Question: What Is Human Resource Management? Answer:
Human Resource Management (HRM) is the function within an organization that focuses on recruitment of, management of, and providing direction for the people who work in the organization. Human Resource Management can also be performed by line managers.
Human Resource Management is the organizational function that deals with issues related to people such as compensation, hiring, performance management, organization development, safety, wellness, benefits, employee motivation, communication, administration, and training. Human Resources may be the most misunderstood of all corporate departments, but it's also the most necessary.
Those who work in Human Resources are not only responsible for hiring and firing, they also handle contacting job references and administering employee benefits. It's true that any individual who works in Human Resources must be a "people person." Since anyone in this department deals with a number of employees, as well as outside individuals, on any given day, a pleasant demeanor is a must.
Managing employees is a major job, so those in Human Resources must be equal to the task. Ten or twenty years ago, Human Resources personnel were rarely seen. Instead they worked behind the scenes to ensure personnel records were in order and employee benefits were being properly administered, but the job stopped there. Today's Human Resources personnel don't only handle small administrative tasks. They are responsible for staffing major corporations. This is no minor feat.
It's not enough to be able to screen potential employees, however. Those who work in Human Resources also have to be able to handle a crisis in a smooth, discreet manner. Whether the issue is health care related or regarding sexual harassment or employee disputes, a person working in Human Resources must be trusted to keep an employee's personal details to him or herself. The Human Resource team must also be a good judge of morale and realize when morale boosting incentives are needed.
It's up to them to make sure all employees are comfortable with their surroundings and working under acceptable, if not above average, conditions.For those looking to enter a career in Human Resources, a college education is necessary. One doesn't necessarily have to have a degree in Human Resources, however. Majoring in Business Administration, Psychology, Labor Relations and Personnel Administration, as well as degrees in Social and Behavioral Sciences, can also be beneficial.
Human Resources may have gotten a bum rap, but it's clearly among the most important departments in any corporation. The next time you have to meet with someone from Human Resources, remember that without him or her, your company might not be running so efficiently.
DEVELOPMENT
Presumably means the Process of Change of One type Economy into some other more advanced type.
If we Find that people are Making the Same Old Goods in the Same Old way and Selling them to the Same Old Customers, but with Quantity made and Sold Increasing overtime, then this is Growth without Development.
In Cases when the Modern Sector is Externally Financed and Controlled, which is the common position of the Developing Countries because of the Shortage of Internally generated Savings and Skills, a rise in the Income generated doesn’t necessarily mean a rise in Income retained within the Economy, Since a Large Proportion of the Profits will be remitted to foreign share Holde
In a world that is very rich, many people are very poor. Development is about reaching these people and helping them improve their lives. Indeed, development is a complex term that takes in many different ideas. But most simply, development, when we are talking about countries, means reaching an acceptable standard of living for all people. It means that people have the basic things they need to live.
(What Are the Millennium Development Goals?). It means that all the people have the right to make choices about their lives. It means that they have opportunities to improve their living situations.
Developed countries are not necessarily rich countries, and all rich countries are not necessarily developed. For example, rich countries may not be considered developed if they have a few very rich people and many very poor people, and if many people don't have healthcare and education, clean air and water, roads and electricity.
Development is a cooperative effort of many. The governments of poor countries work to improve their incomes, and, in most cases, to improve the lives of their people. The governments of most rich countries try to help poor countries to do so. Institutions like the World Bank also provide money and projects to improve the lives of poor people.
Many other charitable groups around the world work to do the same. And the poor themselves struggle daily to provide for themselves and their families.
These groups and governments established a list of goals that the whole world today is striving to reach-—the Millennium Development Goals.
Development, by its nature, will always be ongoing, even when these basic goals are met. People will always try to improve the quality of their lives and the lives of their children. At the same time, all agree that development efforts should be "sustainable." This means meeting today’s needs without creating problems for future generations
What is Sustainable Development?
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts:
The concept of needs, in particular the essential needs of the world's poor, to which overriding priority should be given; and The idea of limitations imposed by the state of technology and social organization on the environment's ability to meet present and future needs."
All definitions of sustainable development require that we see the world as a system—a system that connects space; and a system that connects time. When you think of the world as a system over space, you grow to understand that air pollution from North America affects air quality in Asia, and that pesticides sprayed in Argentina could harm fish stocks off the coast of Australia.
And when you think of the world as a system over time, you start to realize that the decisions our grandparents made about how to farm the land continue to affect agricultural practice today; and the economic policies we endorse today will have an impact on urban poverty when our children are adults.
We also understand that quality of life is a system, too. It's good to be physically healthy, but what if you are poor and don't have access to education? It's good to have a secure income, but what if the air in your part of the world is unclean? And it's good to have freedom of religious expression, but what if you can't feed your family?
The concept of sustainable development is rooted is this sort of systems thinking. It helps us understand ourselves and our world. The problems we face are complex and serious—and we can't address them in the same way we created them.
But we can address them. “Development is empowerment: it is about local people taking control of their own lives, expressing their own demands and finding their own solutions to their problems.” To bring a global development perspective to your work as a volunteer, it is vital to have some knowledge of the following topics. They form the wider context within which your experience will take place. Having some knowledge of the bigger picture will help you to understand the forces that might shape events at the local level of your placement.
Millennium Development Goals
In 2000 the UN Millennium Declaration was adopted at the largest ever meeting of heads of state. World leaders agreed a set of 8 goals, known as the Millennium Development Goals (MDGs) aimed at eradicating poverty by 2015.
Globalisation
The rapid increase in economic, social, cultural and technological exchange across borders affects us all, but has particular implications for developing countries.
International Institutions
International Institutions such as the World Bank and the World Trade Organisation are mentioned frequently in writing about development. Find out what they actually are and why you should care.
Debt and Trade.
Debt repayments and unfair trade deals are two major issues that undermine poor countries ability to develop their societies and to focus their development efforts on the needs of their people. Understanding the reason for and the impact of these issues can help to place your volunteering experience in the wider context of development and the structures that affect it
So what is vision?
DEFINING VISION: A vision as a realistic, credible, attractive future for [an] organization. Let's dissect this definition:
Realistic:A vision must be based in reality to be meaningful for an organization. For example, if you're developing a vision for a computer software company that has carved out a small niche in the market developing instructional software and has a 1.5 percent share of the computer software market, a vision to overtake Microsoft and dominate the software market is not realistic!
Credible: A vision must be believable to be relevant. To whom must a vision be credible? Most importantly, to the employees or members of the organization. If the members of the organization do not find the vision credible, it will not be meaningful or serve a useful purpose. One of the purposes of a vision is to inspire those in the organization to achieve a level of excellence, and to provide purpose and direction for the work of those employees. A vision which is not credible will accomplish neither of these ends.
Attractive: If a vision is going to inspire and motivate those in the organization, it must be attractive. People must want to be part of this future that's envisioned for the organization.
Future: A vision is not in the present, it is in the future. In this respect, the image of the leader gazing off into the distance to formulate a vision may not be a bad one. A vision is not where you are now; it's where you want to be in the future. (If you reach or attain
a vision, and it's no longer in the future, but in the present, is it still a vision?)
The right vision for an organization, one that is a realistic, credible, attractive future for that organization, can accomplish a number of things for the organization:It attracts commitment and energizes people. This is one of the primary reasons for having a vision for an organization: its motivational effect.
When people can see that the organization is committed to a vision-and that entails more than just having a vision statement-it generates enthusiasm about the course the organization intends to follow, and increases the commitment of people to work toward achieving that vision. It creates meaning in workers' lives. A vision allows people to feel like they are part of a greater whole, and hence provides meaning for their work. The right vision will mean something to everyone in the organization if they can see how what they do contributes to that vision. Consider the difference between the hotel service worker who can only say, "I make beds and clean bathrooms," to the one who can also say, "I'm part of a team committed to becoming the worldwide leader in providing quality service to our hotel guests." The work is the same, but the context and meaning of the work is different.
It establishes a standard of excellence. A vision serves a very important function in establishing a standard of excellence. In fact, a good vision is all about excellence. A vision so characterized by lack of a striving for excellence would not motivate or excite anyone about that organization. The standard of excellence also can serve as a continuing goal and stimulate quality improvement programs, as well as providing a measure of the worth of the organization.
It bridges the present and the future. The right vision takes the organization out of the present, and focuses it on the future. It's easy to get caught up in the crises of the day, and to lose sight of where you were heading. A good vision can orient you on the future, and provide positive direction.
The vision alone isn't enough to move you from the present to the future, however. That's where a strategic plan, discussed later in the chapter, comes in. A vision is the desired future state for the organization; the strategic plan is how to get from where you are now to where you want to be in the future. "Vision should describe a set of ideals and priorities, a picture of the future, a sense of what makes the company special and unique, a core set of principles that the company stands for, and a broad set of compelling criteria that will help define organizational success."A vision begins as an idea in your imagination that you have a desire to make real. The idea turns into the intention and will to achieve that idea. Refining and clarifying the idea along with the intentions to achieve it are what turn into the vision.
The vision is the articulation of the desired future that is better in some important way then what exists or what is expected (as of now) to exist in the future. A vision is a clear picture of what you hope to create "A vision is the art of seeing things invisible" "The best way to predict your future is to create it”
Why Create a Vision?
Choices and decisions we make create consequences, without the direction of a clear vision to guide us; we fail to acquire the quality-of-life results we expect. Partial visions lead to imbalance in life. Visions based on reflections by others, and not on the inner personal-self are not rewarding and empowering to the individual.A shared vision empowers and impacts quality-of-life. A well-defined vision leads to satisfaction and a sense of meaning and purpose in life.
The lack of a clear vision leads to settling for whatever happens, creating and staying true to a vision makes things happen.
"If we keep doing what we're doing, we're going to keep getting what we're getting." "When one door closes, another one opens. But we often look so regretfully upon the closed door that we don't see the one that has opened for us" "The most damaging phrase in language is: ‘It's always been done that way"
The ability to see beyond our present reality, to create, to invent what does not yet exist, to become what we not yet are. It gives us the capacity to live out of our imagination instead of our memory
Creating a Vision
Begin by Dreaming Consider who you and your child would like to participate in helping to build a vision. Brainstorm, Dream, Imagine.
Focus on things that will give your child a sense of purpose and meaning in life. Do not limit your dreams to what is, where things currently exist, or what has typically occurred in the lives of others with disabilities similar to your child's. Dreams are not based on or limited by your child's needs, their needs will be determined by the dream.
"You can't have a better tomorrow if your thinking about yesterday all the time "
"The best way to predict your future is to create it."
"A ship in harbor is safe -- but that is not what ships are for"
"You see things and ask ‘Why?'. But I dream things that never were and say ‘Why not?'."Clarifying and Refining the Vision
Creating a vision is a process of nurturing and cultivating ideas and imagination. Differentiate between the future that would become real and the future of your vision. The vision must be about changing that which is likely to occur, rather than changing that "what is".
The vision is about changing the world in a way that wouldn't have normally happened. The vision must distinguish between what must change and what must not change. It must be clear and well-defined to be a real vision
"Imagination is more important than knowledge"
"It is better to aim high and miss then to never aim at all"
"Only those who attempt the absurd ... will achieve the impossible"
"I always wanted to be somebody, but I see now I should have been more specific."
Share the vision and help others recognize their importance in the realization of the vision. Lock onto the vision, make it a way of life, a part of every decision.Make each day a step toward making the vision a dream come true.
Become aware of and utilize the natural forces that move toward achievement of the vision.
Become aware of and avoid, reduce, or neutralize those things that lead away from the vision.
Anticipate resistance in the accomplishment of the vision.
Envision the implications of successfully achieving the vision.
"Vision without action is a daydream. Action without vision is a nightmare"
"Action may not always bring happiness: but there is no happiness without action"
"Our goals can only be reached through a vehicle of plan in which we must frequently believe, and upon which we must vigorously act. There is no other road to success."
"Obstacles are those frightful things you see when you take your eyes off your goals."
Living the Vision
"Most people who feel empowered by their mission statement find that there seems to be some point at which their statement "lives".
They own it. It's theirs. The vital connection is made between the mission and the moment in life. Then, with nurturing and continuing cultivation, the mission becomes the primary factor that influences every moment of choice. "
An additional framework for examining vision is put forward as having two major components: a Guiding Philosophy, and a Tangible Image
Guiding Philosophy
is defined as "a system of fundamental motivating assumptions, principles, values and tenets." The guiding philosophy stems from the organization's core beliefs and values and its purpose.
CORE BELIEFS AND VALUES
Just as they underlie organizational culture, beliefs and values are a critical part of guiding philosophy and therefore vision. One CEO expressed the importance of core values and beliefs this way:I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs. And, finally, I believe [the organization] must be willing to change everything about itself except those beliefs as it moves through corporate life
Core values and beliefs can relate to different constituents such as customers, employees, and shareholders, to the organization's goals, to ethical conduct, or to the organization's management and leadership philosophy. The three Shared Values: Respect for the Employees, Responsiveness to the Customers, and Results for the Shareholders, skillfully linking their core values to their key constituencies and also saying something about what is important to the organization. The key, however, is whether these are not only stated but also operating values.Examples of core values and beliefs from a survey of industry conducted, and the following examples, among others:
About People: "See the good in people, and try to develop those qualities." About Customers: "Sell good merchandise at a reasonable price; treat your customers like you would your friends, and the business will take care of itself."
About Products: "We should always be the pioneers with our products--out front leading the market. We believe in leading the public with new products rather than asking them what kind of products they want."
About Management and Business: "Everything will turn out alright if we just keep in motion, forever moving forward."
PROPERTIES OF A GOOD VISION
A good vision is a mental model of a future state. It involves thinking about the future, and modeling possible future states. A vision doesn't exist in the present, and it may or may not be reached in the future.
"A vision portrays a fictitious world that cannot be observed or verified in advance and that, in fact, may never become reality" (emphasis added). However, if it is a good mental model, it shows the way to identify goals and how to plan to achieve them.
A good vision is idealistic. How can a vision be realistic and idealistic at the same time? One way of reconciling these apparently contradictory properties of a vision is that the vision is realistic enough so that people believe it is achievable, but idealistic enough so that it cannot be achieved without stretching. If it is too easily achievable, it will not set a standard of excellence, nor will it motivate people to want to work toward it. On the other hand, if it is too idealistic, it may be perceived as beyond the reach of those in the organization, and discourage motivation. A realistic vision for that software company might be to maintain their current market share and produce instructional software that meets quality standards. Realistic, yes; but inspiring? No. A realistic yet also idealistic vision might be: To become the industry leader in the development of state-of-the-art instructional software products, known for the quality and the innovativeness of their design.
A good vision is appropriate for the organization and for the times. A vision must be consistent with the organization's values and culture, and its place in its environment. It must also be realistic. For example, in a time of downsizing and consolidation in an industry, a very ambitious, expansionistic vision would not be appropriate. An organization with a history of being conservative, and a culture encouraging conformity rather than risk taking, would not find an innovative vision appropriate. The computer software company mentioned above, with a history of producing high quality instructional software, would not find a vision to become the industry leader in video games or virtual reality software an appropriate one.
A good vision sets standards of excellence and reflects high ideals. Generally, the vision proposed above for the software company does reflect measurable standards of excellence and a high level of aspiration. The actual measure could be the external reputation of the company, as assessed by having users evaluate the company and its products.
A good vision clarifies purpose and direction. In defining that "realistic, credible, attractive future for an organization," a vision provides the rationale for both the mission and the goals the organization should pursue. This creates meaning in workers' lives by clarifying purpose, and making clear what the organization wants to achieve. For people in the organization, a good vision should answer the question, "Why do I go to work?" With a good vision, the answer to that question should not only be, "To earn a paycheck," but also, "To help build that attractive future for the organization and achieve a higher standard of excellence."
A good vision inspires enthusiasm and encourages commitment. An inspiring vision can help people in an organization get excited about what they're doing, and increase their commitment to the organization. The computer industry is an excellent example of one characterized by organizations with good visions. A recent article reported that it is not unusual for people to work 80 hour weeks, and for people to be at work at any hour of the day or night. Some firms had to find ways to make employees go home, not ways to make them come to work! What accounts for this incredible work ethic? It is having a sense of working organizations that are building the future in a rapidly evolving and unconstrained field, where an individual's work makes a difference, and where everyone shares a vision for the future.
A good vision is well articulated and easily understood. In order to motivate individuals, and clearly point toward the future, a vision must be articulated so people understand it. Most often, this will be in the form of a vision statement. There are dangers in being too terse, or too long-winded. A vision must be more than a slogan or a "bumper sticker." Slogans such as Ford Motor Company's "Quality Is Job One" are good marketing tools, but the slogan doesn't capture all the essential elements of a vision. On the other hand, a long document that expounds an organization's philosophy and lays out its strategic plan is too complex to be a vision statement. The key is to strike a balance.,
A good vision reflects the uniqueness of the organization, its distinctive competence, what it stands for, and what it is able to achieve. This is where the leaders of an organization need to ask themselves, "What is the one thing we do better than anyone else? What is it that sets us apart from others in our area of business?" A good example of a visioning process refocusing a company on its core competencies is Sears. A few years ago, Sears had expanded into areas far a field from its original business as a retailer. Among other things, Sears began offering financial services at their stores. Poor performance led Sears to realize that they could not compete with financial services companies whose core business was in that area, so they dropped that service and eliminated other aspects of their business not related to retailing. Interestingly, Sears' primary competitor is Wal-Mart, an organization with a very clear and compelling vision. Sam Walton found a niche in providing one stop shopping for people in rural areas, and overwhelmed "Mom and Pop" stores with volume buying and discounting. Wal-Mart is very clear about their vision, and has focused on specific areas where they can be the industry leader. The key is finding what it is that your organization does best. Focus your vision there.
