Creating action plans for your business plan

The action plan explains how you will operate and manage your business. It also addresses the back office activities that don’t relate directly to providing goods or services to customers.

The action plan is one name for the portion of the business plan in which you account for business operations that weren’t covered in the marketing and sales plans. The marketing and sales plans spell out the steps your business will take to achieve its financial and sales goals. The action plan explains how you will operate and manage your business. It also addresses the back office activities that don’t relate directly to providing goods or services to customers. These include activities such as:

• Employee hiring and management.
• Obtaining and working with vendors for needed materials and supplies.
• Ensuring that production takes place as planned.
• Providing customer service and support after the sale.
• Order fulfillment.
• Collections.
• Dealing with a changing business environment.

These types of issues can be conveniently grouped into three categories for purposes of dealing with them in your plan. The categories are operational plans, management plans and contingency plans.

Operational plans

An operations plan summarizes how you will create and deliver your product or service to your customers. The types of operational issues that you’ll face will vary based on the type of business you operate. For example, a consultant who deals primarily in assisting customers with network communications isn’t going to have an extensive manufacturing or inventory control plan. In contrast, a fast food vendor will have to carefully plan for inventory storage and turnover, the cooking process, supplies like wrappers, bags and beverage containers, and employee sanitation, etc.

In most businesses, there is a lot going on in addition to the primary business of providing products or services to customers. You may find it useful to look at your business as if it were a linear process that starts with raw materials and ends with a delivery to a satisfied customer. You’ll probably be surprised at how many steps there are and how critical the timing and duration of each step is.

While it is easy to relate to production issues in a manufacturing or other process where goods are fabricated, grown, or otherwise produced, the concept is also applicable to other types of businesses.

Example

As a consultant you are engaged to help a company convert from a paper-based billing system to a computer-based system. The end “product” that you will deliver is assistance in selecting the appropriate software and hardware, training on that new equipment, and supervision of the process by which the data is converted to electronic format. You can do a great job without “producing” anything tangible beyond, perhaps, documentation of the process.

This doesn’t mean that you can ignore “production.” Consider all the work that you would have to do. First, a working knowledge of the client’s existing system has to be acquired. Then, software and hardware combinations are evaluated in light of the client’s needs and budget. A conversion process has to be developed so that those portions of the existing data that carry over to the new system are available in the new format. Documentation must be prepared to train the client’s employees in using the new system. Each of these activities would be part of your production process.

Another production issue you may have to consider when drafting a plan is that there may be situations in which completing the job requires work outside your areas of expertise.

Example

A self-employed plumber deals primarily in pipes, faucets, and fixtures. Those pipes have a nasty habit of being inside walls, and when the plumbing goes bad, the wall frequently stands between the plumber and the pipe. A good plumber knows that his production process goes beyond his primary area of expertise, and will plan for the time and costs associated with the non-plumbing activities, such as patching and painting walls, required to fully serve your customers. If you or someone else has to do it to finish the job, plan for the time and cost.

Management plans

Small business owners have to orchestrate all the different activities that are needed to make a business work. These activities include providing goods or services to customers. They also include managing employees, as well as performing the back office or administrative duties required to keep the business running. Having a business plan helps organize and prioritize these activities.

Many large businesses have project managers whose job it is to track and manage internal corporate processes. These managers work from a project plan, which sets forth the timetable for all the events, milestones, deadlines, etc., that make up the project. Frequently, project managers have no other part to play except to ensure that the project stays on track.

Due to the cost involved, you might not have the luxury of hiring a project manager. Instead, the difficult task of making sure all the diverse elements of your business come together as they should is left to you. Of course, you are also probably a major player in the process being managed. This dual role is easier if you have a comprehensive list of what should occur, and when.

It’s easy to overlook management as a major drain on your time and resources, but even a very small business can present some complex logistical issues. Almost every business relies to some extent on outsiders to contribute to the success of the business. Keeping everything on schedule requires you to monitor all of the diverse activities and actively intercede when things aren’t going according to plan. If you operate an existing business, you know just how many balls you have to keep in the air at once. If you are just starting out, don’t underestimate the demands of managing.

Managing your employees. Managing people is far more time-consuming than you might imagine. Even if the people who work for or with you are talented and self-motivated, some direction must be provided. While you may have a fairly good idea about what needs to be done, the people working for you are less likely to see the entire picture. If a task falls through the cracks, your entire business can be placed in jeopardy. On the other hand, if two or more workers are duplicating each other’s work, your business will be wasting time and money. It’s up to you to delegate the work in a reasonable manner and to assign particular tasks to those best equipped to handle them.

