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The Plan-As-You-Go Business Plan by Tim Berry - Coggle Diagram
The Plan-As-You-Go Business Plan by Tim Berry
Foreword and Preface
Is Business Plan Necessary?
Guy Kawasaki has spent a lot more time and effort talking and writing about pitch than a plan
This book is about planning, not the plan
Tim Berry tell how to build a plan around a core (heart) strategic combination of market, identity and focus
Preface
Planning is like dribbling
Do as much planning as you will be able to use
Chapter 1: About this Book
Why is this Approach Better?
It gets results
Faster and easier
Manages change better than normal business plan
More realistic and flexible planning
Within your ablity and grasp
It is the right way
Chapter Outline
About this Book
Attitude Adjustment
Plan grows organically
How to start?
Form and function
Accountability and Mapping
Heart of the Plan
Core Strategy
Combination of business identity, target market, business offering and strategic focus
Flesh and Bones
What's going to happen, when?
Who is going to do it?
How much will it cost?
First three parts
Milestones
Tasks
Responsiblitites
Second part (Basic Numbers)
Sales Forecast
Expense Budget, Startup costs(for startup)
Cash Flow Traps
Dressing and Growing
Full Document of Business Plan
Show it to outsiders
Full financial forecast and supporting information
Elevator Pitch
Planning Process
Review, Revision and managing the Plan
What's Different About This Approach
Quick Summary
Its about planning, not a plan : Review your plan regularly, Review schedule
Appropriately sized plan: Start simple, with core strategy, sales forecast, and milestones table. Grow it as you need it
Form follows function
Planning is separate from planning document
Separate supporting information from plan
Without spending a lot prove that market exists
Read This Even If Your Read Nothing Else
The Heart of the Plan: Your Core Strategy
Who you are? (What you do well?) Business Identity
Who you aren't? (What you don't do well)
Whom you reach ? Target Market
What you do for your target? What business are you in? Also plan what you dont do for your target
Concentration is power
Take a big market and solve a specific problem
The Flesh and Bones
Assumptions: List them, review them coz they change oftern
Review schedule
Every third Thursday
Strategy every quarter
Milestones, results, changing assumptions
Metrics
starts with money
Sales, Costs, Expenses and Taxes, Interest, profits, assets, liabilities, capital
Boils down to
Money in the Bank
Cash Flow
Metric other than money like people served, retention etc
Who does what? Management Structure
When? Milestones, Dates and Deadlines
Cost: Budgets and Forecasts
The Rest: Dressing it up
Why Plan as You Go?
Things change fast
Do You have a Business Plan Event
What's Different About This Book ?
An approach, not method
About that Big Plan
Complete Business Document
Good Planning is one of the best ways to manage change
60-second strategy summary can be delivered in an elevator
For smaller companies it might be that plus a
Milestones table
Measurement notes
Review schedule
Sales forecast
Impatient? Jump in Summary
Heart of the Plan: What really drives your business; Target Market; Your Business Offering, Your Strategic focus.
Plan review schedule: You are after planning and better management
Sales forecast : Conceptual thinking + Numbers. This comes from the heart
Expense Budget: Estimate payroll on an average month; Burn rate (How much money you have spend per month)
Startup costs
If you are starting
When you have a team do SWOT Analysis
Mission Statement, vision, mantra, objectives or keys to success
Business Destiny, Accountability and Developing Teamwork
Chapter 2: Attitude Adjustment
Separate Supporting Information from the Plan
Inside Out from the Heart
Mixing Numbers and Words: Keep it Simple
Planning, Not Accounting
Fundamental Management
It has to be your Plan
Let it Evolve Organically, as You Need it To
It's About Controlling Your Destiny
Form Follows Function
Like Planning a Trip
Start Anywhere. Get Going
Chapter 3: The Heart of the Plan
Your Market Story
A learner who is struggling to understand concepts because of not understanding the actual concept through words. He will need animations to visualize what is happening to learn. He also needs motivation of talking to the people who have done what he aspires to do. Even if he gets to talk to them few minutes every week he will be motivated to continue his journey towards his goal. No doubts only motivation.
