Business Plan Writing Guide: Operating Plan

via B.E.T.A. Daily by Vikrant on 3/16/11

You will need to create the operating plan section while writing a business plan, especially if your small business is into manufacturing a product. It makes sense to create an operating plan for other business types too because it gives you a visibility into entire process of running your business and how a product or service is made available to the customer.
While there are several ways to create an operating plan, we recommend starting with a SIPOC which is a handy tool to understand the entire business process starting from the source of inputs to the receiver of output. SIPOC is an acronym for Supplier, Input, Process, Output and Customer. You can use a SIPOC to draw a process that shows your business activity at a high level as well as break it down to each activity level. Creating a SIPOC is fairly easy; see an example of a Pizza business below (click to enlarge the image).

Writing a Business Plan: Operating Plan Essentials

Once you have created the SIPOC for your business, you will know some of the most essential components of your operating plan and answers to questions like:

Who are the suppliers?
What goes into making the final product or service?
What equipments, machinery etc. are required to create the product or service?
How each unit is produced?
Which activities are performed on a daily basis?
What are the human resource requirements of the business?

Apart from these, you can also find out several other aspects of your business, for example, the time taken to complete the production process, people involved in each stage of the production process etc.

What Should be Included in an Operating Plan

An operating plan is a unique description of your business’s production process and should only cover issues specific to your business. While we have provided an operating plan outline, you may not be able to include all the parts or some of them may not be applicable to your business at all, for example, describing how the inventory will be managed is critical to a retail business; however, it may not be required for a consultancy business at all.

Another point to consider here is the purpose of the operating plan. If you are going to use the operating plan as an internal tool, you should try to make it as detailed as possible. However, if you are going to use it as part of the business plan to raise funds then you need to make it easy to understand and avoid getting into complexities of business.

Business Plan Writing: Operating Plan Outline

After SIPOC, the next stage is to describe all the findings in your operating plan for the reader. An operating plan, depending on the type of business, needs to cover some or all of the following:

Production or Manufacturing Process

Every business, irrespective of whether it manufactures something or not, produces or provides an item of value of that the customer pays for. In this part of the operating plan, you may want to explain the process of producing a unit of output, the time required to produce each unit, the labor requirements, etc.

Plant, machinery and equipments

In some business, the physical plant, machinery and equipments play a major role. For non-manufacturing businesses such as a retail outlet, the plant is the space used to attend customers and store and display products. In all cases, you need to describe the land, buildings, machinery, tools etc. that are required to run your business and why they are important. Explain how your business will obtain all these things, for eg: lease for land and building, financing for machinery etc. For some business such as a restaurant, the location itself is very important and you may want to describe the benefits associated with the location of your business in the operating plan.

Production capacity

Describe how many units your production facilities and human resources can produce in a given period of time. Is your production process scalable to produce more units, if required?

Human resources

How many people do you need to employ and are there any special skills required in them. What is the availability of skilled labor and how are they employed by your business, full time, part-time, contract basis? In case your business offers some kind of services, for example, auto repair, it is important to explain in your operating plan how do you ensure consistent supply of skilled labor.

Materials and Suppliers

Explain in your operating plan, what materials are required to produce your product or service, who are the suppliers, are there any special arrangements with suppliers, do you have a backup source in case a supplier fails to provide the raw material, and what terms you have negotiated with the suppliers. It is important to keep a healthy relationship with your key suppliers and also maintain a backup for times when your primary supplier fails to deliver the required materials.

Inventory

Explain how you will manage the inventory. Inventory management is critical for businesses, and trivial too, as maintaining high inventory levels can be a huge cost in itself and maintaining low inventory levels sometimes leads to missed sales. In your operating plan you need to describe how do you ensure that optimum levels of inventory are maintained at all times.

Customer Service and Support

Some business types need to provide support and customer service after the product or service has been sold. This becomes essential in case of technical products or services. In some cases, the support and services become revenue generating mechanisms for the business, for example, a company selling CRM software may also sell implementation and training services. In all such cases where customer service and support is the core differentiator, a revenue stream or a necessity, you need to include it as part of your operating plan.

The objective of creating an operating plan is to let the reader know that you understand the requirements and methods of producing your product or service. A good operating plan should introduce the production process and essentials to the reader in a way that is easy to grasp.