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As I suggested at the beginning of this chapter, most entrepreneurs have a very specific purpose for their business plan and, once that purpose has been accomplished, the formal planning process is over. The People Express business plan is theonly written plan the company ever put together. The question of why the company never assembled another plan to guide its astonishing growth is one that prompts extensive explanation from founder Donald Burr.

Quite simply, he begins, the company didn’t really need an operating plan once it had financial backing. Not even for budgeting purposes?

“We felt budgeting was one of the things that stand in the way of customer service,” he explains. “The mind-set of budgeting is that it’s finance driven instead of customer driven.”

Burr points to Continental Airlines, which acquired People Express, to illustrate his point. “Continental Airlines lives by budgeting,” he says. “From the food to the uniforms to the people, it’s budget driven. You end up with a seriously flawed product as a result of such a process.” ..more

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If your plan is intended to help your company raise money, you will almost certainly come under questioning and scrutiny from the financiers. How can you be so sure that you will achieve the market penetration you project? Have you given enough credence to the competitive pressures you’ll encounter? Aren’t you perhaps underestimating your sales and administrative expenses? How certain are you that you’ll collect 60% of your receivables in 30 days? And on and on.

Some of the questions and criticisms you encounter will be sincere concerns based on the battle-hardened inquirers’ previous experiences with smaller growing companies. Some, though, will be negotiating ploys. The amount of financing abanker or investor is willing to commit is linked to his or her assessment of the plan’s overall credibility. ..more

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When you think about it, the proof of the pudding as far as any business plan is concerned is how it compares with reality. Investors and bankers will tell you that in their experience, entrepreneurs are lucky to achieve half the sales and profits their plans project.

Indeed, financiers customarily “discount” the plan’s projections to a certain level in determining the amount of financing to make available. That is, bankers may discount the value of assets or receivables intended as collateral. Venture capitalists may discount the expected sales and profits, which are used to help determine the company’s future value, as a way to gauge how much of the company they get for how much investment. ..more

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