Write who is not my customer
Strategic Focus
Your Business Identity
Like to create easy to understand animations
Like to teach
Remember: Your Plan is Not Necessarily a Written Document
Write down your ideas, hypotheses
Validate with a prototype
Business model questions
How you are going to find your customers
USP
Profitable and Provide Value
Closing deals
Distribution channels
Customer satisfaction
Chapter 4: Flesh and Bones
Basic Business Numbers
Intro
What to be done?
A sales forecast
Your spending budget
Burn rate
Fixed and Variable Costs
Milestones
Important aspects of spending
Cost of sales
A simple expense budget
Startup costs
Expenses that will get deducted from fututre income
assets that you have to buy
Cash flow traps
Forecasting is More Art Than Science
Combination of data gathering and guessing
Gather as much data as possible before you make an educated guess
Use your company's past results first
How and why future results might be different
The Telephone Tree in Reverse
Ask everyone you are asking the question, also ask them who else might know
Industry reports of the public companies data
Forecast your sales
Backbone of your business
Measure a business by growth of sales
Sets a standard for expenses, profits and growth
Forecasting is basically educated guessing
Not perfect but reasonable
Forecast sales by month for the next 12 months at least
Then by year for the following three years
If more than one line of sales show each line seprately
Units, Prices and multiply them to get sales
Important Points
Sometimes Timing Matters a Whole lot
Try to follow how it is actually accounted for months
Accrual vs Cash based Accounting
Timing of costs
Inventory
Cost of goods sold
Expenses outstanding can be deducted for the income for paying tax for the current year
Cost of goods sold should match the timing of goods sold, this is a good practice
Timing of expenses
For travel it has to be the month travelled not on the month you booked
Ad expenses , not on the month you submitted the ad, not on the month you paid for it, but on the month when the ads were running
How could i know
What is happening is it good or bad? If you dont forecast
Get started with the forecast you will be revising often
Ex: Initial Sales forecast for a restaurant
Estimate week sales X 52 and divide by 12
Other Examples
Ecommerce website
Buy search terms
Estimate how many will see the link, how many will click and how many will actually purchase
Very less than 1 % conversion at each step will only happen
Retail store
Sales per square foot
Estimate traffic and conversions at each step
CAU per distribution channel
How many leads per marketing effort, how many presentations per lead, how many closes per presentation
Start from last year sales
Generally cost and expense rise gradually as per inflation
Understanding Fixed and Variable Costs and Burn Rate
Fixed Vs Variable Costs
Cost of Sales
To make, or buy and till the product or service is delivered
Inventory
Once it sells it is called Cost of Sales
Cash flow trap
Cost of sales if variable cost
Only if you make a sale
Rent and Payroll is fixed cost
Higher fixed costs more risk in the business
Fixed cost is the burn rate of a tech startup
Burn Rate
Average month spend to keep your company up and running
Rent, Payroll and whatever else you spend
Estimate Spending Related to Sales
Cost of Sales vs Sales and Marketing Expenses
Cost of Sales : buy, produce deliver
Expenses are travels, meals, ad expenses
Payroll as a part of expense
Always have spending budget
Budgeting Process
Preliminary Budget Meeting
Bring main managers together
Discuss strategies, priorities, realistic amounts and the planning process
Distribute a simple template and ask each manager to create a proposal with monthly numbers and descriptions of the programs and activities involved
Budget development
Allow time to develop budgets, with the standard template
Enforce deadlines for preliminary proposal and revisions
Consolidate all of them together
In most cases the total budget amount will be 2-3 times the real amount the company can spend
Share them the difference between proposed budgets and actual spending limits and ask them to think abou tit
Budget discussion
Bring your managers back to discuss the budget table
Projector and consolidated proposed budget
Go through item by item and pare it down to a realistic amount
Discuss why one thing is more valuable than others
With involvement comes motivation
Budgets and Milestones Work Together
Every line in a budget is assigned to somebody responsible for that budget
Group of lines to a single person sometimes
Make sure the results will be followed up
Budgets and milestones are related
People, time and money
Budgeting is more about people than Numbers
Its about people
Responsibility and authority for a specific person
Budget ownership is critical
Needs to be realistic
It is about following up
If you are planning a New Business, Budget your startup costs
Startup costs includes two kinds of spending
Expenses
Deductible against future profits
Reduce taxes
Includes rent, payroll, travel, meals, consulting most legal expenses etc
Timing is important; when the business is up and running you will start having the expense
Assets
This is not deductible against taxable income
Things like sign, furniture, fixtures, cars, trucks, buildings, land, cash on hand and inventory on hand
current assets are things you need to buy but dont last long enough like coffee machine
Do a simple budget
Beware of Cash Traps
Intro
Profits are not cash
Cash is what we spend
We pay the bills and payroll with cash
Be aware of cash balances and cash flow
Credit line on recievables
Receivables are not the cash you have
Comes up in most B2B sales
Inventory is also not the cash you have
Payables is the cash you have
So what if you wait a bit longer to get paid?