A good vision is ambitious. It must not be commonplace. It must be truly extraordinary. This property gets back to the idea of a vision that causes people and the organization to stretch. A good vision pushes the organization to a higher standard of excellence, challenging its members to try and achieve a level of performance they haven't achieved before. Inspiring, motivating, compelling visions are not about maintaining the status quo.
DEVELOPING A VISION
At this point you should know what a good vision consists of, and recognize a vision statement when you see one. But how does a strategic leader go about developing a vision for an organization? A few words of advice to someone formulating a vision for an organization: Learn everything you can about the organization.
There is no substitute for a thorough understanding of the organization as a foundation for your vision. Bring the organization's major constituencies into the visioning process. This is one of imperatives: don't try to do it alone.
If you're going to get others to buy into your vision, if it's going to be a wholly shared vision, involvement of at least the key people in the organization is essential. "Constituencies," refer to people both inside and outside the organization who can have a major impact on the organization, or who can be impacted by it. Another term to refer to constituencies is "stakeholders"- those who have a stake in the organization. Keep an open mind as you explore the options for a new vision. Don't be constrained in your thinking by the organization's current direction - it may be right, but it may not.
Encourage input from your colleagues and subordinates. Another injunction about not trying to do it alone: those down in the organization often know it best and have a wealth of untapped ideas. Talk with them!
Understand and appreciate the existing vision. Provide continuity if possible, and don't throw out good ideas because you didn't originate them. The seven-step process for formulating a vision:
1. Understand the organization. To formulate a vision for an organization, you first must understand it. Essential questions to be answered include what its mission and purpose are, what value it provides to society, what the character of the industry is, what institutional framework the organization operates in, what the organization's position is within that framework, what it takes for the organization to succeed, who the critical stakeholders are, both inside and outside the organization, and what their interests and expectations are.
2. Conduct a vision audit. This step involves assessing the current direction and momentum of the organization. Key questions to be answered include: Does the organization have a clearly stated vision? What is the organization's current direction? Do the key leaders of the organization know where the organization is headed and agree on the direction? Do the organization's structures, processes, personnel, incentives, and information systems support the current direction?
3. Target the vision. This step involves starting to narrow in on a vision. Key questions: What are the boundaries or constraints to the vision? What must the vision accomplish? What critical issues must be addressed in the vision?
4. Set the vision context. This is where you look to the future, and where the process of formulating a vision gets difficult. Your vision is a desirable future for the organization. To craft that vision you first must think about what the organization's future environment might look like. This doesn't mean you need to predict the future, only to make some informed estimates about what future environments might look like. First, categorize future developments in the environment which might affect your vision. Second, list your expectations for the future in each category. Third, determine which of these expectations is most likely to occur. And fourth, assign a probability of occurrence to each expectation.
5. Develop future scenarios. This step follows directly from the fourth step. Having determined, as best you can, those expectations most likely to occur, and those with the most impact on your vision, combine those expectations into a few brief scenarios to include the range of possible futures you anticipate. The scenarios should represent, in the aggregate, the alternative "futures" the organization is likely to operate within.
6. Generate alternative visions. Just as there are several alternative futures for the environment, there are several directions the organization might take in the future. The purpose of this step is to generate visions reflecting those different directions. Do not evaluate your possible visions at this point, but use a relatively unconstrained approach.
7. Choose the final vision. Here's the decision point where you select the best possible vision for your organization. To do this, first look at the properties of a good vision, and what it takes for a vision to succeed, including consistency with the organization's culture and values. Next, compare the visions you've generated with the alternative scenarios, and determine which of the possible visions will apply to the broadest range of scenarios.
The final vision should be the one which best meets the criteria of a good vision, is compatible with the organization's culture and values, and applies to a broad range of alternative scenarios (possible futures).IMPLEMENTING THE VISION
Now that you have a vision statement for your organization, are you done? Formulating the vision is only the first step; implementing the vision is much harder, but must follow if the vision is going to have any effect on the organization. The three critical tasks of the strategic leader are formulating the vision, communicating it, and implementing it. Some organizations think that developing the vision is all that is necessary.
If they have not planned for implementing that vision, development of the vision has been wasted effort. Even worse, a stated vision which is not implemented may have adverse effects within the organization because it initially creates expectations that lead to cynicism when those expectations are not met.
Before implementing the vision, the leader needs to communicate the vision to all the organization's stakeholders, particularly those inside the organization. The vision needs to be well articulated so that it can be easily understood. And, if the vision is to inspire enthusiasm and encourage commitment, it must be communicated to all the members of the organization. How do you communicate a vision to a large and diverse organization? The key is to communicate the vision through multiple means.Some techniques used by organizations to communicate the vision include disseminating the vision in written form; preparing audiovisual shows outlining and explaining the vision; and presenting an explanation of the vision in speeches, interviews or press releases by the organization's leaders. An organization's leaders also may publicly "sign up" for the vision. You've got to "walk your talk." For the vision to have credibility, leaders must not only say they believe in the vision; they must demonstrate that they do through their decisions and their actions.
Once you've communicated your vision, how do you go about implementing it? This is where strategic planning comes in. To describe the relationship between strategic visioning and strategic planning in very simple terms, visioning can be considered as establishing where you want the organization to be in the future; strategic planning determines how to get there from where you are now. Strategic planning links the present to the future, and shows how you intend to move toward your vision. One process of strategic planning is to first develop goals to help you achieve your vision, then develop actions that will enable the organization to reach these goals.CONCLUSION
An organization must and can develop a strategic plan that includes specific and measurable goals to implement a vision. A comprehensive plan will recognize where the organization is today, and cover all the areas where action is needed to move toward the vision. In addition to being specific and measurable, actions should clearly state who is responsible for their completion. Actions should have milestones tied to them so progress toward the goals can be measured.
Implementing the vision does not stop with the formulation of a strategic plan - the organization that stops at this point is not much better off than one that stops when the vision is formulated.
Real implementation of a vision is in the execution of the strategic plan throughout the organization, in the continual monitoring of progress toward the vision, and in the continual revision of the strategic plan as changes in the organization or its environment necessitate. The bottom line is that visioning is not a discrete event, but rather an ongoing process.
PURPOSE
The second part of guiding philosophy is purpose-why the organization exists, what needs it fills. A good purpose statement should be "broad, fundamental, inspirational, and enduring." Consider this purpose statement: "The purpose of the United States Naval Academy at Annapolis, MD, is to prepare midshipmen to become professional officers in the naval service." Or this purpose statement from Apple Computer: "To make a contribution to the world by making tools for the mind that advance humankind." How do these statements of purpose stack up?
Whether individual, team, organization or nation, a sense of purpose and direction is essential to commitment. A shared sense of purpose is the glue that binds people together in common cause, often linking each individual's goals with the organization's goals. Properly formulated, a shared sense of purpose provides understanding of the need for coordinated collective effort -- for subordinating individual interest to the larger objective that can be achieved only by the collective effort. When it is long range in nature, it is the basis for detailed planning for the allocation of resources. When it is noble and inspiring, it gives dignity and respect to those participating in the effort. And, when it promises a better future, it gives hope to all who seek it.
The second major component of vision is tangible image. This is composed of a mission and a vivid description. Mission is "a clear and compelling goal that serves to unify an organization's effort. An effective mission must stretch and challenge the organization, yet be achievable" There are four ways of approaching developing a mission statement: targeting, common enemy, role model, and transformation. Targeting means developing your mission statement around a clear, definable goal. The common enemy approach is to focus the mission on overtaking or dominating a rival. Role model missions take an exemplar in another industry, and benchmark off that exemplar. For example, a mission "To be the Microsoft of retail sales companies" employs the role modeling technique. Finally, the internal transformation approach mission tends to focus on the internal remaking, restructuring, or rebirth of an organization.
This may be a good point to address the confusion over the use of the terms purpose, mission and vision. Purpose and mission are components of vision. The difference between mission and vision: "A vision is not a mission. To state that an organization has a mission is to state its purpose, not its direction." Further complicating the semantics, different organizations may have mission statements, vision statements, purpose statements, or all three. Vision is a widely used term, but not well understood. Perhaps leaders don't understand what vision is, or why it is important
How to Write Your Mission Statement:
What Is a Mission Statement? Every nonprofit organization must have a mission statement. It describes the purpose for which your organization exists.
Without a clear mission statement, you may drift off course. With one, you can measure every activity against it. It will keep you clear-headed and out of trouble. A great mission statement is also a great branding tool. Use it to promote your organization and to help convey the essence of what you are all about.
Essentially, your mission is your goal--your reason for being. Try answering the question, "Why did I start this organization?" The answer will be your first try at writing your mission statement.
To carry out your mission, you will develop tactics and objectives. All of these will be part of your strategic plan. But first, pay attention to writing a clear, succinct, and inspiring mission statement. It will pay off in the end and keep you from wasting time and resources on nonessential activities. The Benefits of a Well-Defined Mission Statement
It focuses your energy and clarifies your purpose. When you try to write your mission statement, you will find that you have to really define what you are going to do. Many questions will come up that must be resolved. For instance, who will you serve? And, who will you not? Are you concerned about just your local area? Or the whole state? Be careful to keep your mission narrowly focused to ensure that you don't bite off more than you can chew.
A well-defined mission statement can and should motivate board, staff, volunteers, and donors. It also helps attract people and resources. A mission statement is not just for internal use or to submit to the IRS for tax-exempt status. It is a beacon that will attract people and resources to your cause. And, they will be the right people and resources. Make your mission statement compelling as well as clear. It will be your best public relations tool.
A good mission can help you get status. If you plan to apply for tax-exempt status or some other, the IRS will be looking at your mission statement to see if your organization matches its requirements for that type of entity. Know what you are applying for and draft your mission to match the requirements.
Some Tips for Writing Your Mission Statement:
Bring in many perspectives. Get lots of input from the community you plan to serve, as well as from your board, staff, and volunteers. This will help you develop a broad base of support.
You can get this input through meetings, surveys, or phone calls. Ask people what they think or need in regard to the area of services you plan to offer.
Allow enough time. Time spent now will pay off later. So, don't rush the process. Provide time to reflect on the information you gather, to write an initial draft, to allow key participants to read it, and to make changes.
Be open to new ideas. This is especially important for the founders of the organization. You may have had tunnel vision while getting your organization set up, but now it is time to get some fresh perspective. Be open to different interpretations of what you should be doing and new ideas about how to accomplish your goals. Use brainstorming techniques to ensure that all ideas come forward freely. You can winnow them down later.
Write short and only what you need. The best mission statements are short and state the obvious. Your statement's length and complexity depends on what your organization wants to do, but keep it as brief as possible.,
You should be able to use the statement frequently, so make it brief and succinct. The mission statement should be "...short enough to remember and easily communicate. Strong enough to inspire."
Review your mission statement frequently. “The environment changes and the organization changes, so a periodic review is important to ensure that there is alignment of purpose and reality." Examples of Real Mission Statements
Summing up your business's mission helps you focus on the steps you need to take to succeed. Here's how to create a mission statement that's uniquely yours.
A mission statement is a key tool that can be as important as your business plan. It captures, in a few succinct sentences, the essence of your business's goals and the philosophies underlying them. Equally important, the mission statement signals what your business is all about to your customers, employees, suppliers and the community.
The mission statement reflects every facet of your business: the range and nature of the products you offer, pricing, quality, service, marketplace position, growth potential, use of technology, and your relationships with your customers, employees, suppliers, competitors and the community."Mission statement help clarify what business you are in, your goals and your objectives”. Your mission statement should reflect your business' special niche. However, studying other companies' statements can fuel your creativity. One sample mission statement Abrams developed:
"AAA Inc. is a spunky, imaginative food products and service company aimed at offering high-quality, moderately priced, occasionally unusual foods using only natural ingredients. We view ourselves as partners with our customers, our employees, our community and our environment. We aim to become a regionally recognized brand name, capitalizing on the sustained interest in Southwestern and Mexican food. Our goal is moderate growth, annual profitability and maintaining our sense of humor."
Or consider the statement one entrepreneur developed for her consulting business: "ABC Enterprises is a company devoted to developing human potential. Our mission is to help people create innovative solutions and make informed choices to improve their lives. We motivate and encourage others to achieve their own personal and professional fulfillment. Our motto is: Together, we believe that the best in each of us enriches all of us."
encompasses the major elements of your business, start with the right questions. Business plan consultant David Tucker says the most important question is, What business are you in? Since you have already gone through the steps of creating your niche, answering this question should be easy for you. Answering the following questions will help you to create a verbal picture of your business's mission:
Why are you in business? What do you want for yourself, your family and your customers? Think about the spark that ignited your decision to start a business. What will keep it burning?
Who are your customers? What can you do for them that will enrich their lives and contribute to their success--now and in the future?
What image of your business do you want to convey? Customers, suppliers, employees and the public will all have perceptions of your company. How will you create the desired picture?
What is the nature of your products and services? What factors determine pricing and quality? Consider how these relate to the reasons for your business's existence. How will all this change over time?
What level of service do you provide? Most companies believe they offer "the best service available," but do your customers agree? Don't be vague; define what makes your service so extraordinary.
What roles do you and your employees play? Wise captains develop a leadership style that organizes challenges and recognizes employees.
What kind of relationships will you maintain with suppliers? Every business is in partnership with its suppliers. When you succeed, so do they.
How do you differ from your competitors? Many entrepreneurs forget they are pursuing the same dollars as their competitors. What do you do better, cheaper or faster than other competitors? How can you use competitors' weaknesses to your advantage?
How will you use technology, capital, processes, products and services to reach your goals? A description of your strategy will keep your energies focused on your goals. What underlying philosophies or values guided your responses to the previous questions? Some businesses choose to list these separately. Writing them down clarifies the "why" behind your mission.
Putting It All Together Like anything with lasting value, crafting a mission statement requires time, thought and planning. However, the effort is well worth it. In fact, most start-up entrepreneurs discover that the process of crafting the mission statement is as beneficial as the final statement itself. Going through the process will help you solidify the reason for what you are doing and clarify the motivations behind your business.
Here are some tips to make your mission statement the best it can be: Involve those connected to your business. Even if you are a sole proprietor, it helps to get at least one other person's ideas for your mission statement.
Other people can help you see strengths, weaknesses and voids you might miss. if you have no partners or investors to include, consider knowledgeable family members and close friends, employees or accountants. Be sure, however, to pick only positive, supportive people who truly want to see you succeed.
Set aside several hours--a full day, if possible--to work on your statement. Mission statements are short--typically more than one sentence but rarely exceeding a page. Still, writing one is not a short process. It takes time to come up with language that simultaneously describes an organization's heart and soul and serves as an inspirational beacon to everyone involved in the business.
Plan a date. Set aside time to meet with the people who'll be helping you. Write a list of topics to discuss or think about. Find a quiet, comfortable place away from phones and interruptions.
Be prepared. If you have several people involved, be equipped with refreshments, extra lists of topics, paper and pencils. Because not everyone understand what a mission statement is about, explain its meaning and purpose before you begin.
Brainstorm. Consider every idea, no matter how silly it sounds. Stimulate ideas by looking at sample mission statements and thinking about or discussing the questions in the previous section. If you're working with a group, use a flip chart to record responses so everyone can see them. Once you've finished brainstorming, ask everyone to write individual mission statements for your business. Read the statement, select the best bits and pieces, and fit them together.
Use "radiant words." Once you have the basic idea in writing, polish the language of your mission statement. "Every word counts," says Abrams. The statement should create dynamic, visual images and inspire action. Use offbeat, colorful verbs and adjectives to spice up your statements. Don't hesitate to drop in words like "kaleidoscope," "sizzle," "cheer," "outrageous" and "marvel" to add zest. If you want customers to boast about your goods and services, say so--along with the reasons why. Some businesses include a glossary that defines the terms used in the statement.
Once your mission statement is complete, start spreading the word! You need to convey your mission statement to others inside and outside the business to tell everyone you know where you are going and why. Post it in your office, where you, employees and visitors can see it every day. Print it on company materials, such as brochures and your business plan or even on the back of your business cards
Here are four mission statements. Two are from real organizations. Two were created by Dilbert's Automatic Mission Statement Generator. Can you guess which ones are genuine?
1. It is our job to continually foster world-class infrastructures as well as to quickly create principle-centered sources to meet our customer's needs.
2. Our challenge is to assertively network economically sound methods of empowerment so that we may continually negotiate performance-based infrastructures
. 3. To improve lives by mobilizing the caring power of communities.
4. Respect, integrity, communication, and excellence.
Mission statements are like corporate Hallmark cards. Often written in a bland cursive font and plastered conspicuously at headquarters, these aspiring epigrams are pretty words in Air Supply -- like rhythm. Sometimes they're created at a retreat in the woods, between the trust fall and the passing of the speaking stick. Vigorous fights over semantics last for hours, even months. Then you end up with some variation of the jargony quasi-poetry above.
Mission statements don't have to be dumb. In fact, they can be very valuable, if they articulate real targets. The first thing I'd do is forget the exact words and remember the reason for a statement in the first place. In 2006, Wilson Learning surveyed 25,000 employees from the finance and tech industries. Respondents said they wanted a leader who could "convey clearly what the work unit is trying to do." The same applies to mission statements, which set the tone. Employees, vendors, and clients don't get stoked by fuzzy mission statements. They will line up behind concrete goals.
