Single Origin Shots

Barista Magazine Cashbox Column: Building a Business Plan

Barista Magazine– June 2011

By Tracy Allen

Years After Opening Shop, Do You Still Have A Business Plan?

A clear plan of action is crucial when starting your business. It helps you pencil out your possibilities for profit, get financing, and determine as best you can if your goals are attainable. But after you’ve been making killer cappuccinos and stocking fresh pastries for a few years—or 10—your business plan is probably collecting dust in a drawer, or buried deep in your hard drive. If you can find it.

Why unearth your business plan?

Because if it’s sitting on a shelf, it’s worthless. An active plan will help you concretely assess your progress, and change course if need be. Hopefully your existing plan includes specific dates, budgets, forecasts, and management tasks. You need to be able to track these specific data to determine if your plan is on track. If when reviewing your business plan you can see that it’s not working as it should, then you’ll know that you need to fine tune your operations.

If you’re wildly lucky, your initial strategy could become a long-term way to make a living. But stasis is the least realistic of all expectations, and when you think about it, it’s not even all that interesting. Changes in the market are stimulating, exciting, keeping you fresh and on your toes if you’re up for the challenge. Thus, at the very least, you should do an annual review of your business plan. In the interim, whenever you find yourself facing major market changes or opportunities, revisit your plan right away.

Crossroads that call for major revisions to your plan:

Technology or trends emerge, making existing products and services obsolete and changing the market perception of your operation. These changes can also create whole new markets, redrawing the competitive landscape. You need to keep up with the times—whether it’s with an efficient POS system or the right paper cups—while sticking to your brand identity, and determine how doing so will affect (and hopefully increase) your profits. Do you need new equipment, and if so, how will it affect your profitability? Plan to incorporate new trends whenever you can use it to your advantage.

Beyond “knowing the industry” you can get a pulse on local trends and desires by talking to your customers and potential customers whenever you can. Big companies use focus groups to the tune of six-figure research bills, but you can get the information you need by tuning in to your customers, face-to-face. They can help you review your value proposition, letting you know why they’re at your shop (and why they’re at others’). Don’t get in their face about it. Make it conversational, and let them know that you genuinely want their opinions—particularly about what they’d improve about your offerings.

Costs rise, revenues fall—financial projections aren’t being met.

You have to think long-term, but you also have to know when your strategy isn’t working. The most obvious place to look is your financials. Have your projections been proven wrong by the reality of the market? Glaring signs of trouble that sometimes go unheeded are rising costs and falling revenues, because these situations often occur gradually. Do a monthly review of the difference between planned results and actual results for your sales, profits, balance and cash. Watch your margins, and know what they mean:

For your financial projections, always maintain a table that includes your business plan, your actual financial results, and the difference between the two, which is called variance. If you’re experiencing slumping sales figures or reduced financial projections, diagnosis the problem right away. Don’t ignore what your financial statements are saying, and be investigative in your approach. You may have a gap between what you’re offering and what your customers want (like different operating hours, more menu choices), a quality-control issue, increased competition, or an outdated marketing message. Decipher what’s behind your reduced sales and revise your plan accordingly. Develop a revised set of financial statements based on your new reality and then revise your strategy and action plan accordingly.

It’s important to realize that even good customers can take their business elsewhere. Your competitors may be stronger than you anticipated, your efforts may be falling short, or the market itself may be changing. Be prepared to revise your plan based on how your business’ strengths and weaknesses may have shifted, and how those changes may be affecting your ability to remain profitable.

You should also review the tasks, deadlines and planned results that don’t fall into your financial statements. A good business plan includes plenty of measurable milestones and tasks. Review and update these measured results regularly.

New or existing competitors significantly change the market landscape.

Even with careful planning, newly emerging competition can mess with your bottom line. Competition can signal an increase in your market niche (a good thing), and it can force you to focus on what you do best and how to do it more efficiently. But if you’re running scared from the competition, get centered on what differentiates your business—or how you’d like to be different—and revise and analyze your business plan, stat.

Employee morale goes down.

The morale of your staff is tough to measure, but it’s also critical to your success. If you sense that morale and motivation are heading downhill, be proactive. Talk to key people to uncover what’s wrong. Perhaps your goals are unreasonable, creating frustration rather than motivation. Or maybe there’s a gap between your stated mission and your action plan, creating confusion and indirection. When employee morale is at stake, you can’t wait for the annual business-plan review; you need to address problems now.

Growing like Gangbusters

If things are going better than planned, what’s to complain about? Nothing, unless you’re growing too quickly. When business is booming, customer service can suffer, and so can product quality. You might even find that your basic organizational structure no longer works; you may need to hire more staff or redefine current staff roles. Look at your business plan to identify the parts that need to change in order to accommodate your good fortune —and make sure it will pencil out as your business grows. Major internal changes. Changes in ownership that involve partnerships, investors, divorces or deaths obviously require a reworking of your business plan.

A final caveat:

While you should review and correct your business plan whenever necessary, don’t jump the gun. You don’t want to change a strategy unless you are sure it isn’t working, and you’re fairly certain how changing it will help. Being consistent is as important as being strategic, so build your long-term strategy on incremental changes, not major revisions. If you jump from one strategy to another, it can be hard to implement anything. Even an average strategy that gets implemented is better than a brilliant strategy that never sees the light of day.

Plans are about the future, and none of us can predict it perfectly, so keep your business plan fresh by watching reality as it unfolds and adjusting accordingly.

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