It is bad to get paid late
Ten Rules for Managing Cash
Profits arent cash they are accounting
Cash flow isnt intitutive
Growth sucks up cash
The faster you grow, more financing you need
business to business sales sucks up your cash
Inventory sucks up cash
Working capital = assets - liabilities (cash in hand for your expenses)
Careful with receivables
If growth is coming up plan for more financing
Three metrics
Collection Days
Inventory turnover
How long it sits on your working capital and clogs the cash flow
Payment days
Plan for next 12 months and compare with the actual data
B2B is harder
It's Not Rocket Science
You have to know these numbers :!:
Action Plan: What's Going to Happen? When?
What is going to happen, when, who is goin got do it, how much it going to cost and how many sales it will generate.
The Plan Review Schedule
When the plan will be reviewed and by whom
In pal alto it was every third Thursday was the review meeting
Was done in 90 minutes
Tips for review meetings
Keeping changes in strategy and changes in assumptions related to each other
Strat with the key assumptions discussions
Date Assumptions
Event Assumptions
Keep it as short as possible
Emphasize metrics
Variances in the plan and actual
Financial metrics are important but not the only ones
Develop metrics
Find ways to help people track progress toward goals
Be aware of the crystal ball and chain phenomenon
Business plan can always go wrong
Milestones Make your business plan a real plan
Google sheets
Strategy pyramid
Value Based Marketing
Everyday Business Plan
Vendor Profile
Pricing Strategy
Customer Profile
Market Research
Business Focus (your niche)
Growth Plans
Industry
Management Team
Business (Value Offering)
Nine part implementation for every one part strategy
Chapter 5: From Basic Numbers to Financial Projections
Market Research on the Web
Simple and Practical Market Research
Learn about similar businesses
Talk to customers
From Basic Numbers to Financial Projections
GAAP
Income statement
Shows your business performance over a period of time (month or a year)
This is sales less costs less expenses which equals profits
Balance sheet
Financial position at a moment (end of the month or end of the year)
Assets, liabilities and capital
Assets must always be equal to capital (equity) and liablities
Cash flow
Reconciles the other two
Not all your money received nor all your spending shows up in the income statement, nor in balance sheet
cash flow links the two, it shows where the money comes from and where it goes
Standard Conventions
Sales forecast should show sales and cost of sales
Same number in used in profit and loss statement
As with sales, you should normally have a separate personnel table
Profit and loss table show the same numbers as sales and personnel plan tables in the proper areas
Should also show interest expenses as a logical reflection of interest rates and balances of debt
Your cash flow has to reflect your profit and loss, plus changes in balance sheet items and non cash expenses such as depreciation, which are on profit and loss.