The phrase "big hairy audacious goal" (or BHAG); a BHAG is "clear and compelling and serves as a unifying focal point of effort, often creating immense team spirit. It has a clear finish line, so the organization can know when it has achieved the goal.... A BHAG should not be a sure bet ... but the organization must believe 'we can do it anyway.' "
Microsoft came up with probably the most well-known BHAG, "A computer on every desk and in every home, all running Microsoft software." Amazon has a great one for its Kindle, too: "Every book ever printed, in any language, all available in less than 60 seconds." Both statements do something crucial: They quantify the goal.
Microsoft doesn't just want to sell software -- it wants its software on every computer, in every home. Amazon doesn't just want you to buy a book; it wants to help you do so in less than one minute. Most companies aren't so successful at laying out their goals (or, obviously, at execution).
And in my experience, not-for-profits are especially awful at creating BHAGs with clear targets, preferring warm, fuzzy words that have all the gloss of inspiration and none of the soul and drive of the real thing
Here is my challenge: Write a mission statement with a goal that's an action, not a sentiment; that is quantifiable, not nebulous. If you're trying to sell a product, how and how many? If you're trying to change lives, how and whose? Take your wonky mission statement and rip it to shreds. Then ponder your ambitions, and write and rewrite the thing until it reflects -- in real, printable words and figures -- the difference that you want to make.
Brilliant! Whatever your mission statement says you must have the courage and capability to bring it to life in every single action of every day. More so the CEO and exec team who are role models. The Enron example is typical of an exec team that knows it's important to say these things, because we want to believe it, and yet ignores the translation from words into behavioral examples.
Awesome! A mission statement is a mantra for a business. Maybe the reason so many mission statements are dumb is because the idea that every company needs one is dumb.
There are some organizations, certainly yours, that are clearly on a mission. For them mission statements are a natural fit.
Some companies that are fueled by vision, they are attracted to vision statements. Others are driven by their values, so doing their corporate values makes perfect sense. The purely competitive firms love to focus their day around their positioning statement. Others are focused on combining their customer need and their passion. Perfect candidates for a brand promise statement.
But does a company need all of the above? I don't think so. Do they confuse all of the above, thereby diluting concepts and confusing their stakeholders and audience? I think so.
What about you?
Not to sound cynical, but does anybody actually care about mission statements anymore? Do customers? Do employees? I'd be curious to see a poll of employees and customers asking them this question about a particular company
Finally some honesty about mission statements. Most mission statements are vision statements in disguise. By keeping it simple, helps with the execution and that is one of the top problems facing management.
From my perspective and what I share with clients is there are up to 3 goals and it is for 12 to 18 months.
1 - Goal is sales, revenue or profits. Without dollars no one will be in business.2 - Quality standards from local county health standards to ISO or Baldrige specific to maintaining business viability
3 - Continuing education or professional development units such as those required for doctors, lawyers, realtors, financial advisors, etc.
Without those CEU's or PDU's, the business owner may lose licenses and hence cannot secure revenue.
However a mission statement without a vision statement and even more importantly a values statement will still lead to unaligned behaviors creating a working harder not smarter culture. All of this evolves from strategy which then leads to the structure, the processes, the rewards and the people.
If there is confusion about the mission statement, I suggest returning to the dictionary and look up the meaning of this word or replay an old television episode of Mission Impossible. I agree with you both that the ultimate test for any of the above is the degree to which they have real utility to folks at all levels of the organization, especially in regards to providing clarity, focus and direction. Implicit, of course, is that the folks who draft the M.G.V.V.P. statements "say what they mean and mean what they say." In my experience, this is often a big issue... which brings us back to getting to genuine clarity, focus and direction.
I also agree that a good mission or goal statement clarifies exactly what you really want to accomplish: "My stories, poems and songs read and/or heard by tens of thousands around the world." It helps keep you focused. Is this strategy, approach etc. bringing me closer to achieving that mission/goal or not?
Values statements, however, serve a somewhat different purpose in that their utility is most evident when an organization faces a tough/moral decision, as for example, if in order to get our software on every computer or every desktop, are we willing to act contrary to existing restraint of trade laws? The mission or goal statement tells you where you want to go; the values statement clarifies how you'll treat people as you make the journey (e.g. Do no evil). Brand positioning and positioning statements in general are generally more targeted— designed for communicating with other organizations, groups or individuals in ways that will serve to make them more receptive to what your products or services are about and the benefits they potentially offer them.
My firm believes Mission Statements were a well intended idea, designed to motivate, that in most cases should never have been done. Businesses are not started for a mission. One or more people get together and create a Concept they believe has market value. Success and clear decision making usually follow if the Concept works, and the business is constantly reminded of the reason for its existence.
We apply the Creative Process in Business to extract the clear and precise Concept behind the Business. Once the Concept is identified, it serves as the Highway for future decision making at all levels within a company and it engages and resonates with perspective customers. Truth be known, the Mission of every company or non-profit is to attract revenue for performing a service or manufacturing a product. It is the Concept behind the service or product that differentiates.
One of my personal favorites is the mission statement of Friends Committee on National Legislation (FCNL), the Quaker peace lobby: We seek a world free of war and the threat of war. We seek a society with equity and justice for all. We seek a community where every person's potential may be fulfilled. We seek an earth restored.
The power of a mission statement is when you make it real and bring it to life everyday. It has to have action and more than just on a coffee mug. For example, the mission statement you quote above sounds nice, but what does it actually tell us about how the organization is going to take action. How is it going to make a world free of war? How is it going to create a society with equity and justice, etc. Shouldn't it be more like:
"To have all the world's leaders sign a peace agreement in the next 10 years" "To lobby for legislation to be passed in this administration that ensures equal rights for all" etc.
For every company, mission statement is very important. It's actually something that companies must strictly follow. Proper dissemination that may result to out of focus is the most common problem of some companies. Let all the employees know the company's mission statement and follow it religiously. Otherwise, the possibility of failure will increase. To put up a mission statement isn't easy you know but once you do that its ideal to work towards that so that people would see you as responsible and serious to attract subsequent dealings with that person
The Mission Statement is only as meaningful as the culture developed and lived by management. Some of the worst dictatorships in the world have beautiful constitutions. Mission Statements are only words. The culture must be ethics based on sincere principle or the Mission Statement, no matter how simply stated becomes mere words.
I think the quest for numbers can easily become a distraction, so the quantifiable goal is the thing I take issue with. Sometimes, what you want to achieve will be quantifiable and of course, then you might as well put it into the statement. But often it will not be.
So, what is the alternative if you want to achieve a similar level of concreteness and reality? Every mission statement, objective or goal should be subject to a simple test.
Is its opposite meaningful? Can we imagine that another company or organization would want that as its mission? Statements like "with integrity" end up being excluded because we cannot reasonable assert that another company would wish to undertake the same task without integrity.
A statement like "to place a computer on every desk" remains meaningful and specifies that we intend to function in the office environment. We can imagine another company wishing to put "a computer on every lab bench." I am less sure about "all running our software." To me that sounds like a fantasy, not a mission. It imagines a world without free entry into markets, a justice department, or much respect for our customers. But then perhaps those are essential parts of being hairy and/or audacious. One of the first things about mission is "It should fit on a t-shirt." Clear, inspiring, compelling. I couldn't agree more.
Most mission statements are marketing statements (& rather bad ones, at that), not mission statements.
That said, here are a few GOOD ones that I've encountered: The Ritz Carlton hotels: "Ladies and gentlemen serving ladies and gentlemen" Cirque du Soleil: "Invoke the Imagination; Provoke the senses; Evoke the Emotions" GSD&M advertising agency: "Visionary Ideas That Make a Difference".
These are truly mission statements - each speaks volumes; each is immediately understandable & communicates the essence of both the business & the expectations; each can be easily & fully internalized.
Mission statements should really be the essence of the why and what behind the who. With most mission statements the creator takes some hackneyed buzz words and comes up with a creative sentence. Rarely can you extrapolate the essence of a company from its mission statement.
This is an unfortunate error that many leaders are guilty of. Maybe the reason so many mission statements are dumb is because the idea that every company needs one is dumb.
There are some organizations, certainly yours, that are clearly on a mission. For them mission statements are a natural fit.
Step 1 Include everybody whose perception of your company matters. Collect as many ideas as you can.
Step 2 Define your company. Think carefully about what role it plays in the industry and community.
Step 3 State the things to which you're dedicated. Are you dedicated to quality, your customers, your success?
Step 4 Assess the value of your product. Use written questionnaires to poll your customers, suppliers, strategic partners and other external parties about the benefits of and ideals behind your product.
Step 5 Set up a small committee to go through the ideas you have collected and incorporate them into your company's mission statement.
Step 6 Give the mission statement high visibility; post it in the lobby and halls. People will see it every day and be reminded of what their work means. Your mission statement is an opportunity to define your business at the most basic level. It should tell your company story and ideals in less than 30 seconds: who your company is, what you do, what you stand for, and why you do it.
Do you want to make a profit, or is it enough to just make a living? What markets are you serving, and what benefits do you offer them? Do you solve a problem for your customers? What kind of internal work environment do you want for your employees? All of these issues may be addressed in a mission statement.
Your mission statement is about you, your company, and your ideals. Read other companies’ mission statements, but write a statement that is about you and not some other company. Make sure you actually believe in what you’re writing; your customers and your employees will soon spot a lie.Don’t “box” yourself in. Your mission statement should be able to withstand the changes that come up over time in your product or service offerings, or customer base. A cardboard box company isn’t in the business of making cardboard boxes; it’s in the business of providing protection for items that need to be stored or shipped. The broader understanding helps them see the big picture.
Keep it short. The best mission statements tend to be three to four sentences long. Ask for input. Run your mission statement draft by your employees. Is it clear and easily understood?
PREPARING A MISSION STATEMENT IS CHALLENGING WORK
Simply speaking, preparing a mission statement starts the process of turning the dreams and potential of an organization into reality.The first step in preparing a mission statement for a family business is to do some serious brainstorming - and to be able to differentiate between the organizational goals and objectives that are more aligned with the business those that are aligned with the mission of the family.
"We recommend that two mission statements be created - one for the business and one for the family". "There is a phenomenon we call the ‘Dualism Dynamic” that family businesses need to understand. If you are going to create a mission statement for the business, FIRST you should create a mission statement for the family.If you are going to create a business plan for the business, FIRST you should create a business plan for the family. If you are going to develop a succession plan for the business, FIRST you should develop a succession plan for the family. In other words, the planning process for the family should be driving the planning process for the business."
A great gauge for making the determination between vision and mission statements is dividing those organizational goals and objectives between the attainable (mission statement) versus those that are not yet attainable (vision statement).
When preparing a mission statement for your family business, consider the difference between "External Functions" and "Internal Functions." External functions have to do with driving sales, marketing, web site strategies and business development functions. Internal functions are associated with functions such as organizational development, team building, company values and company ethics.
An effective mission statement seamlessly connects the external and internal functions. One of the most overlooked elements in preparing mission statements is: R E S E A R C H! Research high-profile, successful organizations and consider how well their mission statement matches the public perception of their organization.
Research the mission statements of your competitors and your vendors. Research organizations that cater to the same customer demographics of your business. For example, if your customers are "high net-worth" individuals, check out organizations that provide luxury products and services to "high net-worth" individuals.
Economy of words is critical. Not necessarily short, but each word should be powerful and meaningful, clear and concise. Make it obvious what your business is attempting to do. It shouldn't need explaining.
If you have a family business, capture the spirit and uniqueness of your business. Address family and business values that make your business different from the cold and impersonal "Big Box" store.
One huge benefit of preparing a mission statement is that it opens up the communication process inside of an organization. Effective mission statements are based on getting input and commitment from as many people in your organization as you can. Remember, preparing a mission statement is not an autocratic version of Moses and the Tablets - your people must feel and understand the mission - before they can make the personal commitments to the spirit of their mission statement.
A good mission statement is compelling, exciting, and passionate - but it must come across as real and meaningful. Don't use four syllable words if yours is not a four-syllable organization! If you are going beyond a page, you may be including detailed objectives and tactics. Stick to broad goals and objectives when preparing a mission statement Remember that your mission statement will likely change over time as your organization and its environment change, so you don't have to spend forever trying to cover all eventualities in today's statement.
A family should strongly consider developing its own mission statement separate from preparing a mission statement for the family's business. Often there are many more emotional issues surrounding the family and its dreams and aspirations.
These do not necessarily belong in the business mission statement so capturing them separately might be more effective. In family businesses there is a "dualism dynamic" that should be addressed. If you are going to prepare a mission statement for the business, FIRST prepare a mission statement for the family. The order in which you prepare a mission statement is important for family businesses - if you want the family values to drive the values of the business. Some organizations find it helpful to create mission statements for the various departments within their organization - and then linking the departmental mission statements to the corporate mission statement.
Family business should remember the extended family when they prepare a mission statement, including your non-family business employees and managers, your customers, suppliers, community, lenders and family members who may not be involved in the family-owned business.
When preparing a mission statement for a family business you should reflect the tone of your family business; shows the path your family business will follow and acts as a guiding principle by which your family business functions.
To sum up - to successfully prepare a mission statement, make it realistic (even if your organizations may have to grow to meet the spirit if the mission statement), achievable, and be careful not to be too idealistic. If you are really bold, prepare a mission statement where you can include objectives that are measurable and quantifiable
What is a Vision Statement?
The creation of a vision statement can be a great asset to just about any type of organization. Essentially, a vision statement takes into account the current status of the organization, and serves to point the direction of where the organization wishes to go. As a means of setting a central goal that the organization will aspire to reach, the vision statement helps to provide a focus for the mission of the corporation, business, or non-profit entity. Here is some information about the construction of a vision statement.
While vision statements and mission statements are very similar in nature, there is a fine point of difference between the two documents. A mission statement is more concerned with the overall aim of the business, a simple statement of the company’s reason for being. Often the statement will include verbiage that makes a pledge to deliver a superior product or service to customers on a consistent basis. From this perspective, a mission statement is about maintaining a certain quality or attribute. The vision statement, by contrast, is not about what the company currently is, but what the company hopes to become. As an example, a vision statement may acknowledge that the company already meets industry standards in customer support, while at the same time setting goals for moving customer care to a higher level within a given time period.
The vision statement is a form of values statement. Value statements are simply an acknowledgment of the inherent worth of the company and the products it produces. Value statements are usually brief and to the point. In like manner, a vision statement also is intended to be no more than a couple of sentences that clearly outline a specific goal of the company, while not providing the details of how that goal will be reached. Thus, the vision statement provides the direction for the company, while not inhibiting the development of the strategy that will allow the company to reach that lofty goal.
Many different types of organizations operate with a vision statement. Along with businesses, many faith based organizations, including religious denominations and individual congregations find the drafting of a vision statement to be helpful. Not for profit organizations have also found that a vision statement is a way of keeping everyone focused on an ultimate goal, even if there may have to be some changes in operation. As a means of reaching toward the future, a properly drafted vision statement can provide motivation and inspiration, without stifling creativity in finding the way to the ultimate aim of the statement.
Vision Statement Creation Once you’ve created your mission statement, move on to create your vision statement: 1. First identify your organization’s mission. Then uncover the real, human value in that mission.
2. Next, identify what you, your customers and other stakeholders will value most about how your organization will achieve this mission. Distil these into the values that your organization has or should have.
3. Combine your mission and values, and polish the words until you have a vision statement inspiring enough to energize and motivate people inside and outside your organization.
Using the example mission statement developed for Farm Fresh Produce, the owner examines what she, her customers and her employees value about her mission. The four most important things she identifies are: freshness, healthiness, tastiness and “localness” of the produce. Here’s the Vision Statement she creates and shares with employees, customers and farmers alike:
MISSION STATEMENT
Quorum Health Group, Inc., is a hospital company committed to meeting the needs of clients as an owner, manager, consultant or partner through innovative services that enhance the delivery of quality healthcare.
VISION STATEMENT
Quorum Health Group, Inc., will be valued for its expertise in hospital management and its ability to positively impact the delivery of quality healthcare.
What are the differences between these two statements? Note that the mission is oriented in the present ("QHG is a company ."), while the vision is oriented in the future ("QHG will be valued "
The mission states what QHG does in relatively concrete terms (meet the needs
of clients by providing services that enhance the delivery of quality healthcare), while the vision states what it wants to do in more idealistic terms (be valued for its expertise and its ability to positively impact the delivery of quality healthcare)One final example may illustrate how confused mission and vision can become. The CocaCola Company in 1994 published a booklet entitled "Our Mission and Our Commitment." In that booklet, the company defines their mission as follows: We exist to create value for our share owners on a long term basis by building a business that enhances The Coca-Cola Company's trademarks.
This also is our ultimate commitment. As the world's largest beverage company, we refresh that world. We do this by developing superior soft drinks, both carbonated and non-carbonated, and profitable non-alcoholic beverage systems that create value for our Company, our bottling partners, and our customers. Does this sound like a mission, a vision, or a combination of both?
