The Relationship Between Quality, Pricing, and our Options

Understanding the relationship between the price and quality of a business plan, and what goes into it, is something that some clients struggle with.
Business Plans – The relationship between Quality, Pricing & Your options

Business Plans – The relationship between Quality, Pricing & Your options

Understanding the relationship between the price and quality of a business plan, and what goes into it, is something that some clients struggle with. The notion of “you get what get what you pay for” somehow eludes some of them, and occasionally, to such a degree its comparable to buying a car and expecting Ferrari performance at Toyota Corolla pricing. They are a minority, maybe 5% of clients, but unfortunately those 5% create more work and frustration than the other 95% combined.

This is extremely frustrating for us, particularly when clients are provided with samples of our work to help them make their decision in advance and the fact that most of our past clients have enjoyed a high success rate in achieving their aims.

So, to attempt to alleviate this for those who do not understand, or think they do but don’t (my engineering friends) what are the determining factors in business plan pricing? I have broken these factors into two categories, External Business Factors and BP Content Differentiation.

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“R.W.A. Management Consulting offers clients three options aside from developing the entire business plan: The Review, The Assistant & the Financial Projections.”

External Business Factors

  • The industry you are in, the market you’re pursuing and ultimately the availability of research material. For example, finding info on restaurants is typically easy while finding info on neurotech headgear not so easy.
  • Location or breadth of the market targeted. Is your market a small town, large urban center, provincial or state, national or global? Some of these take longer than others and time is money.
  • Level of competition. Is the market saturated with competitors or are you fortunate enough to be one of the first ones in? The focus is completely different in each case.
  • Purpose of the plan. Is this for your businesses internal planning and guidance? Is it for a gov’t grant or funding? For institutional funding? For a landlord? For private investors? Each of these groups have different focus points in the content, tones of writing, preferred lengths of the document, detail of the financials, etc.
  • Level of professionalism expected. The more time that is involved and the more individuals involved in the process, the more expensive the process is. Time is money and people need to be paid. Often potential clients will research business plans, as they should, and find something that they wish to model theirs after. What they don’t realize is that it might have cost $8k – $10k to put together, whereas they most likely want to keep their costs under $2k. The following section explains the reasoning for this in greater detail.

Key Business Plan Content Differentiation

  • Format – Many entrepreneurs or low-cost writers will use templates off the internet. Many of these have already been seen by institutions and investors, which does nothing to set your business plan apart from the crowd. In addition, the structure, organization, and content may not be suitable for your particular business or for the audience you’re trying to sell to. It is a cheaper way to go, but it’s a one-size fits all approach.
    On the other hand, customized plans can be written, structured, and directed to the specific audience you trying to reach. They can also be designed to fit your personal tastes and aesthetically designed to suit your specific business. For example, you would not design a business plan the same for a flower shop as a brick manufacturer.
  • Client participation – Essentially this, or rather lack of it, occurs at both ends of the pricing spectrum. At the low-end a business plan is slapped together as quickly as possible (a major reason its low priced) simply to cross it off a to-do list. At the high-end, you pay anywhere from $7,500 – $20,000 for someone else to handle every aspect of it so you can focus on other things.
    What is the problem with either approach? The problem is that you still must sell a business plan that your likely not completely in-tune with to a banker or investor. We insist on client participation in the project for one reason only. At the end of the day, the plan ends up being our clients plan, not ours. As a result, when they have to sell it to a bank or investor they are already prepared. This is critical because the quality of the business plan is only part of the equation, the other is the client’s ability to sell it. For this reason, our clients have a high rate of success.
  • Industry, market, demographic & competitive research – This is the single greatest differentiating component in pricing. At the low-end it usually involves what can be found via google within a few days since quick turn-around times are the only way these writers can make a dime. They can be very dated, irrelevant to your market, extremely limited in scope and at times conflicting.
    In the mid-range of pricing research often results in searching known research resources with the help of a gov’t funded organizations (In Canada & the US) and by researching industry reports. This does take time. The business plan company may or may not have memberships with some of the source’s databases, and these are expensive. The information can be somewhat dated and generalized particularly as it relates to Statistics Canada and the Census bureau, depending on when the last census was taken. This is when industry studies are useful. Current and specific information tends to be easier to come by in the U.S. then in Canada. However, bankers and investors understand this and rarely question it, especially if you are a start-up or small operator.
    At the high-end, the dilemmas above are circumvented by having memberships with the research databases such as IBISWorld, demographic analysis such as Sitewise, and several others. If required, the research will include undertaking surveys of your market to arrive at current information. They will also usually involve a writer, and editor, a graphic designer, a researcher, and an analyst. This will ensure the turn-around times are reasonable. What is the cost to this approach? It is a minimum of $7,500 and can reach $20,000+. For this reason, these business plans are usually undertaken by public companies, not small private co’s
  • Financial Projections – These can vary drastically from high-level, 5-line, one-year projections to monthly five year, detailed projections and ratios. The financials are a critical component to any business plan, regardless of the audience. Whether an institution or an investor, they will not only want to see that they will receive a return, but that their funding supports a positive cash-flow.

Further to this, the business plan should include detailed assumptions to both the financials and metrics. These must strongly support the numbers, make sense and written in plain English. After all, this is the area that is most usually an entrepreneur’s weakness, at least in explaining them, so detailed assumptions take some of that out of their hands and lay it out for their audience.

If there is an area that we go a little overboard on, it is in respect to financials. All our plans have 5-year P & L’s, B.S. and cash-flow as well as ratios such as interest coverage and break-even, and I believe most importantly, 5-year month-to-month cash-flows showing the investor or institution that their support maintains positive cash-flow each and every month. These are prepared by a former Chief Financial Officer, Controller and Financial Analyst and are comparable to the very high-end business plan financial projections.

So now that I have outlined the substance behind business plan pricing, what options are there for your business? You have a great idea and the energy to move forward with it but lack the money to spend on a $2,000 business plan in order to secure funding. You simply cannot afford it, so what do you do?

I am not going to go with my dentists answer to expensive dental work and say that you can’t not afford it (I hate that statement). However, there are options, but I will say that spending $500 – $1,000 on a full-plan is probably a waste of money. You are better off writing it yourself.

R.W.A. Management Consulting offers clients three options aside from developing the entire business plan: The Review, The Assistant & the Financial Projections.

1
The Review
2
The Assistant
3
The Financial Projections

The review option entails the client writing the entire business plan, forwarding it to us, and having us assess it and make specific recommendations. This option is charged at an hourly rate with a small retainer and depending on how well written the business plan is, can take anywhere from a few hours to 10 or so hours.

The assistant option is similar except we provide assistance on writing the business plan as you write it on an as-needed basis. This is also charged on an hourly basis with a reasonable retainer. Hours are tracked on a statement-of-work and provided to the client regularly so they can monitor where they are at.

The third option is that the client writes all the content and structures the business plan, and we take care of the financials. Typically, with pricing and costing research the financials consume about 50% of the time it takes to produce an entire business plan, which is line with the cost.

These are typically charged at a flat amount and will vary depending on how much of the financial info the client already has on hand.

This is the essence of what goes into a business plan, what is involved, why some cost $500 and why some can cost $20,000, and what your options are.

As with all our past and present clients, and everyone contemplating entering the world of entrepreneurialism, Best wishes on the exciting journey!!!