set can be put back on track. There is a positive side
here too. It is just as important to react diagnostically when things are
proceeding better than expected; more of this in Chapter 6 ‘‘The State
of the Art.’’
SUMMARY
Thus planning is undertaken to provide a solid base from which the
business can operate. It is, or should be, essentially practical; that
is, doing the planning, and having the plan, should make it easier to
run the business. Certainly it is sufficiently important that no new
business, or new business development, is likely to be supported by
an organization’s bank without a sensible and well-documented plan
being on the table. That alone is enough to make many who doubt the
value of business planning to think again.
The plan for the year – the annual plan – may well be an integral
part of longer term planning (say for three years ahead) with the
operational plan for the immediate future linking to outline plans,
and lines of thought, for the longer term. However it is defined in a

particular organization, a good plan will:
» identify opportunities for future profit improvement;
» have the ability to anticipate dynamic external changes;


WHAT IS BUSINESS PLANNING?

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11

provide better protection for the future of the business;
prompt the collection of relevant data;
allocate the company’s resources towards specific ends;
underpin the process of control;
assist with clear communications around the company;
focus individual efforts and assist personal motivation;
provide a proper commercial reference for all activities; and
justify development (and development funds).

Further, if it is to be a practical process, it will help if:
» the approach is an integration of ‘‘bottom up/top down’’ (i.e. it
involves people throughout the company);

» the system and purpose is clear to all;
» standard (tailored) planning formats are used;
» a planning cycle, specifying all timings, is agreed;
» the planning includes a facility to ‘‘fine-tune’’ (particularly to take
advantage of opportunities); and
» an eye is kept on the external reactions to everything done to
facilitate ‘‘fine-tuning’’.
Someone must take responsibility for the planning process (and give
some time to it), while others must agree to be involved as necessary. Some discipline may be required here as other pressures so easily
intrude. In the context of this work and with smaller businesses in
mind, while all aspects of business planning are important, the promotional aspects – the things that will bring in the business – are key. So
often organizations refer to their business plan, and also to a marketing
plan; the latter is simply a core element of the whole. That said, every
aspect of the business needs planning. Whether an activity is significant
or not, in the sense that there is an HR department for instance, it needs
a plan. But in a small business so too may the proportion of the general
manager’s time that goes on HR issues be significant in the absence of
any sort of department.
Essentially you must ensure that you get planning to address issues
that are important to you and your business, whatever they are and
whatever their scale.


02.09.03

The Evolution of
Business Planning
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An increasing need
Small business assistance
Towards excellence
Summary


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BUSINESS PLANNING

‘‘There are three kinds of companies: those who make things
happen; those who watch things happen; and those who wonder
what’s happening.’’
Anon. (quoted by American marketing guru, Philip Kotler, in
his book Kotler on Marketing)
Business planning is a perennial skill. When the early cave men were
setting up a first co-operative to make and sell fish hooks they would
have quickly learnt to plan. The need to kill sufficient animals to source
the bones they needed had to be matched against the number to be
traded. Every aspect of business would have had to be addressed in a
practical manner. If they were to swap fish hooks for food, and their
planning was misjudged, they risked starvation.
That said, useful background about business planning comes only
from the last 50 years or so; the period during which there has been a
progressively increasing formality and focus on all matters to do with
the skills of managing a business enterprise.
AN INCREASING NEED
The background is best commented on in terms of large and small

companies.
Large companies
Though planning was doubtless always necessary, the spur towards
more sophisticated planning methods came as a result of the drive
for organizations to grow to large size; a trend that started in the
1970s continuing through the 1980s and beyond. Cash made from
core businesses went into growth and acquisition and the resultant
entities were such that more formal planning processes were needed
than in the past, to initiate and control action. What proved an unwise
and complex combining of disparate business interests created in turn
more complex management structures and increased administrative
processes – all of which needed to be tamed, if possible, by better
planning.
Then in the mid-1980s these broad growth policies, some of which
had proved less than successful, became less attractive and the emphasis