In framework for vision, their last element is a vivid description or picture of the end state that completion of the mission represents.They view this as essential to bringing the mission to life. A vivid description gives the mission the ability to inspire and motivate. Look back at the Coca-Cola Company mission shown above. Does it paint a vivid description of completion of the mission, or would The Coca-Cola Company have to amplify the mission statement? To put this all together, We present the following framework
core beliefs and values + purpose = guiding philosophy mission + vivid description = tangible image guiding philosophy + tangible image = vision
Several guidelines for creating a realistic, credible, attractive future for an organization
Developing a Mission Statement
1. Basically, the mission statement describes the overall purpose of the organization.
2. If the organization elects to develop a vision statement before developing the mission statement, ask “Why does the image, the vision exist -- what is it’s purpose?” This purpose is often the same as the mission.
3. Developing a mission statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational mission.
4. When wording the mission statement, consider the organization's products, services, markets, values, and concern for public image, and maybe priorities of activities for survival.
5. Consider any changes that may be needed in wording of the mission statement because of any new suggested strategies during a recent strategic planning process.
6. Ensure that wording of the mission is to the extent that management and employees can infer some order of priorities in how products and services are delivered.
7. When refining the mission, a useful exercise is to add or delete a word from the mission to realize the change in scope of the mission statement and assess how concise is its wording.
8. Does the mission statement include sufficient description that the statement clearly separates the mission of the organization from other organizations?
Developing a Vision Statement
1. The vision statement includes vivid description of the organization as it effectively carries out its operations.
2. Developing a vision statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational vision.
3. Developing the vision can be the most enjoyable part of planning, but the part where time easily gets away from you.
4. Note that originally, the vision was a compelling description of the state and function of the organization once it had implemented the strategic plan, i.e., a very attractive image toward which the organization was attracted and guided by the strategic plan. Recently, the vision has become more of a motivational tool, too often including highly idealistic phrasing and activities which the organization cannot realistically aspire.
Developing a Values Statement
1. Values represent the core priorities in the organization’s culture, including what drives members’ priorities and how they truly act in the organization, etc. Values are increasingly important in strategic planning. They often drive the intent and direction for “organic” planners.
2. Developing a values statement can be quick culture-specific, i.e., participants may use methods ranging from highly analytical and rational to highly creative and divergent, e.g., focused discussions, divergent experiences around daydreams, sharing stories, etc. Therefore, visit with the participants how they might like to arrive at description of their organizational values.
3. Establish four to six core values from which the organization would like to operate. Consider values of customers, shareholders, employees and the community.
4. Notice any differences between the organization’s preferred values and its true values (the values actually reflected by members’ behaviors in the organization). Record each preferred value on a flash card, then have each member “rank” the values with 1, 2, or 3 in terms of the priority needed by the organization with 3 indicating the value is very important to the organization and 1 is least important. Then go through the cards again to rank how people think the values are actually being enacted in the organization with 3 indicating the values are fully enacted and 1 indicating the value is hardly reflected at all. Then address discrepancies where a value is highly preferred (ranked with a 3), but hardly enacted (ranked with a 1).
5. Incorporate into the strategic plan, actions to align actual behavior with preferred behaviors. Developing a vision, mission and values
Developing a vision, mission and values is the foundation for long term success. If a vision and mission is recognised by all stakeholders and affects every hiring, strategic decision and communication; its effect can be magic.
What makes the truly exceptional companies different from the other companies? Core values and a purpose, which are aligned through all recruitment, training, controls and decision making.
Developing a vision, mission and values is a serious business. It takes time . And commitment. But it is worth it. A vision helps unite people towards
a purpose. Creating and living a vision is the role of leaders in organisations. They have to espouse it and help others to believe it. Visions are aesthetic and moral, they come from within as well as outside. A successful vision accomplishes six goals:
gives a sense of the future guides decision making and strategy creates a shared purpose provides guidelines that determine behavior inspires emotion connects to values
A mission statement is a unifying statement of what an organisation is in business to do. It is a key reference point in the planning and implementation of change. A mission statement is a description of the organisation's key purposes.
ValuesValues are the beliefs of an organisation, the expression of what it stands for and how it will conduct itself. Values are the core of an organisation's being. They underpin policies, objectives, procedures and strategies because they provide an anchor and a reference point for all things that happen.
And what about yourself? Indeed. Just the same applies to yourself. You would not set out on a journey without a compass. Or a map. Or a destination! So what about in life? Do you have a vision of your future, a mission in life? Have you explicitly identified your personal values. A personal mission statement. That gives you power.
It’s a shared look at the future, and it is a future filled with hope and promise. If your future looks bright, make sure your team knows about it. Tell the story of how you achieved all this, thank the people who helped you get there.If on the other hand your company’s immediate future is bleak you can still encourage vision, but you have to creatively and courageously tell stories. I’ve been through this kind of thing at work, and we did come out stronger.
In a country where segregation was the law of the land, and racial hate was rampant Martin Luther King Jr, continued to tell the story of a future where people would no longer be judged by the color of their skin.
He continued to tell these stories in the face of economic hardship, and in under the constant threat of assassination, and with the memory of attacks on his family still burned deeply into his memory.It is context that Martin Luther King Jr. made one of his most powerful speeches to his battle weary friends and followers: Well, I don’t know what will happen now. We’ve got some difficult days ahead. But it doesn’t matter with me now. Because I’ve been to the mountaintop
… Like anybody, I would like to live a long life. Longevity has its place. But I’m not concerned about that now. I just want to do God’s will. And He’s allowed me to go up to the mountain. And I’ve looked over. And I’ve seen the Promised Land. I may not get there with you. But I want you to know tonight, that we, as a people, will get to the Promised Land.If you are faced with a Death March style project, the only thing you can do is to hold out a vision for a better future and do everything in your power to make that happen. You can’t ignore the present, you can’t ignore the grueling overtime, the unrealistic deadlines, or the managerial mistakes that got you here — if you do nobody will listen to you, nobody will respect what you have to say. Instead, you have to demonstrate that you have or can come up with a plan to get out of the desert into the Promised Land. Compelling vision begins with the hard truth of today, but holds up an achievable hope for tomorrow
Responses to “So what is vision?”
Vision can be defined as short term plans or goals which a person or an organization has to accomplish. Can you tell what your personal vision statement is? Can you give some examples of a strategic vision? Can you please explain vision and mission? Mission without a vision is like life without air, and you know that such a life is not real, so also must a mission go with a vision.
A vision must be attainable and realistic. Vision must have a mission statement that will pilot one in achieving your vision. Vision, mission without values is like a forest without trees. Vision can be defined as a futuristic view of what a person or an organization intends to achieve. It may be short term or long term.
Vision is nothing but, the BIG PICTURE about a company, Institute, project and why to leave an individual with his DREAMS…..the vision is nothing but the DREAM that helps one to see the future prospects. Most of the organization fails if they do not have a shared Vision. The people fail to be successful if they do not set a Vision for their lives.
The BIG PICTURE helps you through the process to move towards a particular direction and achieve what is been predecided. Well, if we talk about mission it is the tool to help achieve the Vision….the entire process is just like moving on the stairs….Mission is the STEPS on the stair case; reaching the VISION i.e. the final Floor in mind say the Top floor of a building.
This procedure also has a MANDATE/GOAL….which means further fragmentation of MISSION to make the Task more easier and Goal oriented….with every fragment you move on, you move more closer to your Mission and Vision respectively!
All set….All the Best!!!I like a lot of this ‘enlightenment’ particularly how vision relates to mission and mission to values. I suppose the only point I would debate (not argue) is that a vision needn’t be achievable in terms of metrics as it should be aspirational and not necessarily tangible (isn’t that why it’s called a vision?) Goal orientated, SMART metric stuff of course applies to missions and tasks
THE EMPLOYMENT EFFECTS
There is Need to Expand Employment Opportunities in Developing Countries. The Increasing Number of Young People whose Education has diverted their Interests away from Agricultural Employment.
The Conclusion drawn from this is that the Increasing Numbers Seeking Non-Agricultural Employment can Only be Employed in Manufacturing Industry and Related Activities such as Distribution and Transportation, and hence for this Reason alone it is Necessary to Expand the Industrial Sectors of the Economies of Developing Countries.
As can be seen, this Argument is really Saying Two Things; First, “that the Economic Policy should be aimed Primarily at Creating Employment”, Secondly, “that Manufacturing Industry alone can Create the Employment Opportunities required by Population Growth”.
Economic Development Requires the Most Efficient use of the resources available to the Economy, but if attention is Concentrated on Finding Work for one Factor Only, rather than on Finding the Most Efficient Combination of all the Disposable Factors of production, Output is Likely to be Curtailed and the rate of Economic growth retarded. “The Economic Value of Education is only realized when Educated personnel have the opportunity to use their Talents in a relative Environment”.
Find the Job You Want
Whether you are looking for a job with the state or another employer, there are general guidelines you can follow to find work faster. Below are tips to help you with any job search. In other words, it's not your fault you SUCK at making money! You've just been taught the same thing over and over again: research a market, create a product, launch it, and wait for the checks to come in. Best part? This strategy works in ANY economy & even today's.
Since you're not actually selling anything, customers don't have to yank out their wallets” something people DON'T want to do when money's tight. I mean, who DOESN'T want to get FREE stuff, right?Network: Most people find jobs through word-of-mouth. Talk to the people you know, including relatives, friends, professors, and former co-workers. Let them know that you are looking for work; ask their advice; seek out introductions to people in the field that interests
you.Customize: Create a custom version of your resume for each job or industry that interests you. Your resume is usually an employers first contact with you. Make sure it highlights your skills that relate to the job that employer is seeking to fill.
Know yourself: Identify your skills. Work on communicating them effectively. You need to be able to lay out your skills, and explain how they relate to the job you're seeking. Organize and prioritize: Make a list to help keep track of your job search efforts. Preparing a list also helps you to organize your priorities and keeps you focused on your goal -- finding your perfect job.
Do your homework: Read the newspaper and trade journals to remain current on
developments in your field of interest. Knowing the latest trends and mergers will help set you
apart from other candidates in an interview.
Practice, practice, practice: Preparation is the key to a successful interview. Know your
skills and be ready to illustrate how they relate to the job in question. Practice with a friend to
get comfortable with your responses and to formulate strong answers to questions you might
not anticipate. Follow up: Follow up on all leads as soon as possible. If you don't, your competition may.
And, following an interview, always send a thank-you note the same day. A simple startup plan includes a summary, mission statement, keys to success, market
analysis, and break-even analysis. This kind of plan is good for deciding whether or not to
proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to run a
business with.
Is there a standard business plan?
A normal business plan (one that follows the advice of business experts) includes a standard
set of elements, as shown below. Plan formats and outlines vary, but generally a plan will
include components such as descriptions of the company, product or service, market,
forecasts, management team, and financial analysis. Your plan will depend on your specific situation. For example, description of the management
team is very important for investors while financial history is most important for banks.
However, if you’re developing a plan for internal use only, you may not need to include all the
background details that you already know. Make your plan match its purpose.
Cash flow is both vital to a company and hard to follow. Cash is usually misunderstood
as profits, and they are different. Profits don’t guarantee cash in the bank. Lots of
profitable companies go under because of cash flow problems. Implementation details are what make things happen. Your brilliant strategies and
beautifully formatted planning documents are just theory unless you assign
responsibilities, with dates and budgets, follow up with those responsible, and track
results. Business plans are really about getting results and improving your company. Can you suggest a standard outline? As mentioned before, reviewing a standard business plan outline can also be a good starting
point.
If you are running a service business, the success or failure of your venture
will depend on your ability to reach and maintain the right customers.
However, it differs in the sense that you are primarily selling yourself - your
skills, your talents, and your capabilities. You are your own product. More
than any other business, your success will greatly depend on how you deal
with your customers and how you package yourself. The primary value of your business plan will be to create a written outline that evaluates all
aspects of the economic viability of your business venture including a description and analysis
of your business prospects. Keep in mind that creating a business plan is an essential step for any prudent entrepreneur to
take, regardless of the size of the business. This step is too often skipped.
Be aware now that most start-up entrepreneurs are reluctant to write down their business
plan. It is, therefore, strongly recommended that you complete each segment.
Your business plan will become your roadmap to chart the course of your business. But at the
outset you cannot predict all of changing conditions that will surface. So after you have
opened for business, it is important that you periodically review and update you plan. Place some reasonable limits on long-term, future projections. (Long-term means over one
year.) Better to stick with short-term objectives and modify the plan as your business
progresses. Too often, long-range planning becomes meaningless because the reality of your
business can be different from your initial concept.
Avoid optimism. In fact, to offset optimism, be extremely conservative in predicting capital
requirements, timelines, sales and profits. Few business plans correctly anticipate how much
money and time will be required. Do not ignore spelling out what your strategies will be in the event of business adversities.
Use simple language in explaining the issues. Make it easy to read and understand.
Don't depend entirely on the uniqueness of your business or even a patented invention.
Success comes to those who start businesses with great economics and not necessarily great
inventions. The Business Plan format is a systematic assessment of all the factors critical to your business
purpose and goals.
Here are some suggested topics you can tailor into your plan: A Vision Statement: This will be a concise outline of your business purpose and goals. The People: By far, the most important ingredient for your success will be yourself.
Focus on how your prior experiences will be applicable to your new business. Prepare a
résumé of yourself and one for each person who will be involved with you in starting
the business. Be factual and avoid hype. Start-up entrepreneurs often have difficulty writing out business plans. This discipline is going
to help you in many ways so don't skip this planning tool! To make it easier, here are six
steps that will produce a worthwhile plan:What Is a Business Plan?
Business planning is about results. You need to make the contents of your plan match your
purpose. Don’t accept a standard outline just because it’s there.
A business plan is any plan that works for a business to look ahead, allocate resources, focus
on key points, and prepare for problems and opportunities.
Unfortunately, many people think of business plans only for starting a new business or
applying for business loans. But they are also vital for running a business, whether or not the
business needs new loans or new investments. Businesses need plans to optimize growth and
development according to priorities.
What’s a startup plan?
What is most important in a plan?
It depends on the case, but usually it’s the cash flow analysis and specific implementation
details.
1. Executive Summary: Write this last. It’s just a page or two of highlights.
2. Company Description: Legal establishment, history, start-up plans, etc.
3. Product or Service: Describe what you’re selling. Focus on customer benefits.
4. Market Analysis: You need to know your market, customer needs, where they are, how
to reach them, etc.
5. Strategy and Implementation: Be specific. Include management responsibilities with
dates and budget.
6. Management Team: Include backgrounds of key members of the team, personnel
strategy, and details.
7. Financial Plan: Include profit and loss, cash flow, balance sheet, break-even analysis,
assumptions, business ratios, etc.
We don’t recommend developing the plan in the same order you present it as a finished
document. For example, although the Executive Summary comes as the first section of a
business plan, we recommend writing it after everything else is done
What can help me write a business plan?
Why Prepare A Business Plan?
Your business plan is going to be useful in a number of ways
First and foremost, it will define and focus your objective using appropriate information
and analysis.
You can use it as a selling tool in dealing with important relationships including your
lenders, investors and banks.
Your business plan can uncover omissions and/or weaknesses in your planning process.
You can use the plan to solicit opinions and advice from people, including those in your
intended field of business, who will freely give you invaluable advice.
Too often,
entrepreneurs forge ahead ("My Way!") without the benefit of input from experts who
could save them a great deal of wear and tear. "My Way" is a great song, but in practice
can result in unnecessary hardships.
What to Avoid in Your Business Plan
Business Plan Format
For example, if you lack the ability to train staff, include an explanation how you will
compensate for this deficiency. You could add a partner to your plan (discussed in Section 4)
or plan to hire key people who will provide skills you don't have. Include biographies of all
your intended management
Your Business Profile: Define and describe your intended business and exactly how
you plan to go about it. Try to stay focused on the specialized market you intend to
serve.
Economic Assessment: Provide a complete assessment of the economic environment
in which your business will become a part. Explain how your business will be
appropriate for the regulatory agencies and demographics with which you will be
dealing. If appropriate, provide demographic studies and traffic flow data normally
available from local planning departments.
Cash flow assessment: Include a one-year cash flow that will incorporate your capital
requirements. Include your assessment of what could go wrong and how you would
plan to handle problems.
Include your marketing plan and expansion plans.
Six Steps To A Great Business Plan
1. Write out your basic business concept.
2. Gather all the data you can on the feasibility and the specifics of your business
concept.
3. Focus and refine your concept based on the data you have compiled.
4. Outline the specifics of your business. Using a "what, where, why, how" approach
might be useful.
5. Put your plan into a compelling form so that it will not only give you insights and
focus but, at the same time, will become a valuable tool in dealing with business
relationships that will be very important to you.
6. Review the sample plans .
Does Your Plan Include the Following Necessary Factors:
A Sound Business Concept: The single most common mistake made by entrepreneurs
is not selecting the right business initially. The best way to learn about your prospective
business is to work for someone else in that business before beginning your own. There
can be a huge gap between your concept of a fine business and reality.
Understanding of Your Market: A good way to test your understanding is to test
market your product or service before your start.
You think you have a great kite that will capture the imagination of kite fliers
throughout the world? Then craft some of them and try selling them first.
A Healthy, Growing and Stable Industry: Remember that some of the great
inventions of all time, like airplanes and cars, did not result in economic benefit for
many of those who tried to exploit these great advances. For example, the cumulative
earnings of all airlines since Wilber Wright flew that first plane are less than zero.
(Airline losses have been greater than their profits.) Success comes to those who find
businesses with great economics and not necessarily great inventions or advances to
mankind.
