Business Planning Section 1 What and Why
There are two parts to this relatively simple question. First, what is a business plan? Second, what is business planning?
In basic terms, a business plan is a calculated set of instructions to guide a business towards the desired outcome. Now to make this a little more understandable, a business plan is your road map to success. Business planning is the use of a business plan to make better business decisions.
Your business planning activities should include: An assessment of your current situation; A definition of your business focus and strategic intent; A clear vision of what results you want to achieve by objectives; A list of action steps that you will utilize to achieve your goals; and an understanding of why you need regular analysis and occasional revisions of your game plan.
One of the top reasons for failure in business is the lack of planning. Every business requires constant analysis and planning. If your business is succeeding, know why. If it is not, find out why. Examine your company’s strengths and weaknesses. Review your company vision and focus, then set your objectives and determine the results you want to see. Perform a reality check and adjust accordingly.
Great plans fail because people hesitate, lose focus or interest, or just plain forget. Keep your eyes on the long-term objective, as well as, on the immediate priorities. In chess, it is not good positions that win games, but good moves.
1.1. The Business Plan Itself
Business plans come in a variety of forms and levels of sophistication from basic paper bound workbooks to interactive web-based applications. All business plans have one absolute: calculations, and two basic similarities, revenue, and expenses. Factors affecting aforesaid are methodologies of calculation, types of expenses, business development, accountability, tracking, and comparison.
A necessity in any business plan is making accurate projections and calculations designed to yield results. Compare this to only being involved in goal-setting which is as unpredictable as making the statement; “I want to earn a million dollars!” If you want to earn a “million dollars” a good business plan will require you to define what you will need to do to achieve that goal.
1.2. Goal Setting vs. Business Planning
A goal is a desire without a road map on how to fulfill that desire. Let’s say you have a goal to lose 40 pounds. If all you do is set that goal, you are in essence “Wishing”. If you write down that goal and tape it to your bathroom mirror you are still “Wishing”, although you should be commended for at least putting it in writing. A plan for losing the weight would involve looking at your diet and calculating how much less you need to eat to lose the weight.
A more in-depth plan would also include items such as the amount of time in which you want to lose the weight, a change in diet, a daily list of allowed foods, an exercise routine designed to meet your desired results and finally a way to track your progress and make appropriate changes.
Now you have something worthy of putting on your bathroom mirror, a plan to achieve your goal.
1.3. Why Not to Plan
Anyone can figure out why not to do something. It’s too cold, I’m too busy, I’m tired, or it will just take too long to complete. All of us want spectacular results; the problem is that getting spectacular results requires effort. We see other people doing what we wish we could do and then we fall back into either criticizing them for their success or being envious of how lucky they are. If we listen carefully to their stories, we will see that they are probably no better off than we were. All they did was follow the step-by-step process that helped them arrive at the destination they desired.
Broker/Owner Cathy Russell Team Real Estate
Cathy C. Russell
“Goals are where you want to go, the destination. A business plan is a map of how you want to go to get there.”
Most real estate agents are not just a “Salesperson,” but in actuality a “Business.” As a small business owner, you must have a clear understanding of the revenue generating and expense aspects of your business. All small business owners have three topics to consider when building the business:
- Source of revenue
- Cost to generate revenue
- Overhead expenses
Specifically, as a real estate agent, you should understand how much revenue you need to generate to cover your expenses and meet your personal income goals. In addition, as you mature in your career your sources of business will change. As these changes take place your marketing strategies need to also change.
Reasons to avoid planning often include:
- Planning doesn’t apply to me or my market
- I don’t need planning, I’m different
- Planning is too difficult
- My manager/broker doesn’t require planning
- Planning is too time-consuming
- I am not good with numbers/calculations
- I don’t have the time
These are all excuses – and really not valid at all. With the advent of the personal computer and the Internet, business planning has really become very simple. Automatic Wizards can walk you through the process, programs can do all the calculations, and the Internet can provide you weekly reminders.
Like anything worthwhile, however, there is a level of commitment that is required. But then again, doesn’t everything worthwhile require a commitment? Especially if you have selected real estate as your career, then your career is worthwhile. Your career, therefore, requires a plan.
1.4. Why Plan?
The number one reason to plan is probably centered around the word “SUCCESS”. One person put it this way: “If I am going to go to all the trouble to get up every morning and work day in and day out, I might as well become a success at it!”
According to William Clark, Former Executive Director of FastTrac, the statistics for startups speak in favor of sound documented planning. The company’s eleven-session business planning program developed by the Ewing Marion Kauffman Foundation for Entrepreneurial Leadership, provides some compelling results. The program requires participants to develop a comprehensive plan that addresses all the areas listed above. To date, more than 60,000 entrepreneurs in the United Sates have completed FastTrac. Research shows 88% of these graduates are still in business two years later and 74% are still in business and turning a profit five years later. This is a far better result than overall startup business statistics, which show three out of four businesses closed within three years.
