Chapter 1 -
Why write a business plan?

A business plan is the document lenders want to see when you are starting your company or when you want money to expand it or take it in different directions. Whether they are giving you money for equipment, facilities or working capital, bankers and financing companies want some evidence that you know what you are doing.

Some trucking company owners probably see business plans as busy work: “I get customers. I haul freight. I collect money,” they might say. “If I get more customers, I buy more trucks. It’s not rocket science.”

Perhaps not, but business partners want to see that you take your business seriously, that you aren’t just trucking by the seat of your pants. And it’s not just outsiders who need a business plan. You need a plan to confirm that your strategy is viable. And, though it’s unpleasant to consider, a written business plan is one of the resources you could leave a successor in the event you die or become incapacitated.

What’s in a plan?
Designs vary, but all plans generally describe the business — why it exists, what it does, where it operates, how it finds customers, who its competitors are and who runs it. Business plans also show where the company is going and how it plans to get there. They show whether the company is profitable now and whether it’s likely to remain profitable. And they diccuss management’s experience and past performance. The following outline gives you a good idea of a business plan’s scope:

Outline of a business plan

– Mission statement
– Risk factors
– Business description

• General description
• Customers
• Suppliers
• Competition
• Marketing
• Employees
• Properties and facilities
• Governmental regulation
• Company history and organization

– Action plan

• Tactics
• Actions
• Time frame
• Cost
• Manager responsible

– Use of financing
– Financial results and projections

• Recent income statements, balance sheets and cash flow statements
• Projected financial statements

– Management strength

• Management description
• Stability
• Compensation
• Prior experience
• Legal proceedings

– Conclusion and supporting documents

A business plan is a dossier on your business. It should answer all fundamental questions about where you are going, how you plan to get there and whether you can succeed.

Why is a plan important?
A business plan is a key tool for both external and internal parties who have a stake in your success. But how does each use it?

Business partners. Potential lenders and investors want to know whether there are holes in your operation. Perhaps you have a great marketing plan and conservative but profitable financial projections, but neither you nor your key managers have any background in trucking. That will be a problem. Or you have lots of experience and a great marketing plan, but your profitability depends on achieving unrealistically high revenues or impossibly low costs. That, too, will hurt you. Or maybe you have the management skills and solid financials, but you can’t show how you’ll get freight.

Business partners want a full description of your business so they can look for red flags. Suppose you have 30 trailers spread among five or six trailer types. The lender or investor will wonder what you are trying to do — and whether you yourself know.

Perhaps your niche is providing high-margin emergency replacement service for larger specialized carriers. In that event, it might make perfect sense to maintain a varied stock of specialized equipment. But in most cases, lenders, investors and other business partners will see such wide variations in your equipment as a sign of inept marketing, management weakness or both.

Lenders also want to see that you aren’t growing just because you can. This concern emerged in late 1999 as lenders saw a softening in used truck prices. When used truck prices are strong, the impact of a borrower’s failure is much less than when prices are weak, because the lender can recoup much of its capital in the resale market. As a result, financing companies began looking for more comfort in the strength of a carrier’s plan. Lenders had much more to lose if that plan failed.

Lenders want to see that you are profitable now. If you aren’t, chances are you’ll be more unprofitable as you grow.

Major vendors, such as fuel or tire suppliers, also may ask a small carrier for its business plan and recent financials. Even a small trucking company ties up enough over-the-road expenses to make vendors concerned about getting paid. Because these parties have less at stake than a lender, however, they probably will be satisfied with recent financials.

Potential successors. A business plan is no substitute for a well-conceived succession plan, but it can serve as a “manager’s handbook” for someone who must replace you, either temporarily or permanently. A successor should be able to read your business plan and understand what’s critical to success. He may lack the experience and finely honed skills to implement your plan to perfection, but at least a written plan will show him what he doesn’t know, which is half the battle.

Consider asking the person (or persons) in charge to help you prepare the business plan. This not only gives potential executives a greater sense of the reasoning behind the plan, but it also gives you a different perspective and more brain power to draw from.

You and your managers. The most important consumer of the business plan, however, may be you. The very act of drafting a business plan forces you to think strategically. You must set aside time to consider where your business is, and where it should be headed. Don’t let breakdowns, dispatch failures, accidents, paperwork and other daily chores and crises distract you from this crucial task.

Should you keep your shop or outsource? Should you stick with company drivers or hire owner-operators? How large do you want your company to be? What are your company’s strengths and weaknesses? What are your opportunities and threats?

Your motivation to prepare a business plan may be to convince a bank to give you money. But isn’t it more important that the document convince you that your plans make financial and strategic sense? Don’t you want to know whether you have enough experienced managers to implement your plan?

A business plan should be a continual reference. As you encounter opportunities — new business ventures related to hauling or new types of commodities to haul, for example — consider how those opportunities fit into your plan. If it’s a good fit, do it. If it isn’t, decide whether the opportunity is worth deviating from your business plan — or whether it’s time to write a whole new plan.

In Summary
You need a business plan if you plan to seek debt or equity capital for expansion. Lenders and investors are the principal external consumers of your business plan, but other business partners may want to see your plan as well. A business plan also is a vital internal tool for you and your managers.