Introduction to business planning for hospitality & tourism businesses
Planning your success
The Hospitality industry can be an exciting industry to own a business in, providing an opportunity for business owners to exhibit their culinary skills of choice, maybe style the business toward cultural or new trend products, to meet people from all walks of life, and be able to work hours that are different to the average 9 to 5 office worker.
Tourists from different parts of the country and off shore can be wooed by various unique products, local hand crafted items, and various other trinkets that are simply purchased as a memento of their visit.
I recall on many occasions a few years ago as a new Tourism Café owner with a café themed on the Hobbit trilogy when tourism was booming. Customers would queue up to experience the decor and various themed dishes of the day. It was a small café of approximately 12 staff and a seating ability of 45 customers.
Initially the café required a lot of investment in marketing for the brand to be known locally and further afield. We had planned for a certain amount of capital expenditure and understood that the café would take some time to become profitable. Once the café had reached financial sustainability, the intention was to continue building on the profitability of the café, yet there always seemed to be events that got in the way of the café reaching the level of profitability we aspired to have.
These events were minor in themselves, yet financially significant as they accumulated over time. Such events as product incorrectly made on occasion and needing to be discarded, the amount of wastage each day from ready-made foods, the odd occasion when cash didn’t equal the till at the end of the day, ingredients price increases, staff not available or not even turning up, and struggling to employ replacement staff, including the tiredness that followed after working many days on end due to a lack of staff.
There were also many surrounding events like the competitor cafés running ‘super specials’ that would draw customers away from our café, adverse weather reducing customer presence, ingredient deliveries being delayed or out of stock temporarily and more.
After our first year of operations the café was operating financially sustainably, with good positioning on many websites and customers from around the globe stating that others had recommended they visit our café whilst in NZ. We found that we were regularly overwhelmed by customers, occasionally running low on stocks and generally very tired.
The more tired we got, the more things started to go wrong, and the more things went wrong, the harder we worked and the more tired we became. It seemed that the spiral was bottomless and it wasn’t pushing us upwards.
Staff became more difficult to find as the café was based in a small town and there are only a set amount of candidates to select from. We started the café with an aspiring plan in our minds, but as various events occurred we changed our plan multiple times. In fact we changed our plan so much that we couldn’t remember what our original plan was. We got out of the café in the end as it felt like we had been consumed by the daily demands the café requirements with no end to the hard work and long hours on the horizon.
We reflected on our café journey a few months after ending the café experience, and after a lot of rest from the daily demands we had experienced. We realized that if we had have written and detailed our original plan and stuck to it, the café journey would have been much more enjoyable and probably more successful.
Having a Business Plan is one of the most important business documents. The plan indicates the pathway to success and keeps the business on track. When adverse events occur, the Business Plan should be the guide to eliminating or reducing the risk to the business. Our experience has shown us that without a written plan, it’s very easy to get lost in the moment of the day and let the business suffer unnecessarily.
The importance of planning
Starting or continuing with a manufacturing business carries a level of excitement balanced with an amount of risk as there is always an element of the unknown with how the cost of manufacture might change, does the consumer market still want what is on offer, and can the consumer market still afford to purchase the product.
The business owner feels passionate and enthusiastic about what they might achieve when embarking on the adventure of manufacturing their creations with the desire to transform their business ideas into products to gain profitable and successful outcomes.
Being aware of overhead variations and market trends that may influence demand for the product being manufactured may reduce the risk of the business manufacturing a product that is not in as much in demand by the market than previously. Attempting to battle through the changes without considering any variation to the process or cost factors may have consequences that are not favourable for the business.
Continuing to do the same without consideration to changes that may be occurring that affect the manufacturing or distribution of a business is a bit like going into battle without a battle plan, which would be madness for any general to even think of doing, as the losses would be great with few benefits, yet some enthusiastic manufacturing business owners feel that marching forward whilst blindfolded might be worth the risk.
Passion and enthusiasm should not be confused with strategically planned drive and determination, as there is a mountainous difference between acting on impulse and acting on a measured approach.
Simply relying on passion and the desire to succeed can also cause the downfall of the very outcome the manufacturing business owner was hoping to achieve. Passion and enthusiasm can easily override sensibility and a measured approach in starting a business borne from a product creation, yet it is also passion that is one of the most important ingredients needed for a business owner or entrepreneur to initiate and grow a business.