Capable Management: Look for people you like and admire, who have good ethical
values, have complementary skills and are smarter than you. Plan to hire people who
have the skills that you lack. Define your unique ability and seek out others who turn
your weaknesses into strengths.
Able Financial Control: You will learn later the importance of becoming qualified in
accounting, computer software and cash flow management. Most entrepreneurs do not
come from accounting backgrounds and must go back to school to learn these skills.
Would you bet your savings in a game where you don't know how to keep score?
People mistakenly do it in business all the time.
A Consistent Business Focus: As a rule, people who specialize in a product or service
will do better than people who do not specialize.
Focus your efforts on something that
you can do so well that you will not be competing solely on the basis of price.
A Mindset to Anticipate Change: Don't commit yourself too early. Your first plan
should be written in pencil, not in ink. Keep a fluid mindset and be aggressive in
making revisions as warranted by changing circumstances and expanding knowledge.
Include Plans for Conducting Business Online: According to the January 2005
Trend/Forecasting Report of The Dilenschneider Group, in the U.S. alone, the 2004
holiday season online shopping jumped by more than 25% from 2003.
(In 2005 it
jumped another 25%!) Consumer and business-to-business online sales are set to
expand exponentially in the coming decade, and small retailers can reach an everincreasing pool of customers.
Formulate (and Reformulate) Your Business Plan,
Some practical suggestions on managing inevitable risks while pursuing opportunities. Here is
a capsulation of Suggestions on how to formulate (and reformulate) your business plan:
Be flexible early in the process and keep it fluid. Don't commit too early. Expect your first plan to be provisional and subject to revision.
Ask yourself if your experience or expertise gives you the right to an opinion on your specific opportunity.
Identify your potential deal killers: variables that are likely to prove fatal to the venture. Clearly identify what you see as the key drivers of success. What are you betting on here?
Raise money only in sufficient amount to finance the experiment or evaluation you next envision, with a cushion for contingencies. Delay hiring key managers until initial rounds of experimentation have produced a stable business model.
At some point, take the plunge and test your product or service on a small scale in the real world through customer research, test marketing, or prototypes.
Test and refine your business model before expanding your operations.
Top Ten Do's and Don'ts
TOP TEN DO'S1. Prepare a complete business plan for any business you are considering.
2. Use the business plan templates furnished in each session.
3. Complete sections of your business plan as you proceed through the course.
4. Research (use search engines) to find business plans that are available on the Internet.
5. Package your business plan in an attractive kit as a selling tool.
6. Submit your business plan to experts in your intended business for their advice.
7. Spell out your strategies on how you intend to handle adversities.
8. Spell out the strengths and weaknesses of your management team.
9. Include a monthly one-year cash flow projection.
10.Freely and frequently modify your business plans to account for changing conditions.
TOP TEN DON'TS
1. Be optimistic (on the high side) in estimating future sales. 2. Be optimistic (on the low side) in estimating future costs.
3. Disregard or discount weaknesses in your plan. Spell them out.
4. Stress long-term projections. Better to focus on projections for your first year
. 5. Depend entirely on the uniqueness of your business or the success of an invention.
6. Project yourself as someone you're not. Be brutally realistic.
7. Be everything to everybody. Highly focused specialists usually do best.
8. Proceed without adequate financial and accounting know-how.
9. Base your business plan on a wonderful concept. Test it first.
10.Skip the step of preparing a business plan before starting.
Find out what it is that you really want to do, go to college, and get an education in that field.
If you know anyone in the field, allow him or her to mentor you. Find out as much as you can
about the business before starting. The most important thing I would like to put emphasis on is
getting your education.
Start small and hang in there
Don't overlook doing what you love to do
Create your business plan. There are some computer programs that will help you do it.
It’s very important to find a good location. Make sure you have plenty of parking.
Make sure you read and agree to all the terms and conditions of the lease contract
before you sign it.
When you are ready to open your business, be honest and treat your employees and
customers as you would like to be treated. Remember that a satisfied customer will help
increase your clientele.
Always be ready for the unexpected.
Overlooking these details might cost you a lot of money, and you might go out of business.
We don't want that.
One last thing, when your business is doing well, consider buying the property if it is possible.
Real estate is always a good investment. If you follow these simple steps, I'm sure you will be
a successful businessperson.
Create your business plan before you start
Consider purchasing your location, when you can
And as your business begins to operate in early years, what you have written down will serve
as an operations manual.
Update your business plan on a regular basis. This forces you to analyze the current status of
the business, monitor the goals and objectives, and allows you to make adjustments as
required to respond to the ever-changing marketplace.
It's better to turn down a client than to disappoint one
Your business plan needs constant updating
You can now begin to assemble your business plan. If you have not yet selected a business,
you can pick one out to practice on.
Common business plan mistakes
Simple business plan for startups
How long should your plan be?
Business plan template
Common Business Plan Mistakes
What are the most common mistakes when writing a business plan? Here is a list of the ones
to make sure you avoid. While including the necessary items in a business plan is important,
you also want to make sure you don’t commit any of the following common business plan
mistakes:
Putting it off.
Too many businesses make business plans only when they have no choice in the matter.
Unless the bank or the investors want a plan, there is no plan.
Don’t wait to write your plan until you think you’ll have enough time. “I can’t plan. I’m too
busy getting things done,” business people say. The busier you are, the more you need to plan.
If you are always putting out fires, you should build firebreaks or a sprinkler system. You can
lose the whole forest for paying too much attention to the individual burning trees.
Cash flow casualness.
Most people think in terms of profits instead of cash.
When you imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which equal profits. Unfortunately, we don’t spend the profits in a business. We spend cash. So understanding cash flow is critical.
If you have only one table in your business plan, make it the cash flow table. Idea inflation.Don’t overestimate the importance of the idea. You don’t need a great idea to start a business; you need time, money, perseverance, and common sense. Few successful businesses are based entirely on new ideas. A new idea is harder to sell than an existing one, because people don’t understand a new idea and they are often unsure if it will work. Plans don’t sell new business ideas to investors. People do. Investors invest in people, not ideas. The plan, though necessary, is only a way to present information. Fear and dread.
Doing a business plan isn’t as hard as you might think. You don’t have to write a doctoral thesis or a novel. There are good books to help, many advisors among the Small Business Development Centers (SBDCs), business schools, and there is software available to help you (such as Business Plan Pro, and others).
Spongy, vague goals.
Leave out the vague and the meaningless babble of business phrases (such as “being the best”)
because they are simply hype. Remember that the objective of a plan is its results, and for
results, you need tracking and follow up. You need specific dates, management
responsibilities, budgets, and milestones. Then you can follow up. No matter how well
thought out or brilliantly presented, it means nothing unless it produces results.
One size fits all.
Tailor your plan to its real business purpose. Business plans can be different things: they are
often just sales documents to sell an idea for a new business. They can also be detailed action
plans, financial plans, marketing plans, and even personnel plans. They can be used to start a
business, or just run a business better.
Diluted priorities.
Remember, strategy is focus. A priority list with 3-4 items is focus. A priority list with 20
items is certainly not strategic, and rarely if ever effective. The more items on the list, the less
the importance of each.
Hockey-stick shaped growth projections.
Sales grow slowly at first, but then shoot up boldly with huge growth rates, as soon as
’something’ happens. Have projections that are conservative so you can defend them. When in
doubt, be less optimistic.
2. A Simpler Plan for Startups: Business advisors, experienced entrepreneurs, bankers, and investors generally agree that you should develop a business plan before you start a business. A plan can help you move forward, make decisions, and make your business successful. However, not all business plans are the same, not every business needs the same level of detail. You might develop a fairly simple plan first as you start a small business, and that might be enough for you. You can also start simple and then elaborate as you prepare to approach bankers or investors. For a simple example, imagine a woman making jewelry at home and selling it at a local flea market on the weekend.
Business advisors, experienced entrepreneurs, bankers, and investors generally agree that you
should develop a business plan before you start a business. A plan can help you move
forward, make decisions, and make your business successful. However, not all business plans
are the same, not every business needs the same level of detail. You might develop a fairly
simple plan first as you start a small business, and that might be enough for you. You can also
start simple and then elaborate as you prepare to approach bankers or investors.
For a simple example, imagine a woman making jewelry at home and selling it at a local flea
market on the weekend.
A business plan could give her a chance to step back from the normal flow and look at ways to develop and improve the business. The planning process should help her understand her business.
It should help her define what she wants from the business, understand what her customers want, and decide how to optimize her business on her own terms. She might benefit from developing a simple sales and expense forecast, maybe even a profit and loss, so she can plan how to use and develop her resources. She might not need to create detailed cash flow, balance sheet, and business ratios. A simple plan may be just what she needs to get going.
This first stage of a plan, that we call the Concept Kick-Start, focuses only on a few starter elements. The Mission Statement, Keys to Success, Market Analysis, and Break-Even Analysis give you a critical head start toward understanding your business. However, not all startups are that simple. Many of them need product development, packaging, retail fittings and signage, office equipment, websites, and sometimes months or even years of payroll before the sales start. Unless you’re wealthy enough to finance these expenditures on your own, then you’ll need to deal with bank loans or investors or both; and for that you’ll need a more extensive business plan. Startup company or not, the plan has to meet expectations.
One suggestion for getting started is to develop your plan in stages that meet your real business needs.A few key text topics might be enough to discuss the plan with potential partners and team members, as a first phase. You may well want to add a basic sales and expense forecast, leading to profit and loss, as next phase. Adding business numbers helps you predict business flow and match spending to income.
Ultimately, the choice of plan isn’t based as much on the stage of business as it is on the type of business, financing requirements, and business objective. Here are some important indicators of the level of plan you’ll need, even as a startup:
Some of the simpler businesses keep a plan in the head of the owner, but every business has a plan. Even a one-person business can benefit from creating a plan document with ideas written down, because the process of producing a plan is useful and valuable.
As soon as a second person is involved, the need for planning multiplies. The plan is critical for communicating values, goals, strategies, and detailed implementation.
As soon as anybody outside the company is involved, then you have to provide more information. When a plan is for internal use only, you may not need to describe company history and product features, for example. Stick to the topics that add value, that make you think, that help support decisions. When you involve people outside the company, then you need to provide more background information as part of the plan.
For discussion purposes, text is enough to get a plan started. Try describing your mission, objective, keys to success, target market, competitive advantage, and basic strategies. How well does this cover your business idea?
Can you live without a sales and expense forecast? Sometimes the one-person business keeps numbers in its (the owner’s) head. However, it’s much easier to use some tools that can put the numbers in front of you, and add and subtract them automatically. That’s where a plan helps.
Do you really know your market? A good market analysis can help you see opportunities that might not otherwise be obvious. Understand why people buy from you. What are the needs being served? How many people are out there, as potential customers?
Do you manage significant amounts of inventory? That makes your cash management more complicated, and usually requires a more sophisticated plan. You need to buy inventory before you sell it.
Do you sell on credit? If you are a business selling to businesses, then you probably do have to sell on credit, and that normally means you have to manage money owed to you by your customers, called accounts receivable. Making the sale is no longer the same thing as getting the money. That usually requires a more sophisticated plan.
Do you do your taxes on a cash basis, or accrual basis? If you don’t know, and you are a very small (one person, maybe 2-3 people) business, then you’re likely to be on a cash basis. That makes your planning easier. However, most businesses big enough to work with a CPA and have separate tax statements use accrual accounting because they want to deduct expenses as they are incurred, even if they aren’t fully paid for. By the time you are using accrual accounting, you’ll probably need more sophisticated cash flow tools, and a more extensive business plan.
As you approach banks and other lending institutions, expect to provide more detail on personal net worth, collateral, and your business’ financial position. Some banks will accept a very superficial business plan as long as the collateral looks good. Others will demand to see detailed monthly projections. No bank can lend money on a business plan alone; that would be against banking law. But a good bank wants to see a good plan.
If you’re looking for venture investment, take a good look at your plan. Professional investors will expect your plan to provide proof, not just promises. They’ll want to see market data, competitive advantage, and management track records. They’ll want to see robust and comprehensive financial projections. True, you’ll hear stories about investors backing new companies without a plan, but those are the exceptions, not the rule
So, however you cut it, your business plan is very important, even at the early startup stage, and even if you can keep it in your head. Before you purchase business stationery, telephones, or rent a location, you should do a business plan
3. How Long Should a Business Plan Be?
Page count is not a good way to measure length. A 20-page plan with dense text and no graphics is much longer than a 35-page plan broken up into readable bullet points, useful illustrations of locations or products, and business charts to illustrate important projections. Measure a plan by readability and summarization. A good business plan should leave a reader a good general idea of its main contents even after only a quick skimming, browsing the main points, in 15 minutes.
Format, headings, white space, and illustrations make a big difference. Summaries are very important. Main points should show up in a business plan as quickly as they do in a business presentation.
Unfortunately, many people still use page count as measurement. And in that context, some of the more practical, internal-use-only business plans can be only 5 or 10 pages long. Corporate business plans for large companies can run into hundreds of pages. The more standard start-up and expansion plans developed for showing outsiders normally run 20-40 pages of text – easy to read, well-spaced text, formatted in bullets, illustrated by business charts and short financial tables – plus financial details in appendices.
The right length of the plan depends on the nature and purpose of the plan. Will it include descriptions of the company and management team for outsiders to read? Does it need an executive summary good enough to stand alone? Does it include detailed research, plans, drawings, and blueprints? Is it worded to withstand legal scrutiny as part of an investment proposal? Form follows function.
Venture contests often limit a plan to 30 pages, sometimes 40, rarely 50 – and that includes detailed financials in the appendices. Unfortunately the page limitation leads some contestants to very bad choices, as they cram content into dense typefaces and thick texts, making their plans worse, not better.
Palo Alto Software’s business plan contest ran four years. Several hundred plans entered that competition. Finalists never had less than 20 pages or more than 50 pages. Most run 30-40 pages. These are all 20-30 pages of text, not counting useful graphic additions to show locations, designs, menus, etc., and not counting the appendices pages containing monthly financial projections, resumes of team leaders, etc. You’ll want to add some pages for the standard financials; usually that means appendices with monthly tables for sales, personnel, income statement, cash flow, and balance sheet. You also want to include the main annual numbers of those tables in the body of the plan.
Don’t ever shorten a plan by taking out useful graphics. Page count matters far less than readability. Use business charts to illustrate numbers so your projections are easier to absorb. Use photographs and drawings to show locations, products, sample menus, product pictures, and other illustrations as much as possible. However, don’t ever add extra graphics, like clip art, not directly relevant to the matter at hand, as if that would make a plan better. Whether you're just starting out, need funding or want to monitor the health of your business, creating a business plan is your first step on the path to success.
A business plan is a written description of your business's future. That's all there is to it--a document that describes what you plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope describing your business strategy, you've written a plan, or at least the germ of a plan.
Business plans can help perform a number of tasks for those who write and read them. They're used by investment-seeking entrepreneurs to convey their vision to potential investors. They may also be used by firms that are trying to attract key employees, prospect for new business, deal with suppliers or simply to understand how to manage their companies better. So what's included in a business plan and how do you put one together? Simply stated, a business plan conveys your business goals, the strategies you'll use to meet them, potential problems that may confront your business and ways to solve them, the organizational structure of your business (including titles and responsibilities), and finally, the amount of capital required to finance your venture and keep it going until it breaks even.
Sound impressive? It can be, if put together properly. A good business plan follows generally accepted guidelines for both form and content. There are three primary parts to a business plan The first is the business concept, where you discuss the industry, your business structure, your particular product or service, and how you plan to make your business a success. The second is the marketplace section, in which you describe and analyze potential customers: who and where they are, what makes them buy and so on. Here, you also describe the competition and how you'll position yourself to beat it.
Finally, the financial section contains your income and cash flow statement, balance sheet and other financial ratios, such as break-even analyses. This part may require help from your accountant and a good spreadsheet software program. Breaking these three major sections down even further, a business plan consists of seven key components:
In addition to these sections, a business plan should also have a cover, title page and table of contents.
Depending on what you're using it for, a useful business plan can be any length, from a scrawl on the back of an envelope to, in the case of an especially detailed plan describing a complex enterprise, more than 100 pages. A typical business plan runs 15 to 20 pages, but there's room for wide variation from that norm.
Much will depend on the nature of your business. If you have a simple concept, you may be able to express it in very few words. On the other hand, if you're proposing a new kind of business or even a new industry, it may require quite a bit of explanation to get the message across.
The purpose of your plan also determines its length. If you want to use your plan to seek millions of dollars in seed capital to start a risky venture, you may have to do a lot of explaining and convincing.
If you're just going to use your plan for internal purposes to manage an ongoing business, a much more abbreviated version should be fine. About the only person who doesn't need a business plan is one who's not going into business. You don't need a plan to start a hobby or to moonlight from your regular job.But anybody beginning or extending a venture that will consume significant resources of money, energy or time, and that is expected to return a profit, should take the time to draft some kind of plan.
Startups. The classic business plan writer is an entrepreneur seeking funds to help start a new venture. Many, many great companies had their starts on paper, in the form of a plan that was used to convince investors to put up the capital necessary to get them under way. Most books on business planning seem to be aimed at these startup business owners.
There's one good reason for that: As the least experienced of the potential plan writers, they're probably most appreciative of the guidance. However, it's a mistake to think that only cashstarved startups need business plans. Business owners find plans useful at all stages of their companies' existence, whether they're seeking financing or trying to figure out how to invest a surplus.Established firms seeking help. Not all business plans are written by starry-eyed entrepreneurs. Many are written by and for companies that are long past the startup stage. Walker Group/Designs, for instance, was already well-established as a designer of stores for major retailers when founder Ken Walker got the idea of trade marking and licensing to apparel makers and others the symbols 01-01-00 as a sort of numeric shorthand for the approaching millennium.