The balance sheet has to reflect the profit and loss and the cash flow
The business ratios should calculate automatically, based on the numbers in sales, profit and loss, personnel, cash flow and balance sheet
Facts about Financial Projections
Matter of making estimated guesses about what you are going to be selling, what it will cost, what your expenses will be
Accounting conventions (Important Facts)
Tax law allows business to establish so called fiscal years instead of calendar years for tax purposes
The FY2020 is the year 2020 in which the plan ends
Understand sales on credit and account receivable
When you make the sale and deliver the invoice, the invoice amount increases sales and accounts receivable. When the money gets paid, it decreases accounts receivable and increases cash
Separate costs from expenses
Costs are normally cost of sales or direct costs
Expenses are rent and payroll, you will have it whether the sales are made or not
Dont call any investment as venture capital, it has to come from venture capital firms
Don't confuse assets with expenses
Paying a developer is not an asset
Better as expenses, lowers tax and make look you balance sheet cleaner
Two main accounting standards
Cash basis
It is not good for predicting cash
Happens when you get the cash
Accrual Basis
Gives more accurate cash projections
Make you make the sale , you may or may not get the cash
It is more realistic
Proforma is just a dressed up way to say projected or forecasted
Same as projected profit and loss / profit and loss forecast
Projections: How Many Months? How Many Years
You should have at least 12 months detailed month by month for business plan forecasts
Sales forecast
Cost of sales
Burn rate
Annual projections
Another two years beyond that
Three years in total
Also think about 5, 10 or 20 years also
But dont project
If some expert asks you to do for more, seek an another expert
The Three Main Statements
Intro
Interest expense goes into the income statement but principal repayment goes into the cash flow, which then affects the balance, but never appears anywhere in income
Standard debt payment that includes both interest and principal repayment has to be divided up into both parts
Interest is an expense on the profit and loss
Debt repayment reduces debt on the balance sheet
Pro forma is projected statements and predictions. It is projected income statement
Income statement is about past results
The Income Statement
Also called as profit and loss
It shows sales first, then cost of sales (cost of goods sold, or direct costs)
Then it shows operating expenses, usually (but nit always) subtracting operating expenses from gross margin to show EBIT (earnings before interest and taxes) then it subtract interest and taxes to show profit
Only includes sales, cost of sales, expenses and profit
Shows flow of transactions over a specified period of time, like a month, a quarter, a year, or several years
Focusing on the income statement
The Balance Sheet
includes lot of spending and money management that isnt included in the income statement
Profits and not cash - cash trap
shows business's financial position, which includes assets, liabilities and capital on a specified date
Shows assets on the left or on the top, liabilities on the right side or the bottom
Balance sheet always obey the following formula
Assets = Liabilities + Capital
Don't break it down to details
Cash Flow Statement
Most important and least intutive
It reconciles the income statement with the balance sheet, but the detail is hard to see and follow
Cash = Liquidity;
Underlying Truth
Ending Cash = Starting Cash + Money Received - Money Spent
Simple Cash Flow Plan
Cash from Receivables aka "Payments Received"
Starts with beginning balance, adds new sales on credit, subtracts money received, and then calculates the ending balance. Notice amounts received in march are the same as the sales on credit for January, collection days estimator is set to 60 days
Estimating Expenditures
"Cash Spending" money spent immediately that are not invoiced (due at a later date)
Are paid every month they are incurred
"Bill Payment" is the account payable you pay which you owe
Estimate these based on estimated average payment days
1 more item...
"Additional Cash Spent" aka Additional Expenditures
"Non Operating Expense" or "Other Expenses"
Sales tax and VAT which company get but has to be paid to the government
"Principal Repayment of Current Borrowings", "Other Liabilities Principal Repayment" and "Long Term Liabilities Principal Repayment: are principal repayments of debt. When you pay off loans you lose cash. In this example there is 3k regular payoff of long term debt, single payoff of 90k of current (short term) debt
Purchase of other current assets, Long term Assets and Dividends
Cash Received
Planning for Inventory
Goes in Balance sheet as assets
And as cost of goods sold when its sold
Standard Tables and Charts
Business Plan should have
Projected Income
Projected Balance
Projected cash flow :check:
Sales forecast, profit and loss statements
Projected business ratio and Market analysis
Startup costs and startup funding
Has to show the investment and borrowed money
Past performance
Breakeven Analysis
Compares sales with fixed and variable costs to determine how much sales it will take to cover costs
Market Analysis
Market growth projection
Market segments
Ratio Analysis
Return on Investment, Profit to Sales, Inventory turnover, Collection days etc
Use of funds
How the money will be spent
Definitions
A more Realistic Example
Beginning Assumptions
Projected Income Statement
Projected Balance Sheet
Fixed, Variable Costs and Burn Rate
Calculating the Cash Balance
Indirect Cash Flow Method
Results should be same for direct and indirect
Documents, Presentations, Live
Formal Business Plan
VC Pitch
Just add projections and taxes then you have complete forecast
Chapter 6: Planning Process
Crystal Ball and Chain
Set Expectations and Follow Up
Management and Accountability
Final Thought
A Plan vs Actual Analysis
Variance
Positive : Better than planned
Negative
Plan
Actual
Variance
Dont get with a plan it will take time for the market to understand it
Adjusted Plan
Intro
