Business Plan : 4 Operations Plan
In most cases, entrepreneurs begin tackling the challenge of writing a business plan before the business exists. Doing that, of course, means that your plan will focus much more on the potential of the business and how you, as the entrepreneur, plan to take advantage of those opportunities. But, if you are writing a business plan for a 25-year-old business that you’ve just acquired, with the intent to turn a money-losing operation into a cash cow, you’ll need to focus on an area neglected in many business plans produced by entrepreneurs: the Operating Plan.
The operating plan is the section of your business plan where you dig into more of the nuts and bolts of your business, areas like: merchandising, inventory, and sales. In other words, this is the time where you put aside the conceptual aspects of your business to get your hands dirty in terms of writing out the specific of how you’re going to attract customers, sale to them, and then make return customers out of them.
The topic you cover in your operational plan will vary based on the kind of business you run. For instance, if you are starting a brick and mortar retail business, you will want to think about things like inventory and distribution while a online company may be more focused on securing software and computer equipment. Again, the point is that you need to think about the kinds of details you’ll be facing from the day you open the doors of your business.
The organizational and operating plan describes how you will structure your company and how you will actually carry out everything you present elsewhere in your business plan. Without an execution strategy, the rest of your plan is meaningless.
Like the marketing plan, your operations plan is essential to the success of your business, and will be important not just to financiers, but also to you, to management and to your employees. You can’t take for granted that anyone, including you, understands exactly how to run your business on a day-to-day basis unless you’ve thought it through and made your expectations clear. One difference between the operations plan that you would prepare for internal use and one you would give to potential lenders and investors, however, is that you do not need to include as much detail in the latter.
Here are the key components to address in an operations plan that will be used externally.
If you already have a location picked out then provide the address where your business will be located. If you do not have a location yet describe the type of location you are looking for including the surrounding area and explain why this location will be effective. Also, note any disadvantages or possible problems presented by your location and what, if anything, you have done or will do to counteract these negatives. If you have a virtual business, you should explain why you have chosen to operate this way.
State whether you own or lease the property and provide the terms of your mortgage or lease if possible. Present information like the monthly payment, the length of the term, whether you are legally able to sublet and the terms of the early termination clause. Lenders will also want to know if your lease is net, double net, or triple net – in other words, is it you or the landlord who will be responsible for property taxes, insurance and maintenance? If your company is responsible for any of them, how much do they cost?
Provide details such as the square footage of the property, how your facility is laid out, what type of loading area it has to receive merchandise (if applicable) and the number and location of parking spaces. Also provide data about vehicle and pedestrian traffic, accessibility from major roads and highways, related nearby businesses and anything else that affects your location. If your business has more than one location, be sure to describe each one. Also discuss the major fixtures and equipment your business requires and how they work with your space. Note whether you are likely to outgrow the space, and if so, how you plan to handle a move/expansion.
Supply and Inventory Management
Who will be your suppliers/vendors? Do you have multiple options available, or are you beholden to a single supplier, which may subject you to shortages and give you little bargaining power with regard to price and delivery schedule? What terms have you established with your suppliers? What kind of reputation do your suppliers have? Will they extend credit to your business, and if so, how much and on what conditions?
It’s also important to explain how you will manage your inventory. If you have too much inventory, you’re wasting money; if you have too little, you’re losing out on sales (and possibly customers, if they perceive your business as unreliable). Having good relationships with your suppliers can help you manage your inventory effectively.
Total quality management (TQM) experts define quality as meeting or exceeding the customer’s expectations first time, every time. Before TQM, quality control was something that was done after product manufacture or service delivery. Today quality control procedures begin with product design and are monitored throughout the production and delivery process. Quality control also has moved out of the factory, into the service industries.
Quality control is an important part of business plans when the business will operate in a highly competitive market and the nature of the product or customer implies quality will be a major factor in the purchase decision. One key selling point in quality control is to investigate the feasibility of obtaining a quality control certification for your industrial sector.
Customer service procedures:
Of all the subsections of the operations plan, customer service policies and procedures is the one most likely to be included in an business plan. Why? Not just because every business has customers, but because one of the best ways for an -business to distinguish itself in any marketplace is to be passionate about customer service.
Your team of managers and lower-level employees are the ones who will carry out most of the operations plan, so it’s important to describe who they are, what their qualifications are and what their responsibilities will be. Include an organization chart showing the hierarchical structure of your business. Also describe how your business will be structured, what legal form of ownership it will use (sole proprietorship, partnership, LLP, LLC, corporation, etc.), and the chain of command. What is the company’s management philosophy and business culture, and how will these contribute to your business’s success?
Your organizational plan should provide names and professional descriptions of each owner and manager your business will have. The description of each top-level member of your organization should explain what their roles and responsibilities will be in your company, and what they have done previously. Emphasize past business successes and key skills that will help your current business succeed. In addition to your managers, what other essential jobs are there in your company, and which key employees will perform them? What qualifications do they have in order to excel at these jobs? Provide cross references in your descriptions to the appendix, where you will include detailed business resumes for yourself and for each of these individuals.
Lower-level staff members, if you plan to hire any, are also important enough to mention in your business plan because they will be essential to the smooth functioning of your business. Explain how you will locate potential employees and what qualifications they must meet, what jobs they will perform, how you will compensate them and so on. Basically, think about the information you would include if you were advertising one of these job openings, and include that in your business plan.
Also note whether your business will hire any outside consultants or other independent contractors like designers or marketing directors. If so, why? What functions they will perform? Finally, describe any positions you might want to add in the future if your business is successful enough to expand.
Depending on how much information you need to present, you may want to separate the organizational plan from the operating plan. But if your business is extremely small, the organization plan will be quite short. If your business is a sole proprietorship, there really isn’t anything to describe, since there are no managers, no employees and no chain of command