1.4.1. The Need to Understand Costs
Every business needs to have an understanding of the costs associated with conducting business. Most agents can relate to the direct expenses associated with closing a transaction, however it is the overhead costs that ultimately cause the problems. Overhead is defined as the cost associated with just existing in this industry; your fixed daily/weekly/monthly/yearly business expenses.
A comprehensive understanding of the monetary aspects of any business will decrease the likelihood of making unprofitable decisions. Certainly there are situations where making the deal comes before making profit; for example, selling a key property in your farming area, or selling a property that raises your profile in a market area, or selling a property that could generate momentum which influences other sales.
Gaining a comprehensive financial understanding of your business is not a weekend planning session or a workshop, it is a lifetime process. Often agents author a business plan and believe that the plan will work perfectly for the rest of their career. This is an oversight, however. Business planning is an evolution and requires an ongoing examination of the changes that occur in your business and a constant tweaking and adjusting of the activities to keep you on track towards your goal.
1.4.2. The Need to Focus
Focus is the ability to center your attention on one specific issue or item at any given time. Any sales business requires a high level of focus on those activities that generate revenue. Defining these activities is a key component of a business plan. After the initial step of calculating the number of transactions required to meet a particular income level, the next step is to map out the sources that will generate the required business revenue.“Goal setting tells you what you want. Business planning shows you how to get it! A good business plan goes with you everywhere and is dynamic!”
Sandra Nickel Sandra Nickel, REALTORS
Think how you will obtain a certain level of closed listings and buyers. Where will these customers come from? Open Houses, Internet, Sphere of Influence, Referrals, Past Clients, Sign Calls, Just Listed or Sold Cards? Once you have determined what your sources of business will be, then consider what you must do to obtain business from each of these sources. An agent, for example, holds open houses to generate leads from prospective buyers in addition to trying to sell the property. If it takes the agent three open houses to get six leads and it takes twenty-four leads to generate one transaction, how many open houses must the agent hold to get four closed transactions from their open house efforts? (And you never thought you would need to use that high school algebra!). The answer is 48.
More importantly, now that you know you need to hold 48 open houses in one year – will you?
Determining what works best for you or is what most suitable in your area is important to your success in this industry. This is where a business plan is most effective. Use your plan to track the number of activities that result in appointments and the kind of activities that result in transactions. Develop effective patterns of activity. Simply put, determine which activities are most effective for you. Then focus on the activities that generate the most return on your investment of time and money. It’s not so much a choice of which activities you need to do, so much as it is that you actually do them. Almost everything, whether it be cold calling, open houses, farming, referrals, email campaigns, or just plain neighborhood walking, works.
Your Business Plan
My Income Goal Is Clarity
How Many Closed Transactions Are Required To Meet My Income Goal?
What Activities Must Be Completed To Generate Closed Transactions To Meet My Income Goal?
View your business as a pyramid. The ultimate goal is your desired income and profitability, which is your focus. To generate income requires closed transactions, which must be clarified. And finally, to generate the closed transactions that are required to produce your desired income requires activities, which is your direction.
1.4.3. The Need for Profitability
According to Walter Sanford, Owner of Sanford Systems, “Profitability is a major problem in a North American real estate agent’s business. It seems we have lots of superstars with big grosses and no nets. Everywhere we go we see panels of agents talking about amazing systems and teams that produce amazing results and amazing amounts of buyers and sellers. One problem! They’re only taking average amounts of income. The work-to-reward ratio in real estate is high! Why? We get too busy to pay attention to simple business strategies.”
You are not in real estate sales purely for the love of the job. Whether primary or secondary motivator, you’re in it for the money and your likelihood for profitability is greatly enhanced when you know how you are going to achieve it. Better business decisions combined with a better understanding of those activities will yield transactions with more profit.
1.5. The Benefits of Planning
There is an ever-present entrepreneurial imperative to look beyond today and think strategically about the impact of how change, trends and new technologies on the horizon, how customer needs and expectations are changing, what it will take to outrun competitors, which promising market opportunities ought to be aggressively pursued, and all the other external and internal factors that drive what the company needs to be doing to prepare for the future. The sum total of all the soundly reasoned conclusions about the winds of change must be detailed and encompassed in the company’s strategy and the business plan will then set direction.
Major benefits include:
- Provides clear and well-conceived direction and a path to obtain your goals.
- Forces you to structure and organize the company and becomes a beacon for managers to guide resource allocation.
- Allows you to analyze your progress and adjust your path.
- Serves as a communication tool with your team to keep everyone on the same page.
- Enables you to stay ahead of the competition, especially those that do not plan.
ERA Colonial Real Estate Eva E. Keagle
“If you’re going to make a cross country trip you need a road map. If you want to be a success in any business you will need a business plan.”