Before beginning the arduous and costly task of trade marking it worldwide, Walker used a business plan complete with sales forecasts to convince big retailers it would be a good idea to promise to carry the 01-01-00 goods. It helped make the new venture a winner long before the big day arrived. "As a result of the retail support up front," Walker says, "we had over 45 licensees running the gamut of product lines almost from the beginning."
These middle-stage enterprises may draft plans to help them find funding for growth just as the startups do, although the amounts they seek may be larger and the investors more willing. They may feel the need for a written plan to help manage an already rapidly growing business. Or a plan may be seen as a valuable tool to be used to convey the mission and prospects of the business to customers, suppliers or others.
Plan an Updating Checklist
Here are seven reasons to think about updating your business plan. If even just one applies to you, it's time for an update./
Business plans tend to have a lot of elements in common, like cash flow projections and marketing plans. And many of them share certain objectives as well, such as raising money or persuading a partner to join the firm. But business plans are not all the same any more than all businesses are.
Depending on your business and what you intend to use your plan for, you may need a very different type of business plan from another entrepreneur. Plans differ widely in their length, their appearance, the detail of their contents, and the varying emphases they place on different aspects of the business.
The reason that plan selection is so important is that it has a powerful effect on the overall impact of your plan. You want your plan to present you and your business in the best, most accurate light.That's true no matter what you intend to use your plan for, whether it's destined for presentation at a venture capital conference, or will never leave your own office or be seen outside internal strategy sessions.
When you select clothing for an important occasion, odds are you try to pick items that will play up your best features. Think about your plan the same way. You want to reveal any positives that your business may have and make sure they receive due consideration
Types of Plans
Business plans can be divided roughly into four separate types. There are very short plans, or miniplans. There are working plans, presentation plans and even electronic plans. They require very different amounts of labor and not always with proportionately different results. That is to say, a more elaborate plan is not guaranteed to be superior to an abbreviated one, depending on what you want to use it for.
The Miniplan.
A miniplan may consist of one to 10 pages and should include at least cursory attention to such key matters as business concept, financing needs, marketing plan and financial statements, especially cash flow, income projection and balance sheet. It's a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It can also serve as a valuable prelude to a full-length plan later on. Be careful about misusing a miniplan. It's not intended to substitute for a full-length plan. If you send a miniplan to an investor who's looking for a comprehensive one, you're only going to look foolish.
The Working Plan.
A working plan is a tool to be used to operate your business. It has to be long on detail but may be short on presentation. As with a miniplan, you can probably afford a somewhat higher degree of candor and informality when preparing a working plan. A plan intended strictly for internal use may also omit some elements that would be important in one aimed at someone outside the firm. You probably don't need to include an appendix with resumes of key executives, for example. Nor would a working plan especially benefit from, say, product photos.
Fit and finish are liable to be quite different in a working plan. It's not essential that a working plan be printed on high-quality paper and enclosed in a fancy binder. An old three-ring binder with "Plan" scrawled across it with a felt-tip marker will serve quite well.
Internal consistency of facts and figures is just as crucial with a working plan as with one aimed at outsiders. You don't have to be as careful, however, about such things as typos in the text, perfectly conforming to business style, being consistent with date formats and so on. This document is like an old pair of khakis you wear into the office on Saturdays or that one ancient delivery truck that never seems to break down. It's there to be used, not admired
.The Presentation Plan
If you take a working plan, with its low stress on cosmetics and impression, and twist the knob to boost the amount of attention paid to its looks, you'll wind up with a presentation plan. This plan is suitable for showing to bankers, investors and others outside the company.
Almost all the information in a presentation plan is going to be the same as your working plan, although it may be styled somewhat differently. For instance, you should use standard business vocabulary, omitting the informal jargon, slang and shorthand that's so useful in the workplace and is appropriate in a working plan. Remember, these readers won't be familiar with your operation. Unlike the working plan, this plan isn't being used as a reminder but as an introduction. You'll also have to include some added elements.
Among investors' requirements for due diligence is information on all competitive threats and risks. Even if you consider some of only peripheral significance, you need to address these concerns by providing the information. The big difference between the presentation and working plans is in the details of appearance and polish.
A working plan may be run off on the office printer and stapled together at one corner. A presentation plan should be printed by a high-quality printer, probably using color. It must be bound expertly into a booklet that is durable and easy to read. It should include graphics such as charts, graphs, tables and illustrations.
It's essential that a presentation plan be accurate and internally consistent. A mistake here could be construed as a misrepresentation by an unsympathetic outsider. At best, it will make you look less than careful. If the plan's summary describes a need for $40,000 in financing, but the cash flow projection shows $50,000 in financing coming in during the first year, you might think, "Oops! Forgot to update that summary to show the new numbers.
The investor you're asking to pony up the cash, however, is unlikely to be so charitable.The Electronic Plan.
The majority of business plans are composed on a computer of some kind, then printed out and presented in hard copy. But more and more business information that once was transferred between parties only on paper is now sent electronically. So you may find it appropriate to have an electronic version of your plan available. An electronic plan can be handy for presentations to a group using a computer-driven overhead projector, for example, or for satisfying the demands of a discriminating investor who wants to be able to delve deeply into the underpinnings of complex spreadsheets.
This business plan structure is by its nature pragmatic, i.e., it's 'fit for purpose' and concise. Given a concise report structure, always remember to consider the ethical and philosophical issues, and refer to them where appropriate in the planning document
A business plan or report is necessarily focused on profit and financial effectiveness (without which, generally, nothing much else can happen) nevertheless, ethics and wider issues of corporate responsibility will provide a fundamental platform and context, particularly in this age of awareness and transparency concerning corporate behavior
Strategy originally a military term, in a business planning context strategy/strategic means/pertains to why and how the plan will work, in relation to all factors of influence upon the business entity and activity, particularly including competitors (thus the use of a military combative term), customers and demographics, technology and communications.
Types of Plans:
Business plans can be divided roughly into four separate types. There are very short plans, or miniplans. There are working plans, presentation plans and even electronic plans. They require very different amounts of labor and not always with proportionately different results. That is to say, a more elaborate plan is not guaranteed to be superior to an abbreviated one, depending on what you want to use it for. The Miniplan. A miniplan may consist of one to 10 pages and should include at least cursory attention to such key matters as business concept, financing needs, marketing plan and financial statements, especially cash flow, income projection and balance sheet. It's a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It can also serve as a valuable prelude to a full-length plan later on. Be careful about misusing a miniplan.
It's not intended to substitute for a full-length plan. If you send a miniplan to an investor who's looking for a comprehensive one, you're only going to look foolish. The Working Plan. A working plan is a tool to be used to operate your business. It has to be long on detail but may be short on presentation. As with a miniplan, you can probably afford a somewhat higher degree of candor and informality when preparing a working plan. A plan intended strictly for internal use may also omit some elements that would be important in one aimed at someone outside the firm.
You probably don't need to include an appendix with resumes of key executives, for example. Nor would a working plan especially benefit from, say, product photos.Fit and finish are liable to be quite different in a working plan. It's not essential that a working plan be printed on high-quality paper and enclosed in a fancy binder. An old three-ring binder with "Plan" scrawled across it with a felt-tip marker will serve quite well. Internal consistency of facts and figures is just as crucial with a working plan as with one aimed at outsiders. You don't have to be as careful, however, about such things as typos in the text, perfectly conforming to business style, being consistent with date formats and so on. This document is like an old pair of khakis you wear into the office on Saturdays or that one ancient delivery truck that never seems to break down.
It's there to be used, not admired. The Presentation Plan. If you take a working plan, with its low stress on cosmetics and impression, and twist the knob to boost the amount of attention paid to its looks, you'll wind up with a presentation plan.
This plan is suitable for showing to bankers, investors and others outside the company.Almost all the information in a presentation plan is going to be the same as your working plan, although it may be styled somewhat differently.
For instance, you should use standard business vocabulary, omitting the informal jargon, slang and shorthand that's so useful in the workplace and is appropriate in a working plan. Remember, these readers won't be familiar with your operation.Unlike the working plan, this plan isn't being used as a reminder but as an introduction.
You'll also have to include some added elements. Among investors' requirements for due diligence is information on all competitive threats and risks.Even if you consider some of only peripheral significance, you need to address these concerns by providing the information. The big difference between the presentation and working plans is in the details of appearance and polish. A working plan may be run off on the office printer and stapled together at one corner. A presentation plan should be printed by a high-quality printer, probably using color. It must be bound expertly into a booklet that is durable and easy to read.
It should include graphics such as charts, graphs, tables and illustrations.It's essential that a presentation plan be accurate and internally consistent. A mistake here could be construed as a misrepresentation by an unsympathetic outsider. At best, it will make you look less than careful. If the plan's summary describes a need for $40,000 in financing, but the cash flow projection shows $50,000 in financing coming in during the first year, you might think, "Oops! Forgot to update that summary to show the new numbers." The investor you're asking to pony up the cash, however, is unlikely to be so charitable.
The Electronic Plan. The majority of business plans are composed on a computer of some kind, then printed out and presented in hard copy. But more and more business information that once was transferred between parties only on paper is now sent electronically. So you may find it appropriate to have an electronic version of your plan available.
An electronic plan can be handy for presentations to a group using a computer-driven overhead projector, for example, or for satisfying the demands of a discriminating investor who wants to be able to delve deeply into the underpinnings of complex spreadsheets.
This business plan structure is by its nature pragmatic, i.e., it's 'fit for purpose' and concise. Given a concise report structure, always remember to consider the ethical and philosophical issues, and refer to them where appropriate in the planning document.A business plan or report is necessarily focused on profit and financial effectiveness (without which, generally, nothing much else can happen) nevertheless, ethics and wider issues of corporate responsibility will provide a fundamental platform and context, particularly in this age of awareness and transparency concerning corporate behavior
Marketing
believed by many to mean the same as advertising or sales promotion, marketing actually means and covers everything from company culture and positioning, through market research, new business/product development, advertising and promotion, PR (public/press relations), and arguably all of the sales functions as well. Marketing is the process by which a business decides what it will sell, to whom, when and how, and then does it
Marketing plan
logically a plan which details what a business will sell, to whom, when and how, implicitly including the business/marketing strategy. The extent to which financial and commercial numerical data is included depends on the needs of the business. The extent to which this details the sales plan also depends on the needs of the business. Sales - the transactions between the business and its customers whereby services and/or products are provided in return for payment.
Sales (sales department/sales team)
also describes the activities and resources that enable this process, and sales also describes the revenues that the business derives from the sales activities. Sales plan - a plan describing, quantifying and phased over time, how the sales will be made and to whom. Some organizations interpret this to be the same as a business plan or a marketing plan.
Service contract
a formal document usually drawn up by the supplier by which the trading arrangement is agreed with the customer. Philosophy, values, ethics, vision - these are the fundamentals of business planning, and determine the spirit and integrity of the business or organization. You can see that many of these terms are interchangeable, so it's important to clarify what needs to be planned for rather than assuming or inferring a meaning from the name given to the task. That said, the principles explained here can be applied to business plans of all sorts. Business plans are often called different names - especially by senior managers and directors delegating a planning exercise that they do not understand well enough to explain. For example: sales plans, operational plans, organizational plans, marketing plans, marketing strategy plans, strategic business plans, department business plans, etc. Typically these names reflect the department doing the planning, despite which, the planning process and content required in the document is broadly similar.
When Writing a Business or Operating Plan, Remember.
A useful first rule of business planning is to decide what you are actually trying to achieve and always keep this in mind. Write your aim large as a constant reminder to yourself, and to anyone else involved. Keeping your central aim visible will help you minimize the distractions and distortions which frequently arise during the planning process. An increasingly vital and perhaps second rule of business planning is to establish a strong ethical philosophy at the outset of your planning.
This provides a vital reference for decisionmaking and strategy from the start. A strong clear ethical code communicates your values to staff, customers, suppliers, and creates a simple consistent basis for operations which conventional financials, processes, systems and even people, do not address.It is very difficult to introduce ethical principles later into an enterprise, especially when planning shifts into implementation, and more so if problems arise relating to integrity, honesty, corporate responsibility, trust, governance, etc., any of which can have massive impact on relationships and reputation. It is easy to address issues of ethics and corporate responsibility when you are the owner of a new enterprise.
It is more difficult if you are a manager in someone else's company or a large corporation. Nevertheless ethics and corporate responsibility are highly significant in planning, and strong justification for their proper consideration can now be made. There are now plenty of recent examples of corporations - indeed entire national economies and governments - which have failed because of poor regard to ethical considerations. The world is changing and learning, slowly, but it is, and anyone ignoring ethics in planning today does so at their own peril.
A third crucial requirement for business plans is return on investment, or for public services and non-profit organisations: effective use of investment and resources, which is beyond simple 'cost control'.For the vast majority of organisations, whether companies, public services, not-for-profit trusts and charities, all organisations need to be financially effective in what they do, otherwise they will cease to function. Ultimately - whatever the organisation and aims - financial viability is necessary to sustain any organized activity.
While it's essential to manage ethical and socially responsible aspects of organisational aims, these must allow for adequate return on investment (or in less traditional and 'nonprofit' enterprises, must allow for the effective use of investment and resources, according to the financial requirements of the particular organization).Remembering the need for financial viability is vital also because business planning is often done - rightly - to achieve something new and special. This tends to focus thinking on creativity, innovation, ambition, quality, excellence, perhaps even social good, etc., which can easily distract planning away from the basic need to be financially viable - and crucially not to make a loss. By treating return on investment as a vital requirement of planning we increase the likelihood that plans will be viable and therefore sustainable.
Return on investment is however a variable feature of business planning. It is flexible according to the type of enterprise, its main purpose and philosophy.In a conventional profit-driven corporation return on investment (at an optimal rate) is typically a strong strategic driver for local planning and decisions, and by implication also a basic requirement of the enterprise as a whole. On the other hand, in a business or organization less focused on shareholder reward, such as a public services trust or charity, or a social enterprise or cooperative, return on investment (at a relatively lower rate), may be a requirement simply to sustain viable operations, according to the aims of the enterprise. In the first example, return on investment is the aim; in the second example, return on investment enables some other higher aim to be achieved.
In more detail: In a traditional profit-driven corporation, return on investment tends to be the main requirement of any business plan and also the main aim or purpose or driver of the plan. In most traditional corporations return on investment tends to be at the heart of all activities, since typically the corporation exists to maximize the yield (profit and growth effectively) of shareholder funds invested in the business
Planning in traditional corporations at times forgets this basic obligation, especially when a junior manager is asked to 'write a business plan' for the first timeIn traditional profit-driven corporations, when a new manager starts to write a business plan or operational plan for the first time (and for some experienced managers also, for the umpteenth time), the manager wonders: What is the aim? What am I trying to achieve? Often when they ask their own manager, the manager has the same doubts. The central aim is usually return on investment
In businesses or 'non-profit' organisations where shareholder enrichment is not the main purpose, return on investment is less of a driver in business planning, but is nevertheless a crucial requirement. Such enterprises are becoming more popular, and will continue to become so, since the collapse of the western economies in 2008, and increasing disillusionment with old-style business thinking. Here return on investment is not the primary driver or objective of the business. Instead the main driver of enterprise may be some other purpose.
An example of 'some other purpose' might be the activities of a social enterprise or cooperative, or maybe an employee ownership company, or perhaps a trust or charity, whose main aim is (rather than the traditional profit generation for external/institutional shareholders) perhaps to benefit its members/staff, and/or to sustain local jobs, and/or to benefit the local community, or maybe to advance science or learning or health, etc. Here, while return on investment may seem less crucial or appropriate to planning and operations, the enterprise must nevertheless remain financially viable, or it ceases to be able to operate at all.
In such examples, return on investment in business planning is not usually maximized, but must still be treated as an underpinning requirement to planning, and flexed according to the fundamental aims and financial requirements of the enterprise. Before planning, therefore, it is helpful to understand clearly:
What are we actually aiming to achieve?
2. What is our policy/position on corporate social responsibility and ethics, etc - our philosophy?
3. And what return on investment (or alternative financial performance) does our activity/enterprise require - is this a strategic driver in itself, or simply the means by which we maintain our activities in support of our (point 1) aims?