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15

switched to a focus on core business areas (the ‘‘stick with the knitting’’
of the best-seller In Search of Excellence). This trend too required a
tight planning focus. By now planning had become an accepted core
element of most large companies’ operations.
A further spur to this was the development of and fashion for
using planning devices of one sort or another (such as the Boston
Grid – see Chapter 8 for details of this and others). Strategic planning
was now firmly on many an office door and large organizations retain a
commitment to it and continue to have specialist staff and departments

to assist in completing the process. At the same time (since the 1970s
onwards) the management consultants have seen this as a major area
of work – with numbers of firms providing assistance with planning,
or training in how to go about it.
All this tends to suggest that planning works; or at least that it is
useful. The large firms with a major commitment to this would not
continue to invest in the planning process if it had been seen to be
even of doubtful value. Smaller firms may take some note of this.
Small companies
The smaller firm has not been untouched by what larger ones have been
doing. Because of the trends reported above, management literature
has reflected the need – and the detailed methods – of planning, and
few can be unaware of its prevalence.
However, small business has always been schizophrenic about planning. Those running a small business rarely voice a logical argument
against it or believe it to be a ‘‘bad thing.’’ They just relegate it down the
priorities so that it is either not done or done inadequately. A negative
circle develops from poor planning – it does little to help manage the
business, and so it is again regarded as unessential.
However, while this situation prevails, small business has – certainly
since the seventies and more so since the eighties – been the recipient
of many factors seemingly designed to make life more difficult. These
include:
» financial pressures: taxation, interest rates, more pressure on
cash flow;
» administrative burdens: largely, so the conventional wisdom has it,
government-inspired. Whatever the truth of that, paperwork – from


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matters linked to employment law to the provision of information to
compliance with edicts of all sorts – does take up significant time;
» competition: market conditions seem to get more and more
competitive; and international competition is a major factor in this
picture; and
» technology: of all sorts, and information technology in particular, is
a wonder of the age. There is no doubt that it brings major efficiency
and convenience; but it also brings cost, a steep learning curve and
an apparently built in obsolescence that means many people feel they
are on a technological rollercoaster and there is always something
new to get to grips with.
All this, plus recessions and a general pressure on margins, makes the
job to be done in small business a challenging one to say the least. They
add up to the fact that running a small business is a risky business; and
sometimes the risk is considerable and the penalties for failure very
personal (especially for the owner/manager).
One other factor, itself a reflection of the other difficulties that have
become inherent in running a small business, is the agencies set up to
help small businesses.
SMALL BUSINESS ASSISTANCE
There are a number of agencies set up specifically to assist small
business. In the UK at least, and similar situations exist elsewhere, they
are subsidized in one way or another by government. Here in the UK
they have had a turbulent past. Because government can seemingly not
resist the urge to tinker, and often to tear up and replant, there have
been a series of business agencies in the past. As each has come along
it offers slightly different facilities on a different basis; as I write this
the Business Link network is being replaced by another set up, as yet

incompletely defined. But business planning has always been one of
their priorities.
That said, they are useful; if you have anything of this nature near
you it may pay to check it out. They may do just what you want, and
you may be allocated an advisor whom you like, and who knows their
stuff. See Chapter 9 for more information.


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17

The conclusion of even momentary thought about this is that planning has become more necessary than ever before. It is not just the
bank that demands your business has a sound plan, it is the overall
circumstances in which you operate. A good plan, well considered and
worked out, will help cope with all the problem areas listed above.
True, it may not negate them all, but let us be realistic; there is no
magic formula to which many will yield. But they are reduced by
a systematic approach, by attention to detail and by using planning
to minimize every disadvantage – and, equally important, to maximize
every opportunity.
From being a routine or a ‘‘good’’ option if there is time, planning has
gone to being a must. The unplanned business leaves itself wide open
to external disruption to its operations; worse, it allows opportunities
to go stillborn because they are either not recognized or not addressed
in the right way.
As the twenty-first century gets under way we are in the age of
business planning for good reason: it is necessary, and it offers practical
help in achieving business goals.
TOWARDS EXCELLENCE

