Your Organizational And Operating Plan
The organizational and operating plan describes how you will structure your company and how you will actually carry out everything you present elsewhere in your business plan. Without an execution strategy, the rest of your plan is meaningless.
Like the marketing plan, your operations plan is essential to the success of your business, and will be important not just to financiers, but also to you, to management and to your employees. You can’t take for granted that anyone, including you, understands exactly how to run your business on a day-to-day basis unless you’ve thought it through and made your expectations clear. One difference between the operations plan that you would prepare for internal use and one you would give to potential lenders and investors, however, is that you do not need to include as much detail in the latter.
Here are the key components to address in an operations plan that will be used externally.
Provide the address where your business will be located. Describe the surrounding area and explain why this location will be effective. Also, note any disadvantages or possible problems presented by your location and what, if anything, you have done or will do to counteract these negatives. If you have a virtual business, you should explain why you have chosen to operate this way.
State whether you own or lease the property and provide the terms of your mortgage or lease. Present information like the monthly payment, the length of the term, whether you are legally able to sublet and the terms of the early termination clause. Lenders will also want to know if your lease is net, double net, or triple net – in other words, is it you or the landlord who will be responsible for property taxes, insurance and maintenance? If your company is responsible for any of them, how much do they cost?
Provide details such as the square footage of the property, how your facility is laid out, what type of loading area it has to receive merchandise (if applicable) and the number and location of parking spaces. Also provide data about vehicle and pedestrian traffic, accessibility from major roads and highways, related nearby businesses and anything else that affects your location. If your business has more than one location, be sure to describe each one. Also discuss the major fixtures and equipment your business requires and how they work with your space. Note whether you are likely to outgrow the space, and if so, how you plan to handle a move/expansion. (For more, check out Starting A Business: Location And Licenses.)
Supply and Inventory Management
Who will be your suppliers/vendors? Do you have multiple options available, or are you beholden to a single supplier, which may subject you to shortages and give you little bargaining power with regard to price and delivery schedule? What terms have you established with your suppliers? What kind of reputation do your suppliers have? Will they extend credit to your business, and if so, how much and on what conditions?
It’s also important to explain how you will manage your inventory. If you have too much inventory, you’re wasting money; if you have too little, you’re losing out on sales (and possibly customers, if they perceive your business as unreliable). Having good relationships with your suppliers can help you manage your inventory effectively.
Production and Distribution
How will your production process work? Describe each major stage of production, including any processes that are outsourced and the technologies you use, remembering that you are writing for someone who may not understand the acronyms and terms of art common in your industry. Detail what you will produce, how much of it you will produce and how long it takes to produce each unit. Also elaborate on what methods of quality control you will implement, both during and after production.
Describe how will you distribute and sell your product or service. And if it’s a product you’re selling, in what stores will you sell them? Consider any arrangements that are already in place, and how you will get your product to the stores. You should also consider how and why these arrangements will work.
As you discuss each component of your operating plan, make sure to analyze what competitive advantage or disadvantage your firm has in that area. (For more, see Competitive Advantage Counts.)
Your team of managers and lower-level employees are the ones who will carry out most of the operations plan, so it’s important to describe who they are, what their qualifications are and what their responsibilities will be. Include an organization chart showing the hierarchical structure of your business. Also describe how your business will be structured, what legal form of ownership it will use (sole proprietorship, partnership, LLP, LLC, corporation, etc.), and the chain of command. What is the company’s management philosophy and business culture, and how will these contribute to your business’s success?
Your organizational plan should provide names and professional descriptions of each owner and manager your business will have. The description of each top-level member of your organization should explain what their roles and responsibilities will be in your company, and what they have done previously. Emphasize past business successes and key skills that will help your current business succeed. In addition to your managers, what other essential jobs are there in your company, and which key employees will perform them? What qualifications do they have in order to excel at these jobs? Provide cross references in your descriptions to the appendix, where you will include detailed business resumes for yourself and for each of these individuals.
Lower-level staff members, if you plan to hire any, are also important enough to mention in your business plan because they will be essential to the smooth functioning of your business. Explain how you will locate potential employees and what qualifications they must meet, what jobs they will perform, how you will compensate them and so on. Basically, think about the information you would include if you were advertising one of these job openings, and include that in your business plan.
Also note whether your business will hire any outside consultants or other independent contractors. If so, why? What functions they will perform? Finally, describe any positions you might want to add in the future if your business is successful enough to expand.
Depending on how much information you need to present, you may want to separate the organizational plan from the operating plan. But if your business is extremely small, the organization plan will be quite short. If your business is a sole proprietorship, there really isn’t anything to describe, since there are no managers, no employees and no chain of command.