Planning - Cause and Effect
The basic methodology of business planning is identifying causes and effects, according to your relevant business requirements (financials and ethics) and strategic drivers (what we are actually aiming to achieve). Here a cause is an input or action or resource; an effect is an outcome or result or consequence of some sort
We want to achieve xyz effect (for example a given return on investment, or a certain sales level or market share, whatever) - so what should we plan to cause this to happen? Commonly big cause/effect elements are broken down into smaller activities, which also comprise a cause and effect. (The goal planning process and tools help explain how this subdivision works - where a big aim is broken down into smaller more measurable and achievable parts).
junior managers have responsibility for plans and activities which feed into larger departmental plans and activities of senior managers. The plans and activities of senior managers feed into the divisional plans of executives and directors. There is a hierarchy or tree structure of cause and effects, all hopefully contributing to the overall organizational aim. In many good businesses a substantial business planning responsibility extends now to front line customer-facing staff, and the trend is increasing. In this context, the business plan could be called also a marketing plan, or a sales plan - all departmental plans are basically types of business planning:
"What you are going to sell to whom, when and how you are going to sell it, how much contribution (gross profit) the sales will produce, what the marketing and/or selling cost will be, and what will be the return on investment." Where a department is a 'cost centre' not a 'profit-centre' - providing products or services internally to other departments rather than externally to customers - then the language and planning elements may alter, but the principles remain the same. Also, these principles and methods apply to very large complex multinational organizations, which tend to entail more and different costs, fixed overheads, revenues, and consequently larger planning formats; more and bigger spreadsheets, more lines and columns on each, more attention and people working on the numbers, more accountants, and typically - especially at middle-management level and above - more emphasis on cashflow and the balance sheet, alongside basic 'profit and loss' planning
Carry out your market research, including understanding your competitor activity
The market' varies according to the business or organization concerned, but every organized activity has a market. Knowing the market enables you to assess and value and plan how to engage with it. A common failing of business planning or operational planning outside of the 'business' world, is to plan in isolation, looking inward, when ideas can seem very positive and reliable because there's no context and nothing to compare. Hence research is critical. And this applies to any type of organization - not just to businesses. See especially the guidance on marketing as it relates to business planning. Planning very much concerns processes. The principles of marketing will explain additionally how to put meaning and values into what you plan
Your market research should focus on the information you need, to help you to formulate strategy and make business decisions. Market research should be pragmatic and purposeful - a means to an end, and not a means in itself. Market information potentially covers a vast range of data, from global macro-trends and statistics, to very specific and detailed local or technical information, so it's important to decide what is actually relevant and necessary to know.
Market information about market and industry trends, values, main corporations, market structure, etc, is important to know for large corporations operating on a national or international basis. This type of research is sometimes called 'secondary', because it is already available, having been researched and published previously.
This sort of information is available from the internet, libraries, research companies, trade and national press and publications, professional associations and institutes. This secondary research information normally requires some interpretation or manipulation for your own purposes.
However there's no point spending days researching global statistical economic and demographic data if you are developing a strategy for a relatively small or local business. Far more useful would be to carry out your own 'primary' research (i.e. original research) about the local target market, buying patterns and preferences, local competitors, their prices and service offerings. A lot of useful primary market research can be performed using customer feed-back, surveys, questionnaires and focus groups (obtaining indicators and views through discussion among a few representative people in a controlled discussion situation). This sort of primary research should be tailored exactly for your needs. Primary research requires less manipulation than secondary research, but all types of research need a certain amount of analysis. Be careful when extrapolating or projecting figures to avoid magnifying initial mistakes or wrong assumptions. If the starting point is inaccurate the resulting analysis will not be reliable. For businesses of any size; small, local, global and everything in between, the main elements you need to understand and quantify are:
Customer (and potential customer) numbers, profile and mix Customer perceptions, needs, preferences, buying patterns, and trends, by sub-sector if necessary
Products and services, mix, values and trends
Demographic issues and trends (especially if dependent on consumer markets)
Future regulatory and legal effects
Prices and values, and customer perceptions in these areas
Distribution and routes to market
Competitor activities, strengths, weaknesses, products, services, prices, sales methods, etc
Primary research is recommended for local and niche services. Keep the subjects simple and the range narrow. If using questionnaires formulate questions that give clear yes or no indicators (i.e. avoid three and five options in multi-choices which produce lots of uncertain answers) always understand how you will analyze and measure the data produced. Try to convert data to numerical format and manipulate on a spreadsheet.
Use focus groups for more detailed work. For large research projects consider using a market research organization because they'll probably do it better than you, even though this is likely to be more costly. If you use any sort of marketing agency ensure you issue a clear brief, and that your aims are clearly understood. Useful frameworks for research are PEST analysis and SWOT analysis.
Establish your corporate philosophy and the aims of your business or operation
First establish or confirm the aims of the business, and if you are concerned with a part of a business, establish and validate the aims of your part of the business. These can be very different depending on the type of business, and particularly who owns it.
Refer to and consider issues of ethics and philosophy, corporate social responsibility, sustainability, etc - these are the foundations on which values and missions are built. Look at the reasons why ethics and corporate responsibility are so important. And see also the fundamental organisational planning stages.
When you have established or confirmed your philosophical and ethical position, state the objectives of the business unit you are planning to develop - your short, medium and long term aims - (typically 'short, medium and long' equate to 1 year, 2-3 years and 3 years plus). In other words, what is the business aiming to do over the next one, three and five years? Bear in mind that you must reliably ensure the success and viability of the business in the short term or the long term is merely an academic issue. Grand visions need solid foundations. All objectives and aims must be prioritised and as far as possible quantified. If you can't measure it, you can't manage it.
Define your 'mission statement
All businesses need a ‘mission statement'. It announces clearly and succinctly to your staff, shareholders and customers what you are in business to do. Your mission statement may build upon a general ‘service charter' relevant to your industry. You can involve staff in defining and refining the business's mission statement, which helps develop a sense of ownership and responsibility. Producing and announcing the mission statement is also an excellent process for focusing attention on the business's priorities, and particularly the emphasis on customer service. Whole businesses need a mission statement - departments and smaller business units within a bigger business need them too.
Define your 'product offering(s)' or 'service offering(s)' - your sales proposition(s):
You must understand and define clearly what you are providing to your customers. This description should normally go beyond your products or services, and critically must include the way you do business, and what business benefits your customers derive from your products and services, and from doing business with you. Develop offerings or propositions for each main area of your business activity - sometimes referred to as 'revenue streams', or 'business streams' - and/or for the sector(s) that you serve.
Under normal circumstances competitive advantage is increased the more you can offer things that your competitors cannot. Good research will tell you where the opportunities are to increase your competitive advantage in areas that are of prime interest to your target markets. Develop your service offering to emphasise your strengths, which should normally relate to your business objectives, in turn being influenced by corporate aims and market research.
The important process in developing a proposition is translating your view of these services into an offer that means something to your customer. The definition of your service offer must make sense to your customer in terms that are advantageous and beneficial to the customer, not what is technically good, or scientifically sound to you. Think about what your service, and the manner by which you deliver it, means to your customer.
Traditionally, in sales and marketing, this perspective is referred to as translating features into benefits. The easiest way to translate a feature into a benefit is to add the prompt ‘which means that...'. For example, if a strong feature of a business is that it has 24-hour opening, this feature would translate into something like: "We're open 24 hours (the feature) which means that you can get what you need when you need it - day or night." (the benefit).
Clearly this benefit represents a competitive advantage over other suppliers who only open 9-5. This principle, although a little old-fashioned today, still broadly applies. The important thing is to understand your services and proposition in terms that your customer will recognise as being relevant and beneficial to them.Most businesses have a very poor understanding of what their customers value most in the relationship, so ensure you discover this in the research stage, and reflect it in your stated product or service proposition(s). Customers invariably value these benefits higher than all others:
Making moneySaving money
Saving time If your proposition(s) cannot be seen as leading to any of the above then customers will not be very interested in you.b
This is the first 'brick in the wall' in the process of business planning, sales planning, marketing planning, and thereafter, direct marketing, and particularly sales lead generation
Write your Business Plan - include Sales, Costs of sales, Gross Margins, and if necessary your Business Overheads:-
Business plans come in all shapes and sizes. Pragmatism is essential. Ensure your plan shows what your business needs it to show. Essentially your plan is a spreadsheet of numbers with supporting narrative, explaining how the numbers are to be achieved. A plan should show all the activities and resources in terms of revenues and costs, which together hopefully produce a profit at the end of the trading year.
The level of detail and complexity depends on the size and part of the business that the plan concerns. Your business plan, which deals with all aspects of the resource and management of the business (or your part of the business), will include many decisions and factors fed in from the marketing process. It will state sales and profitability targets by activity. In a marketing plan there may also be references to image and reputation, and to public relations.
All of these issues require thought and planning if they are to result in improvement, and particularly increasing numbers of customers and revenue growth. You would normally describe and provide financial justification for the means of achieving these things, together with customer satisfaction improvement. Above all a plan needs to be based on actions - cost-effective and profitable cause and effect; inputs required to achieved required outputs, analyzed, identified and quantified separately wherever necessary to be able to manage and measure the relevant activities and resourcesQuantify the Business you seek from each of your market sectors, segments, products and customer groupings, and allocate investment, resources and activities accordingly:-
These principles apply to a small local business, a department within a business, or a vast whole business. Before attending to the detail of how to achieve your marketing aims you need to quantify clearly what they are. What growth targets does the business have? What customer losses are you projecting? How many new customers do you need, by size and type, by product and service? What sales volumes, revenues and contributions values do you need for each business or revenue stream from each sector? What is your product mix, in terms of customer type, size, sector, volumes, values, contribution, and distribution channel or route to market? What are your projected selling costs and net contributions per service, product, sector?
What trends and percentage increase in revenues and contributions, and volumes compared to last year are you projecting? How is your market share per business stream and sector changing, and how does this compare with your overall business aims? What are your fast-growth high-margin opportunities, and what are your mature and low-margin services; how are you treating these different opportunities, and anything else in between? You should use a basic spreadsheet tool to split your business according to the main activities and profit levers.Write your Marketing Plan or Business Plan
Your marketing plan is actually a statement, supported by relevant financial data, of how you are going to develop your business. Plans should be based on actions, not masses of historical data. The historical and market information should be sufficient just to explain and justify the opportunities, direction, strategy, and most importantly, the marketing actions, methods and measures - not to tell the story of the past 20 years of your particular industry. "What you are going to sell to whom, when and how you are going to sell it, how much contribution (gross profit) the sales produce, what the marketing cost will be, and what will be the return on investment."
As stated above it is easiest and best to assemble all of this data onto a spreadsheet, which then allows data to be manipulated through the planning process, and then changed and reprojected when the trading year is under way. The spreadsheet then becomes the basis of your sales and marketing forecasting and results reporting tool. As well as sales and marketing data, in most types of businesses it is also useful to include measurable aims concerning customer service and satisfaction.
The marketing plan will have costs that relate to a marketing budget in the overall business plan. The marketing plan will also have revenue and gross margin/profitability targets that relate to the turnover and profitability in the overall business plan. This data is essentially numerical, and so needs also some supporting narrative as to how the numbers will be achieved - the actions - but keep the narrative concise; if it extends to more than a half-dozen sheets make sure you put a succinct executive summary on the front.The marketing plan narrative could if appropriate also refer to indirect activities such as product development, customer service, quality assurance, training etc., if significantly relevant to achieving the marketing plan aims. Be pragmatic - marketing plans vary enormously depending on the type, size and maturity of business. Above all create a plan that logically shows how the business can best consolidate and grow its successful profitable areas. The marketing plan should be a working and truly useful tool - if it is, then it's probably a good one.
Tips for starting a small business or self-employment - for non-financial people:-
Some of us are not naturally inclined towards the sort of detailed financial thinking that is required for traditional detailed business planning. If this is you, you'll possess other valuable capabilities that will be useful in your own enterprise, and you'll maybe find it helpful to use this alternative approach to planning a new enterprise or self-employment.
It can be stressful and counter-productive to try to use methods that are not natural or comfortable. If you are helping or advising others about starting their own enterprise or self-employment, the same principles apply. Not everyone is naturally good at business planning, but everyone who dreams of being self-employed or who wants to start and run their own independent enterprise is capable of doing so, provided they work to their strengths, capabilities and passions.People running successful enterprises come in all shapes and sizes, from all backgrounds, all ages, with skills, passions, and capabilities in any field you can imagine. Anyone can run their own business or be successful in self-employment given the simple determination to do so. Business and enterprise is not just for stereotypical 'business-types'; the benefits and advantages of being your own boss are available to us all. Here are some pointers for people considering starting their own new enterprise, or for helping others to do the same.
First, and especially if you are not clear of your own real strengths, or what direction to pursue, focus on using tools to understanding your own personality style and strengths. Then use this knowledge to imagine and realize how your natural capabilities can be used to best effect in defining and providing your own services or running your own enterprise. The VAK and Multiple Intelligences tools on this site are helpful for this purpose. They assess people's strengths completely differently to traditional IQ or academic evaluations, which are extremely narrow and generally not relevant at all for people who want to be their own boss.Understanding personality is also useful since personality-type greatly influences the way that a person approaches self-employment or running an enterprise, and what sort of service or business to offer. The Personality Styles page provides a lot of explanation about this. Many people are conditioned by schools and over-cautious parents to under-estimate their own potential and capabilities, which is a big reason to take a fresh look at what you are good at, and to re-think and understand better the ways that your personality type tends to be successful in life and business
There are many ways to be successful and independent in life aside from building and running a conventional business and adhering to conventional financial planning methods. The basic economics of becoming successfully independent in any sort of venture are actually extremely simple, and focusing on the following simple fundamentals (a process really) can help many folk turn your dream or an idea into a successful enterprise or self-employment reality. It's usually easiest to think first of these factors in terms of daily, weekly or monthly numbers and values, and then to extend the figures to give totals for a whole year:
. What's your product or service? (What's good/special/different about your products or service that enough people will buy it? And importantly is this something that you have a real passion for? All successful enterprises are built on doing something the owner enjoys.)
2. What does it cost to make/buy in/provide the product or service? (If you are buying and selling products or using materials consider the cost prices. If the main resource is your own time then attach a cost to your labor that reflects your available time for the work and the wage you need to draw. Divide your required annual wage by the number of work hours available to you, and this is your notional hourly labor cost.)
3. What price will the product/service sell for? (Ideally small businesses need a healthy profit margin or mark-up - doubling the cost is good if the market will accept it. A mark-up of less than 50% is cause for concern unless you are selling products in relatively high volumes or values. Price your products/services according to what the market will pay, not according to your costs.
Take into account your competitors and what they charge and their relative quality. Service businesses that use only the person's time are often very attractive and profitable because there is no added complication of buying and holding stock - hence why window-cleaning, signwriting, repairs, gardening, decorating, tutoring, writing, therapy, training, coaching and consultancy, etc., are such good businesses for people who prefer a simple approach to selfemployment and enterprise. Consider the effect of VAT especially for 'consumer' businesses - ie. Selling to the general public - assuming your business is or must be VAT registered. Private consumers of course are more sensitive to VAT than business customers who can generally reclaim VAT should you have to add it to your prices.)
4. Who will buy the product/service? (Identify your customers and market. Do you know this for sure? Test your assumptions: this is a critical part of the proposition and generally benefits from more thought and research to confirm that a big enough market exists for your idea. Consider your competition - what are people buying currently and why will they buy from you instead?)
5. How much/many do you need to sell in a year? And how many customers do you need? (This is a vital part of the proposition to confirm that the gross profit (the difference between costs of bought in products/labour and sales revenues) covers your/their financial needs (including a living wage and other fixed costs of running the enterprise. Again remember the affect of VAT on your selling prices if applicable.)
6. How will people know about the service/product? (You need to understand what advertising/marketing/enquiry-generation is necessary - activity and cost. There is usually a cost for generating new customers, especially in the early stages of a new enterprise. Once the business is established, say after six months to a year, 'word-of-mouth' referrals are for some businesses all that is required to produce new customers - especially those based in a local community, but virtually any new enterprise requires marketing at its launch. See the articles on marketing and selling.)
7. Does all this add up, and better still provide a cash surplus at the end of a year? - if so then it's probably a good business model. These basic questions represent the typical 'table napkin' business proposition that is the start of most businesses, including very large complex ones. People who dislike and are not fluent in detailed business calculations might find the above process a useful starting point when thinking about how to begin a new enterprise or a venture in self-employment. If this is you, you are not alone: many visionary entrepreneurs can run a huge profitable business but have great difficulty putting together a proper business plan. Hence many highly successful business leaders rely heavily on their financial directors to take care of the financial details, leaving them free to get on with the business activity that makes best use of their natural skill, be it creativity, selling, service-provision, people-skills, technical skills, or whatever.
Incidentally the above factors are the essential components which make up a basic Profit and Loss Account, which is the primary management tool for a business of any scale and complexity.Company types and financial set up - quick guide
When you have confirmed and refined the basic viability of your business idea you can then begin getting to grips with the more detailed aspects of forming the business itself. This necessarily includes deciding your type of business constitution - the legal format of your company - or 'company type' as it is often described.
Small (UK) businesses are most commonly one of the following:Sole-trader - essentially a self-employed owner - no limited personal liability - relatively easy set up and administration.
Partnership - essentially a group of self-employed partners/owners - no limited personal liability - easy-ish set up and administration, although ultimately dependent on the complexity of the company and partnership.
Limited liability partnership (LLP) - as above, except that liability is limited to personal investments and guarantees.
Limited company (abbreviated to Ltd after the company name) - liability is limited to the assets of the company - registered with Companies House and legally obliged to publish accounts.
There are less common variations of limited companies, and other business structures and constitutions, for example:
Social enterprise - various structures including, trusts, associations and especially cooperatives - these are not common typical or traditional business structures, but social enterprises are growing in popularity.
Public limited company (plc) - not appropriate for small companies.
Sole-trader and partnership companies are very easy to set up and administer, but the owner/partners are personally liable for all business debts and potential claims, so good insurance cover (including professional indemnity and public liability) is essential especially if business liabilities are potentially serious.
A limited liability partnership offers protection to partners in terms of personal liabilities, in that liabilities are limited to the extent of personal investment and any other guarantees. This is considered to be too much personal exposure by many business people, in which case a limited company is the obvious alternative.