What is a Business Plan
The meaning of the word ‘plan’ as described in the dictionary is “the representation of anything drawn on a plane, and forming a map or chart; a scheme devised; a project; disposition of parts according to a certain design; a method or process; a way; a mode. To invent or contrive for construction; to scheme’ to devise; to form in design.”
Why have a Business Plan
Developing a plan prior to initiating a manufacturing business would assist in identifying any risks that may arise and how those risks could be reduced should they occur. The plan can also guide the business owner to issues such as how to sustain the manufacturing business whilst moving through various hurdles once the business has been established, and the identifying financial impacts of the business from conception, through to profitability.
Types of Business Plan
A basic plan may be used for an individual starting their own business in providing goods to an organization or collection of organisations. It may be that the individual has left employment and is offered a long term contract with the organization they had left or another similar organization. For the individual to provide such services, they may have to initiate a business entity as a sole trader or possibly a limited company.
In doing so the individual may consider developing a basic plan for their business, as there may only be a low level third party (i.e. accountant, lawyer) requirement to view such a plan. The basic plan would simply entail the steps taken to transition from past employee into a business entity, and further maintain a level of financial sustainability that suits the individual.
A basic plan might include information such as:
- Who owns the business (individual or shares)?
- What type of business entity is required?
- How will the financial matters be managed?
- Are there any medium or long term liabilities that need to be managed?
- What are the products/services of the business?
- Are there any constraints in conjunction with the customers?
- What are the business liabilities and risks?
- Will the business plan for any further employees in the future?
- What is the duration of any long term contracts, and what happens when the contracts expire?
- What is the exit strategy of the business?
If the business has no intention of employing staff, does not operate from a leased or purchased facility (operated from home), does not require any marketing input to gain or maintain a customer base, and has no or low equipment overheads to maintain the product/service, a basic plan may provide all that is needed for the business to operate.
When wanting to initiate, restart, or grow a business that has employees, regular overhead costs, or a need to gain and maintain a customer base, having a plan for the business would be valuable.
As with all business entities in NZ business ownership carries a significant level of accountability. The business owner is entirely accountable for all actions within the business and carries the responsibility for anything that occurs within the business they own, whether the business is new or long established.
A component of that responsibility is the business owner being aware of the risks the business may be affected by, having enough financial support to ensure the business will survive the start-up process, implementing and monitoring all regulatory and compliance measures, and ensuring that all employees and other stakeholders are protected by the required employment and safety measures required of the business.
If things go wrong within the business, it is the business owner’s responsibility to show they had taken all practicable steps to identify the possible risks and have a plan to mitigate them. If no evidence can be provided showing the due diligence the business owner has taken, it is likely the business owner could be held accountable by the current government Laws and Acts for negligence of operating the business at risk.
As a business grows to a size needing employees, and further requiring a director, or board of directors that are not owners of the business, liability for any adversities within the business will reflect on the directors initially, then liability may continue through to the shareholders of the business, depending on the adversity and business structure.
One of the mechanisms to reduce negligence is to construct a business plan that would indicate the risks that have been considered and the actions to be applied to mitigate the risks, should they occur.
The business plan should include the critical operational components of the business that need to be managed, supply chain requirements, and the financial impact of implementing the business as well as any growth strategies. Prior to constructing the business plan, identifying who will view the plan and why, will influence the level of detail required. Third party stakeholders viewing the plan will want to understand the direction the business in heading in, and will seek to gain confidence in the soundness of the business, including the competency of the business owner.
Stakeholders that may seek to view a business plan:
- Shareholders (Stock Market listed)
- Management team & employees
- Regulatory & compliance stakeholders
- Banks (for borrowing)
- Suppliers (supply agreements)
- Large Customers (supply agreements)
- Community (based on the product/service)
The business plan should provide enough detail for the plan to clearly indicate the information required to specify what type of business entity it is, what is the purpose of the business, who owns the business, is there enough financial input, what are the risks and have they been mitigated.
There are many types of templates for business plans for a wide range of businesses ranging from owner operator sized businesses through to multi-national corporations. Small to medium business entities wouldn’t be expected to produce the depth of detailed documentation more commonly produced in businesses listed on the stock exchange, or the multi-national corporations, yet there is a framework with minimal information to provide a clear pathway and intent for the business, without the need to document details that may not be significant to the business.
Noel Rodgers MBA – CMC
For further information on this subject please email Noel Rodgers
E email@example.com M 0274 775583