Tracking progress is another important element of managing your business. It isn’t enough to delegate assignments. You also have to see that the work proceeds at a reasonable pace. If realistic deadlines were set at the outset, you can keep tabs on whether individual activities will be completed when needed. It is far better to find out half way through a project that some essential element is lagging behind than to be surprised later in the game. You have to be aware of all the pieces of the plan, including your own. Managing your own time can be even more difficult than managing the people who work for you. Don’t put pressure on yourself by taking on too much.

Administrative activities. Every business deals with a variety of operational issues that don’t relate directly to providing goods or services to customers. These back-office activities are part of the overhead of doing business. Someone has to open the mail, pay the bills, keep the books, remit taxes, provide customer service, handle collections, and do the hundreds of little things that make up running a business. It is a serious mistake to ignore the demands that these activities will place on you and your business.

A good starting point is to make a list of all the activities that someone will have to perform to keep your business operating. A house painter has to do a lot of things that are not directly related to applying a fresh coat of paint to a house. Someone has to purchase the ladders, tarps, paint, brushes, masking tape, and other necessities. Someone also has to bid on jobs, bill customers when jobs are completed, and deal with complaints if a customer isn’t happy. All these things take time.

One way of managing the time spent on administration is to let people outside the business handle certain jobs for you. This can reduce the time spent on back office work, in exchange for a cash outlay. It will not, however, eliminate this work completely.

For example, even if you get a payroll service to prepare paychecks, withhold and remit taxes, etc., someone will still have to provide them with the time data needed to prepare the payroll. You’ll probably want to review, and perhaps distribute, the payroll checks personally. The same is true if you engage an accountant to help with your books. Your day-to-day operations generate the income and expense information you need to track, and your books are based directly on the results of your daily operations. While the accountant can handle the consequences of your operational results, you must manage the systems that generate the needed information.

Contingency plans

No matter how carefully you plan, the likelihood of everything going exactly as you planned is small. When you made assumptions regarding the market and the capabilities of your business, you knew that those assumptions weren’t precise. While your assumptions may have realistically accounted for reasonably foreseeable events, that doesn’t ensure their accuracy.

For example, if your business is dependent on borrowed funds and you plan to obtain and use a line of credit, you had to make some assumptions about interest rates. If you were realistic, you probably looked at a range of rates around your assumed rate to test the impact. Making alternate assumptions and assessing their impact is the best way to plan for events that are out of your control.

Let’s say that your business plans to obtain a line of credit, and you negotiate an interest rate of prime plus two percent. You estimate that the rate you’ll pay is six percent, but you can live with a rate as high as 10 percent. Obviously, anything below six percent makes it that much easier to meet your planned goals. But what happens if the rate goes to 14 percent or even 20 percent? It happened in the early 1980s, and the change happened over a relatively short period of time. What would you do?

And today, 30 years later, rates are near all time lows and lenders aren’t nearly as willing to provide funds to small businesses. This means that planning on what to do if you can’t get credit at all is a related contingency.

A contingency plan is an effort to avoid having your business disrupted when market or economic conditions change beyond what you’re prepared to handle without major adjustments to your business. What kinds of contingencies should you plan for? Fortunately, if you’ve followed along with our suggested planning methodology, you already have a list that identifies many of the most important factors. The SWOT analysis lists those internal and external factors where your risks are greatest. For example, if a major external threat is a direct competitor opening up near your location, you can plan for that eventuality. Perhaps you’ll lower prices, stay open longer hours, or institute a frequent customer bonus plan.

Contingency plans can be included in your business plan in a number of ways. For example, your financial statements can incorporate a footnote explaining that the projected interest rate can go up by as much as 3 percent before your profit margin is seriously affected. Or, your discussion of how many employees you’ll need can state that an additional production person will be hired when sales of a certain amount are achieved.

Interestingly, contingencies don’t always involve things going worse than expected. For example, assume that your initial marketing plan calls for a mass mailing to 1,000 prospective customers. Assume further that a primary selling point is the immediacy of the need for the customers to act. You expect to get perhaps 10 to 20 paying customers out of the mailing. Instead, you get 243. What do you do? You’ve sold the market on the need to act quickly, but your business isn’t prepared to handle that many customers in the time frame required. If you have a contingency plan, you’re ready to act. In this example, it may involve bringing in temporary help, outsourcing certain tasks, or even asking competitors to do the work on a contract basis.

Ultimately, you can only go so far in contingency planning. What is important is that you’ve identified those areas in which your plan is vulnerable to factors that can affect your business. If you have already considered possible responses to changes in the market, you can react more quickly than if you’ve never even thought of the consequences. Thus, whether things go better or worse than expected, you have already identified the likely causes and considered your responses.