Finally, let us look at what creates excellence. Since 1982 saw the
publication of Tom Peters, and Robert Waterman’s seminal book In
Search of Excellence, the term has been applied to those organizations
whose success is most pronounced. The main prerequisites to success
listed by Peters and Waterman said that excellent companies:
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had a bias for action;
were close to their customers;
had autonomy and entrepreneurship;
believed in productivity through people;
were hands-on and value driven;
stuck to the knitting (i.e. focused, without distraction, on core
activities they knew); and
» had a simple form and lean staffing.
Commentators have not significantly altered these since and they
remain valid today. A moment’s thought shows that these are all


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philosophies that are dependant on planning. Planning, or certainly
the thinking that planning implies, makes adopting the characteristics

and approaches of an excellent company easier. This is nothing to do
with the size of an organization. It is, to take one example, just as
important for the small company to be close to their customers as the
large. Understanding customers and organizing business approaches to
maximize meeting their needs and delivering the quality and service
they want surely makes sense for anyone intent on being successful.
To do so it is necessary to spend some time thinking about customers
and what they do want, talking to them, researching them and looking
at how they are dealt with by other organizations. The information
gleaned from this sort of examination needs transforming into an
inherent element of the company’s philosophy and operating approach;
what is that if not planning?
All the facts about what makes companies successful, and all the
trends about how this will change in future, demand a planned
approach. They illustrate that planning is only a practical response
to the circumstances in which modern business operates. Recognizing
this is important. So too is acting on it. For the smaller business it must
not be allowed to take over and waste time, a manageable planning
approach must be found. Finding it can make the difference between
success and failure.
SUMMARY
The brief history here has certain common sense morals. Certainly a
recognition of the dynamic nature of the business environment is one.
If nothing really changed year on year, then you could operate knowing
what would happen. But, of course, things do change. The implications
for planning are clear.
» One of the prime reasons for planning is as a response to dynamic
circumstance. You can never know what circumstances will prevail
in the future, but planning bridges the gap between total ignorance
and certainty – at least to some extent.

» Changing circumstances also affect the form planning must take. For
example, if you find you have more, or more active, competitors than


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19

in the past, then time spent assessing their activity and anticipating
their next moves may need to become part of your planning process.
» Changing demands from others for whom your plan is significant
may also dictate how it should be done. You may need to provide
more detail for the bank, or it may be prudent to be more open with
staff about certain plans, in an environment where staff increasingly
expect a higher level of consultation by management.
Looking ahead as you contemplate the next planning process and taking
an informed and open-minded attitude to change will help ensure that
the planning you undertake remains relevant and that each plan you
produce will be genuinely useful.


02.09.04

The E-Dimension
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The power of technology
Forecasting
Technical assistance
Best practice: analyzing customer profitability
Summary


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BUSINESS PLANNING

‘‘Rushing gleefully into the information-laden future – a future in
which we will be increasingly willing to replace direct experience
of the world with mediated data about the world – we may find
that an obsessive fascination with information has some unpleasant
consequences.’’
Hugh Mackay, Australian market researcher
PLANNING THAT REFLECTS FAST CHANGING
TECHNOLOGY
The pace of change is a fact of life and nowhere is this truer than in
the area of technology. If your organization is involved in markets and
products directly affected by this, then planning must reflect the need
to act quickly. A couple of examples make the point.
Example 1: Competitive intelligence
A basic element of most company plans is to cast a glance, indeed
to study in some detail, the state of play with the organization’s main
competitors. As one obvious example of how much quicker and easier
technology has made some things, just consider Websites. In many
cases a few minutes logged on to appropriate sites can give you a lot
of information about competitors – from their own sites, and also from

banks or industry information sites.
Example 2: Planning for product development
Sony is one organization that currently seems to deal well with this
situation. One tactic developed by Akito Morita, when he was chairman
of Sony, was to follow the launch of a new product by establishing
three teams. These had different roles, which were:
» team one: had the task of developing short-term improvements so
that the next, revised, version of the product was better (and kept
up with or ahead of competition);
» team two: looked further ahead and were responsible for mediumterm improvements; they had more time and could aim for more
radical development; and