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How one writes a business plan in recessionary economy works differently. One needs to
approach the business plan from a different perspective. And one must make special efforts to
avoid errors that in a good economy one would conveniently get away with.
Fortunately, one can do several simple things to write a better, more realistic business plan in a
recession:
Recession Business Planning Idea #1: De-grandiose-ize the Plan
In a frothy economy, one can find it easy to get over-excited about an opportunity or venture. And,
in a sense, that's may be good. Excitement, optimism and confidence can be contagious. If the
entrepreneur or management team displays, say, excitement and confidence, those feelings can
infect - in a good way - the perception of customers, vendors, investors, lenders, and employees.
In recession, however, probably one wants to be more cautious for a couple of reasons: First of
all, in a sputtering or shrinking economy, one will have more trouble selling. Period. Customers
and clients spend less on everything. And this "less cash for purchases" will particularly affect non-
essential purchasing.
A second factor relates to the "less money for everything" issue: With fewer dollars to spend,
customers and clients will logically require more time for and exercise more caution about their
purchases. In other words, even if some customer does choose ultimately to buy a product, the
customer may take six months longer to make the decision.
Recession Business Planning Idea #2: Focus on Cash Operating Profits
In a recession, businesses need to focus their business planning on maximizing cash operating
profits.
This admonition sounds, perhaps, a little too obvious. But to make the point here stand out: Many
business plans focus too much on the liquidity event... the transaction that allows the entrepreneur
to exit the business at some point in the future with a generous financial windfall.
For example, the business plan may focus on doing the things perceived necessary to get to an
initial public offering. Or the business plan may optimize some element of the business that in the
past, large companies have used to value the small companies they buy. Like top-line sales
revenue or customer counts.
When the economy is healthy, dreaming about and planning for "liquidity event" issues may make

2. sense. Focusing on the "liquidity event" issues when major public corporations need government
bailouts to make it through the next week is dumb.
Recession Business Planning Idea #3: Strip Out Geometric Growth Rates
Commonly, in business plans, the people forecasting revenue, profits and cash flow use geometric
growth rates. In a good economy, one can often get away with an assumption of geometric
growth. Maybe. But geometric growth rates don't make sense in a recession.
A geometric growth rate says that some value in the business plan grows by a specified percent.
For example, the business plan might assume revenues will grow (almost automatically) by 5% a
year. Or that inflation will trigger annual (dependable) price adjustments of 3% for the foreseeable
future. Or that customer counts will grow (magically) by 10% a year.
Geometric growth rates create exponential growth - and implicitly assume that the business will
just always get better and better.
Note: The subprime mortgage meltdown that triggered the current economic crisis stemmed in
part from people using geometric growth rates. Investors, lenders and policy makers assumed that
home prices would continue to almost automatically, dependably, magically increase...
The alternative to a geometric growth rate is an arithmetic growth rate. With arithmetic growth, you
assume that a value grows by a specific value. For example, a retailer assumes that revenues
grow by $500,000 each time a new retail location is added.
Arithmetic growth assumptions provide two benefits to the business planner. Arithmetic growth
removes exponential growth from the business plan. Arithmetic growth forces the entrepreneur to
explain the details of what drives growth.
Recession Business Planning Idea #4: Do Serious Scenario Planning
In a recession - particularly in a recession that looks to be as bad and deep as the current one -
the business planning process needs to include serious scenario planning.
Scenario planning means redoing the business plan for some crazy, nearly unimaginable event.
Like deflation. Or the collapse of an entire industry. Or commodities prices rising or falling to levels
not seen in recent history.
Scenario planning delivers two benefits: Thinking the unthinkable should give the entrepreneur the
opportunity to avoid some kinds of risks. And thinking the unthinkable - if the worst case occurs -
should mean the entrepreneur can more quickly respond to a threat.
A final comment: Scenario planning should not look only at bad scenarios--though that bias may
be easy in the current economy. Some of the surprises we see in the coming months will be
unimaginably good.

3. Seattle CPA Stephen L. Nelson is the author of the MBA's Guide to Microsoft Excel, a reference
for business users of Microsoft Excel, the Write a Business Plan web site, and the Limited Liability
Incorporation Explained web site.
Article Source:
http://EzineArticles.com/?expert=Stephen_Nelson
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For business planning strategies that work, check out
http://www.business-plan.co.za
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