Plans by industry mistakes: nine faults and repairs

Every trade has a plan that reads as though it were written for a different one. The sections are all present, the prose is competent, and the model is built on a driver that belongs to somebody else's business. Those are the plans by industry mistakes this article is about.

The nine faults below are the ones that produce that. They are specific to writing for a trade rather than to writing in general, and each repair is a decision about your own business.

What to take away

1. The wrong driver

A business limited by capacity forecast as reach times conversion. A pipeline business forecast as customers times price with no cycle. A renewal business forecast on new sales only. A restaurant is capacity-limited, a contractor is pipeline-limited, and a subscription software business is renewal-limited.

The repair. Ask what limits revenue: a physical asset, available hours, traffic, a pipeline, or an installed base. Build the model on that answer, and check the ceiling against the operations plan before anything else.

2. Industry description in place of business description

Two pages on how the sector works, which the reader either already knows or does not need, and half a page on this business.

The repair. Cut the sector material to what changes a decision about you. Where a reader needs orientation, one paragraph and a named source is enough. In the US, the standard industry classification is the North American Industry Classification System (NAICS), maintained by the Office of Management and Budget and published by the Census Bureau, which uses it for business data; the Bureau of Labor Statistics publishes employment and wage data by NAICS industry. The published categories are coarse, which is itself worth knowing before you claim your segment.

3. A rule of thumb used as an input

A share of revenue that the trade says should go to rent, labor or stock, typed into the model as though it were measured.

The repair. Use the rule as a check after you have built the model from your own quotes. Where your figure is far from the rule, find out why. That investigation is useful; adopting the rule is not.

4. The licensing lead time is missing

The opening date assumes approval arrives when asked for. In several trades it does not, and the plan then shows rent and wages starting before revenue can legally begin. In food service, for example, the health inspection can happen only after the premises are built out, so the lead time runs from build-out, not from application.

The repair. Name the authority and the permission, state your current status, and put the lead time in the schedule as a task with a duration. In the US, that authority is often a state licensing board, a local health department, or a state alcohol beverage control board; the permission may be a license, a health permit, a liquor license, or a certificate of occupancy. Which permits apply depends on the activity and the place, so ask the issuing body rather than repeating a summary from another plan.

5. Seasonality flattened

A monthly forecast with the same figure in every month, in a trade that has a season, a term, a weather pattern or a holiday peak.

The repair. Shape the year the way the trade behaves, and if you do not know the shape, say you are assuming a flat pattern and that it is an assumption. Then check the months where the shape and the fixed costs collide.

6. Working capital ignored in a trade that runs on it

Contracting, wholesale, manufacturing and anything with stock or staged billing consume cash before they produce it, and plenty of plans in those trades show only profit.

The repair. Work out the days between paying for something and being paid for it, model the cash locked up at your busiest point, and carry it into the projections as a funding requirement rather than a footnote. For a contractor, that is the gap between payroll and the progress payment; for a wholesaler, the gap between inventory purchase and customer payment.

7. Concentration treated as a strength

A handful of large customers, described as evidence of quality. A reader sees a credit risk and prices it, particularly in professional services and business-to-business trades.

The repair. State the share of revenue the largest customers represent and what happens if one leaves. Naming it costs a sentence; leaving it to be discovered costs the reading.

8. Copying a competitor's structure instead of building your own

Two businesses in the same trade can have completely different shapes: one owns its premises and one rents by the hour, one employs and one subcontracts. A plan built on a competitor's arrangement describes their business.

The repair. Build the cost floor from your own quotes and your own hours. The trade sets the vocabulary; it does not set your structure, and the customer you are aiming at comes from the market analysis rather than from what a rival appears to serve.

9. Compliance summarized from memory

Staffing ratios, inspection regimes, insurance requirements and record retention, stated as facts in a document going to a lender, from what somebody remembered.

The repair. Name the authority and the requirement you were told, with the date you asked. Where a requirement sets your cost floor, say so and say who confirmed it. In the US, the Small Business Administration (SBA) and many lenders publish checklists you can request, but the checklist tells you what to provide, not what your trade requires. A plan that names its source reads as competent; one that recites rules reads as one that copied them.

The check that catches most of these

Give the section to somebody who works in your trade but not in your business, and ask two questions. Which parts of this could describe any firm in the industry, and which number here would you argue with?

The first question finds the padding. The second finds the driver they do not believe, which is usually the one you took from somewhere else. What every trade's plan owes a reader regardless of sector is set out in the industry guide.

Common questions

My trade is unusual. Do the standard sections apply?

They do, at different lengths. Sections get shorter or longer, never dropped, and a section you consider irrelevant is worth one line saying why rather than an absence.

Is it worth reading a plan from a completely different industry?

Yes, if it shares your driver. A subscription software plan and a maintenance contract plan have more in common than two firms in one trade with different drivers.

How much industry data should the plan contain?

Enough to place the business, sourced and dated, and no more. The reader is assessing you rather than the sector.

Who can tell me what my trade's readers expect?

The lender or program itself, which usually has a checklist, and an operator in the trade who is not a competitor. Both are faster and more accurate than any published guide.