A limited company exists in its own right - a tricky concept to understand for many people - basically meaning that financial liabilities belong to the company (its shareholders, to the value of their shares in other words) rather than the directors and executives of the business, as would apply in a partnership. Limited companies ultimately offer more flexibility for large complex businesses but can be over-complicated and administratively heavy if all you want to do is run a local shop or landscape gardening business or modest training or coaching business.
Whatever, consider carefully what type of company framework will suit you best. Once established it can be quite difficult to unravel and change if you get it wrong - not impossible, but a nuisance if you could have got it right first time with a bit of extra thought at the
A good accountant will help you decide what is best for your situation from a legal and financial standpoint, although before this you should think for yourself what sort of business structure best fits your wider business situation, and especially your business aims and philosophy. Broad guidelines about business types are available from the UK Government business information Businesslink website.
You'll need a business bank account. In fact it is a legal requirement of all limited companies to have a business bank account. Shop around. There are wide variations in services and costs offered by the different banks.
You must also understand and organize the tax implications for your type of business. Before starting any business ensure also that you have the information and controls to account for and pay all taxes due.Helpfully to learn more about this in the UK, most tax affairs are within the responsibilities of HM Revenue and Customs - until they too change their name to something very silly. That said, the relevance today of HM (Her Majesty's) is a bit puzzling when you stop to think about it and surely due for updating to the modern age. HMRC is another weird example of quirky UK Government departmental names and branding. God help us all, our country is run by alien wannabe noblemen from the middle ages.
VAT (Value Added Tax or your national equivalent) is an issue warranting serious thought if your business is small enough to have a choice in the matter. Beyond a certain turnover (£68,000 as at 2010) any UK business must register for VAT. Check the HMRC website for the current position.Being VAT registered means you must charge VAT on all VAT-rated supplies, which means also that the VAT you receive on payments from your customers must be paid to HM Revenue and Customs. (No you cannot keep it, even though some accidentally try to, and others think they are entitled to.)
Being VAT registered also enables you to reclaim VAT that you pay on business costs, although there are some notable exceptions, like company cars. Retail and consumer businesses are especially affected by VAT. Private consumers cannot claim back VAT, so the effect of VAT on pricing and margins needs careful thought in planning any consumer business.Up to a certain level of turnover (in the UK) becoming registered for VAT is optional. If your business turnover is likely to be below the threshold for mandatory VAT registration, you must decide for yourself if the advantages outweigh the disadvantages. The main advantages of VAT registration are:
your business will be perceived by certain people - especially other businesses - to be larger and more credible (not being registered for VAT indicates immediately that your turnover is below the VAT threshold) you will be able to reclaim VAT that you are charged on legitimate allowable business costs The main disadvantages of being VAT registered are: the administrative burden in keeping VAT records and submitting VAT returns (although this has been enormously simplified in recent years so that for small simple businesses it is really not a problem at all)
risks of getting onto cashflow difficulties if you fail to set funds aside to pay your VAT bills (see the tax tips below)Information about VAT (and all other tax issues) is at the UK Government HM Revenue and Customs website: http://www.hmrc.gov.uk VAT is not the only tax. Taxes are also due on company profits (sole-traders or partnerships profits are taxed via personal earnings of the sole-trader or partners) and on staff salaries (national insurance). A sole-trader or partnership can employ staff, in which case national insurance tax is due on salaries paid to employees, which is different to the tax that employees pay themselves.
Failing to retain funds in a company to pay taxes is a serious problem that's easily avoided with good early planning. Contact your tax office. Inform them of your plans and seek their help. Tax offices are generally extremely helpful, so ask. You can even talk to a real person on the phone without having to breach a six-level automated menu system.Ideally find a decent accountant too. Preferably one who comes recommended to you. With all the greatest respect to accountants everywhere, accountants are quite commonly very intense people, like solicitors and scientists, very much focused on process, accuracy, rules, etc., which in terms of personality fit can be a little at odds with the style of many entrepreneurs. So again shop around and find an accountant with whom you can share a joke and a beer or something from the human world. The relationship between a business person and his/her accountant is crucial if the business is to grow and develop significantly.
Accountants might seem at times to be from another planet, but I can assure you the good ones are bloody magicians when it comes to business development, especially when the figures get really interesting. The statement that one stroke of an accountant's pen is mightier than the world's most successful sales team, is actually true.For many entrepreneurs, the ideal scenario is to grow your business large enough to support the cost of a really excellent finance director, who can take care of all the detailed legal and financial matters for you, and leave you completely free to concentrate on growing the business - concentrating your efforts and ideas and strategy externally towards markets and customers, and internally towards optimizing innovation and your staff.
See the quick tax tips below, especially for small businesses which might not easily be able to achieve immediate and accurate control of their tax liabilities, which is one of the major early risks for a new successful small business.Tax tips - understanding and accounting for taxes from the start:- A significant potential problem area for newly self-employed people, and for new business start-ups, is failing to budget and save for inevitable taxes which arise from your business activities.
N.B. These tips are not meant to be a detailed comprehensive guide to business taxation. This section merely addresses a particular vulnerability of new start-up businesses in failing to set aside sufficient reserves to meet tax liabilities, especially small businesses, and even more especially sole-traders and partnerships and small limited companies, which lack expertise in accounting and consequently might benefit from these simple warnings and tips related to tax liabilities.
In general these issues would normally be managed via a cashflow forecast, together with suitable financial processes to allocate and make payments for all costs and liabilities arising in the course of trading. I recognize however that many small business start-ups do not begin with such attention to financial processes, and it's primarily for those situations that these particular notes are provided.
These notes in no way suggest that this is the normal fully controlled approach to planning and organizing tax liabilities and other cashflow issues within any business of significant scale.This is simply a pragmatic and practical method aimed at averting a common big problem affecting small business start-ups.
While your type of company and business determines precisely which taxes apply to you, broadly taxes are due on sales (for VAT registered businesses in the UK, or your VAT equivalent if outside the UK), and on the profits of your business and your earnings. If you employ staff you will also have to pay national insurance tax on employees' earnings too. Generally sole-traders and partnerships have simpler tax arrangements - for example, profits are typically taxed as personal earnings - as compared with the more complex taxes applicable to limited companies, which also pay taxes on company profits and staff salaries. Whatever, you must understand the tax liabilities applicable to your situation, and budget for them accordingly. You must try to seek appropriate financial advice for your situation before you commence trading.
Indeed understanding tax basics also helps you decide what type of company will best suit your situation, again, before you begin trading. The potential for nasty financial surprises - notably tax bills that you have insufficient funds to pay - ironically tends to increase along with your successThis is because bigger sales and profits and earnings inevitably produce bigger tax bills (percentage of tax increases too in the early growth of a business), all of which becomes a very big problem if you've no funds to pay taxes when due.
The risks of getting into difficulties can be greater for the self-employed and small partnerships which perhaps do not have great financial knowledge and experience, than for larger Limited Company start-ups which tend to have more systems and support in financial areas.
Start-ups are especially prone to tax surprises because the first set of tax bills can commonly be delayed, and if you fail to account properly for all taxes due then obviously you increase the chances of spending more than you should do, resulting in not having adequate funds to cover the payments when they are due
Risks are increased further if you are new to self-employment, previously having been employed and accustomed to receiving a regular salary on which all taxes have already been deducted, in other words 'net' of tax. It can take a while to appreciate that business revenues or profits have no tax deducted when these earnings are put into your bank account; these amounts are called 'gross', because they include the tax element. Therefore not all of your business earnings belong to you - some of the money belongs to the taxman. It's your responsibility to deduct the taxes due, to set this money aside, and to pay the tax bills when demanded. Additionally, if you are a person who is in the habit of spending everything that you earn, you must be even more careful, since this tendency will increase the risks of your being unable to pay your taxes.Failing to get on top of the reality of taxes from the very beginning can lead to serious debt and cashflow problems, which is a miserable way to run a business. So you must anticipate and set aside funds necessary to meet your tax liabilities from the very start of your business, even if you do not initially have a very accurate idea of what taxes will be due, or you lack effective systems to calculate them - many small start-ups are in this position. Nevertheless it is too late to start thinking about tax when the first demands fall due. If when starting your business you do not have information and systems to identify and account accurately for your tax liabilities, here are two simple quick tax tips to avoid problems with the taxman:
1. You must estimate your tax liabilities and ensure that you set aside funds to cover these liabilities while you are banking your payments received into the business. The easiest way to do this is to identify the taxes applicable to your business, for example VAT and your own personal income tax and national insurance.
Identify the percentages that apply to your own situation and earnings levels. You can do this approximately. It does not need to be very precise. Add these percentages together, and then set aside this percentage of all your earnings that you receive into your business. Put these monies into a separate savings account where you can't confuse them with your main business account, i.e., your 'working capital' typically held in a current account.2. Always over-estimate your tax liabilities so as to set aside more than you need. Having a surplus is not a problem. Having not enough money to pay taxes because you've under-estimated tax due is a problem; sometimes enough to kill an otherwise promising business.
Here's an example to show how quickly and easily you can plan and set aside a contingency to pay your tax bills, even if you've no experience or systems to calculate them precisely. This example is based on a self-employed consultancy-type business, like a training or coaching business, in which there are no significant costs of sales (products or services bought in) or overheads, i.e., reveExample of estimating and setting aside money to pay taxes:-
1. In the UK VAT on most products and services is 17.5%. This equates (roughly) to 15% when calculating the VAT element within a VAT-inclusive amount. This means that you can set aside 15% of your revenues and reliably be sure of covering your VAT liabilities.2. In the UK personal income tax and national insurance combined is roughly 30% of earnings up to about £30,000 (a little over in fact), rising to 49% - call it 50% - of earnings above £30k - roughly.
N.B. Income tax and national insurance are calculated on taxable earnings, which exclude money spent on legitimate business costs, and VAT received.
These figures in the above example are approximate I emphasize again, which is all you need for this purpose; moreover the approximations are on the high side of what the precise liabilities actually are. Accountants call this sort of thinking 'prudent'.
It's a pessimistic approach to forecasting liabilities rather than optimistic, which is fundamental to good financial planning and management: if the pessimism is wrong then you end up with a surplus (which is good), but if you are wrong in making optimistic forecasts and estimates (overambitious sales, and lower-than-actual costs and liabilities), then you run out of money (which is bad).
Back to the percentages. Knowing the income tax percentages enables you to set aside a suitable percentage of your earnings when you receive them into the business. Roughly speaking, for earnings up to £30k you need to set aside 30% to cover income tax and national insurance.
For earnings over £30k you need to set aside 50% to cover your income tax and national insurance.
(Earnings below £30k remain taxable at 30%). Remember you can arrive at these figures based on the VAT exclusive revenues, but to keep matters simpler it is easier to use an adjusted total percentage figure to apply to the total gross earnings. If it's kept very simple and quick you'll be more likely to do it - and/or to communicate the method effectively to your partner if they are responsible for handling the financials, as often happens.
From this example you can see that setting aside 45.5% of earnings (yes it's a lot isn't it - which is why you need to anticipate it and set the money aside) would comfortably cover VAT and income tax liabilities. To be extra safe and simpler in this example you could round it up to 50%. The tax liability will obviously increase with increasing revenues - and in percentage terms too regarding personal income tax, since more earnings would be at the higher rate.
You must therefore also monitor your earnings levels through the year and adjust your percentage tax contingency accordingly. As stated already above, the risk of under-estimating tax liabilities increases the more successful you are, because tax bills get bigger
In truth you will have some costs to offset against the earnings figures above, but again for the purposes of establishing a very quick principle of saving a fixed percentage as a tax reserve until you know and can control these liabilities more accurately, the above is a very useful simple easy method of initially staying solvent and on top of your tax affairs, which are for many people the most serious source of nasty financial surprises in successful start-up businesses.
The above example is very simple, and is provided mainly for small start-up businesses which might otherwise neglect to provide for tax liabilities. The figures and percentages are not appropriate (but the broad principle of forecasting and providing funds for tax liabilities is) to apply to retail businesses for example, or businesses in which staff are employed, since these businesses carry significant costs of sales and overheads, which should be deducted from revenues before calculating profits and taxes liabilities. Neither does the example take account of the various ways to reduce tax liabilities by reinvesting profits in the business, writing off stock, putting money into pensions, charitable donations, etc.
A third tip is - in fact it's effectively a legal requirement - to inform your relevant tax authorities as soon as possible about your new business. Preferably do this a few weeks before you actually begin trading. That way you can be fully informed of the tax situation - and your best methods of dealing with tax, because there are usually different ways, and sometimes the differences can be worth quite a lot of money.
I do not go into more detail about tax here because it's a very complex subject with wide variations depending on your own situation, for which you should seek relevant information and advice from a qualified accountant and/or the relevant tax authorities.Template and structure for a feasibility study or project Justification report
First, and importantly, you need to clarify/confirm the criteria that need to be fulfilled in order to justify starting or continuing the project or group, in other words, what do the decisionmakers need to see in order to approve the project or its continuation?
Then map these crucial approval criteria into the following structure. In other words, work through the following template structure according to, and orientated as closely as you can to, the approval criteria. (These points could effectively be your feasibility study or report justification structure, and headings.)
past, present and particularly future ('customer') need (for the outputs/results produced by group or project)
benefits and outcomes achieved to date for what cost/investment
benefits and outcomes to be produced in the future
resources, costs, investment, etc., required to produce future required outcomes and benefits (identify capital vs revenue costs, i.e., acquisition of major assets and ongoing overheads)
Alternative methods or ways of satisfying needs, with relative cost/return (return on investment) comparisons (i.e. what other ways might there be for satisfying the need if the group or project doesn't happen or ceases?)
outline strategy and financial plan, including people, aims, philosophy, etc (ideally tuned to meet the authorising power's fulfilment criteria) for proposed start or continuation of project (assuming you have a case, and assuming there is no better alternative) Keep it simple. Keep to the facts and figures. Provide evidence. Be clear and concise. Refer to the tips about effective writing.
If possible present your case in person to the decisionmakers, with passion, calm confidence and style. Look at the tips on presentations, and assertiveness.ips on finding and working with business planning advisors and consultants
If you need help putting together a business plan, and if you want to get the best from the engagement, it's important to find the right person to work with, and to establish and maintain a good working relationship with them. If you are great big organization you'll probably not need to work with outsiders, and if you do then you'll probably opt for a great big supplier, however there are significant benefits from working with much smaller suppliers - even single operators - and if you are a small business yourself, then this is probably the best choice anyway: to seek a good single operator, or small partnership of experts.
Here are some ideas of what to look for.You'll be best finding someone who meets as much of this criteria as possible:
lives close-by you so you can work face-to-face with them and get to know each other properly, and so that their time is efficiently used, instead of being in traffic on their way to and from your placeis high integrity and very discreet is grown-up and got no baggage or emotional triggers - wise and mature - and it needn't be an age thing
can help you see and decide where and how you want to take the business, rather than tell you where he/she thinks you need to go - a mentor not an instructor
understands or can immediately relate to your industry sector and type of work
is experienced working with small family companies, but is also a big picture strategist and visionary (advisors who've only ever worked with big corporations can sometimes be a bit free and easy with relatively small amounts of money - you need someone with a very practical approach to managing cash-flow, and real business realities, who've worked in situations without the protection of vast corporate bureaucracy and the lack of transparency that this often brings)
is triple-brained or whole-brained - mostly front-brained - (see the stuff on Benziger) - intuitive-creative, thinking, but also able to be personable and grounded, subject to the point below
complements your own strengths and fills the gaps and weaknesses in your collective abilities (again see the stuff on Benziger and Jung etc) - ie., if collectively you need hard facts and figures and logic then seek people with these strengths - conversely if you are strong on all this, then seek the creative humanist ethical strengths - he/she must work with you in a balanced team - so that the team has no blind spots, and no subjective biases in style or emphasis
has two or three referees you can talk to and see evidence of past work (although if you check most of the above it will be a formality) doesn't smoke or drink too much
isn't desperate for the work As regards finding someone like this, without doubt the most reliable and quickest method is by networking introductions through trusted people. The person you seek might be three or more links away, but if it's a friend or associate of someone trusted, by someone who's trusted, by someone you trust, then probably they'll be right for you. Start by talking to people you know and asking if they know anyone, or if they know anyone who might know anyone - and take it from there.
The chances of finding the right person in the local business listings or directory, out of the blue and from cold, are pretty remote. Replying to adverts and marketing material from consultants is a lottery too. You'll find someone eventually but you'll need to kiss a lot of frogs first, which takes ages and is not the cleverest way to spend your valuable time. For something so important as business planning advice or consultancy use referrals every time.
Referrals work not only because you get to find someone trusted, but the person you find has a reasonable assurance that you can be trusted too, you see: good suppliers are just as choosy as good clients. It works both ways.
Be prepared to reward the person in whatever way is appropriate and fair (I'm thinking percentage share of incremental success beyond expectations - perhaps even equity share if the person is really good and you'd value their on-going contribution and help). Often the best people won't ask for much money up front at all, but from your point of view you will attract a lot more commitment and work beyond the call of normal duty from them if you reward higher than they ask or need. Good suppliers are immensely motivated by good clients and lots of appreciation, even if they don't want the financial reward.Good suppliers have usually seen too many ungrateful greedy people taking them for granted and penny pinching, and will tend to sack clients like these without even telling them why, and move on to more deserving enjoyable work with people who are fair and appreciative, which is how you'll be I'm sure.
Finally, when you've found the right person, always continually agree expectations and invite feedback about how the relationship is working, not just how the work is goingOur Mission