Saturday, November 26, 2011

Writing a Business Plan: Operations


Most people assume that the Operations section of the business plan will be the easiest one; after all, you’re just telling the reader what you are going to do. And, unless you are making a bold entry into an industry in which you have never worked, you probably know a great deal about what your new business will do and how it will do those things. Unfortunately, this is where most business plans break down, and also why: YOU know what your company will do, in great detail, but your reader doesn’t necessarily – and your reader is the one who decides if you get the resources you’re asking for. Let’s go over some of the critical points you will want to include…

First, you will want to complete the classic “W5” questions that any reasonable person would want to know before offering anything to your new venture; you’ve already answered What you want to accomplish (the Mission statement) and probably Why (the Vision statement), but now you need to address where, when, and with whom you will do these things. So tell us: where are you going to set up operations? Do you have a location (industrial space, retail space, a suitable vacant lot) picked out? If so, tell us what makes that location ideal (or at least optimal); if not, tell us how you will find one. If you’re going into retail or food service location may be your single most important factor; if your operations are entirely online you may only need access to high-speed Internet connections and a post office. Either way, you need to explain where you’re setting up shop…

Then you should consider when you will start operations, and how much lead time you will need to get ready. We’ve talked about critical path management (CPM) in this space before; it’s the process of working out which steps in your development have to be completed before you can continue (and which ones can be completed concurrently while you get to that point); we’ve also discussed the use of a Gantt Chart (it’s not an acronym; the chart is named for its inventor, Henry Louis Gantt) which lays out the critical path graphically. As usual, neither technique is mandatory, but you will find this part of the plan much harder without them or the equivalent…

With whom is also critical; you will need to lay out how many people you will need for each of the company’s functional areas; if you are planning a divisional structure you should discuss each division separately, and if you are planning for multiple shifts you will want to consider how many people (and which ones) will be on each shift. Some departments (payroll, sales, PR) may not need a second or third shift; others might increase your profits assuming they don’t cost more to operate than you will make during those hours. You should probably include details about benefits, salaries and employee retention plans that you’ve already worked out, although those aren’t as important at this stage…

Once you’ve completed all of those details, it’s time to get into what company operations will actually accomplish. What we’re looking for here is an overview of how the company will go about its daily (and monthly/yearly) operations; how many people, doing what tasks at how many workstations, producing how much product out of how much raw material. If our day shift employs 100 people to run presses and lathes on five different production lines, each of which can turn out 250 widgets each day, then we need to explain how much we can sell 1,250 widgets for, how much the raw materials for 1,250 widgets will cost, and how much we will be paying our 100 operators. If we expect to start a swing shift after a year or so (once we’ve had time to train up supervisors and foremen) and a night shift after two years (if there’s enough demand to support one) we need indicate how much additional input and output we expect, and we should also discuss how we will train and promote new management personnel, as well as any additional facilities we will need to handle the increased workforce (and output)…

Finally, this section should discuss your plans for the future. Do you plan to expand at some point; are you going to move into other products or services, other geographical areas, new products or new technologies? You don’t have to account for all of the possibilities now – especially if there’s a possibility of game-changing technology emerging in your industry during the foreseeable future – but very few of us intend to just set up shop and perform the same operations until we retire. Once you have accomplished all of the things you’re planning to do, what will you do next? This is especially important if you are bargaining for an equity share in your business (e.g. selling stock or taking on silent partners) as opposed to just borrowing money that you promise to pay back – but that’s a discussion for another day…

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