Introduction to Business Planning
This article provides a briefing on how to take an idea, outline it on paper, and implement the idea resulting in launch of commercial operations. The subject matter concentrates on how to develop a business plan for an air cargo carrier. It should be noted, this article is strictly to be interpreted as a summary and not a comprehensive document to be used for creation of an actual business plan. With that said, what is the purpose of a business plan?
The four main reasons air carriers fail, including air cargo and passenger operators, are due to undercapitalization, overexpansion, inflexibility, and lack of leadership. A well structured business plan should identify such negative factors well in advance of any decision making process acting as a guide for management to realize when things are on track and when things are off track. The main purpose of a business plan is to act as a selling tool to raise money, develop ideas of how business should be conducted, while at the same time being able to assess the company’s performance over time.
All too often in this industry, business plans are created but they use a format not suitable for air cargo operations. Unfortunately, in many cases, the air carrier is doomed from the start because of the incorrect format.
The Generic vs. Air Cargo Business Plan
The purpose of a business plan is to act as a selling tool to raise money and to be used as a benchmark or a map of how the company is performing. This article introduces the reader to the main differences between a generic business plan and an air cargo business plan. Although both types of business plans have the same function, they are very much different in terms of format meaning the difference between success and failure for the air cargo carrier. Historically, air cargo carriers have operated using a generic business plan structure with some modifications. For existing air cargo carriers, it has been found that the generic format has resulted in complications for the company mainly in the form of not having the ability to be flexible as the operating environment changes. The elements of the air cargo business plan are tailored to the aviation industry and if written correctly, such a business plan permits flexibility. In order to be successful in a rapidly changing aviation environment, it is important for new companies to be designed using the elements of the air cargo business plan. For existing companies contemplating restructuring operations, step one should be the implementation of a new business plan based on the elements of an air cargo business plan. Such a decision could save thousands or even millions of dollars in the long term.
Generic Business Plan
A business plan must contain certain elements or key factors in order to be effective. Unfortunately, many people do not understand the concept of a business plan and, therefore, leave out some of these elements leading to a potentially disastrous outcome. Although there is no single template or map to follow when it comes to writing a business plan, most types of businesses will be designed using the elements of a “generic” business plan. In many cases, these elements are enough to satisfy the requirements of a business plan but when applied to the air cargo industry, these elements are not sufficient because they neglect to concentrate on additional elements that must be focused on. The design of a business plan differs by industry and by type of company and, therefore, must be customized accordingly.
Content of a generic business plan usually include the following:
• Executive Summary
• Non-Disclosure Statement
• Description of the Business and Industry
• Market Analysis
• Competitor Analysis
• Strategic Plan
• Organization and Management Plan
• Financial Plan and Financial Request
• Strategic Action Plans
As previously discussed, although all business plans have the same purpose, there is no such thing as one type of business plan. Business plans differ by industry and by type of company. There is no recognized single source that one can go to in order to determine what the main elements of an air cargo business plan are. Listed below, are the main elements of an air cargo business plan in the order that each element should be addressed in the actual business plan.
Content of a generic business plan usually include the following:
• Executive Summary
• Non-Disclosure Statement
• Business Introduction
• Market Opportunity
• Analysis of Market Demand Levels
• Proposed Route Structure and Schedule
• Financial Analysis (statements from business plan)
• Sales and Promotion Strategy
• Aircraft Operating Strategy
• Competition and Competitive Response
• Management and Support Team
• Risk Factors
• Invitation to Participate
The above structure of an air cargo business plan can be applied to any size of business regardless of its nature ranging from a single-engine propeller driven aircraft to an international operation utilizing a fleet of long-range jet aircraft. Following this step-by-step guide will lead to the creation of a successful plan. This structure is useful to a new organization starting out as well as an existing organization seeking to restructure its business plan. Since the events of 9/11, the term restructuring has become a part of virtually every air cargo operator’s vocabulary. The main focus of any restructuring plan should be on the redevelopment of the business plan. New air cargo carriers starting out have a major advantage over existing carriers in terms of their potential success if the above mentioned structure is implemented from day one. The generic business plan is no longer valid in the new era of aviation.
Business Plan Mistakes
It is important to note that no business plan is perfect and changes will occur once the air cargo carrier is operating which will lead to creating deviations from the original business plan. However, it is possible to create a near perfect business plan if common mistakes are known in advance. This section outlines five key areas where mistakes are frequently made when developing the business plan for an air cargo operation.
Capturing the Reader’s Interest
The final version of the business plan will be read by numerous individuals for the purposes of raising capital, establishing contracts, and obtaining certification. Capturing the reader’s interest from the start is very important because the reader will most likely be a busy individual with many obligations. This is especially true when dealing with professionals involved in the raising of money. In short, the business plan must capture the reader’s interest within the first 90 seconds; otherwise, it might end up on the floor, in the garbage bin, or filed as a “reject”. The air cargo business plan must have aesthetic appeal at first glance meaning the format must be capturing and well organized encouraging the reader to turn the pages. If the business plan does not meet such requirements, it is possible that it may never be read.
Inaccuracies, Inconsistencies, Lack of Objectivity
The air cargo business plan must be accurate and thorough at all levels as the reader will be focusing on the content once interest has been captured. A minor error could be as detrimental as a major error depending on the audience reading the document. It is very important that the reader is not distracted from the content of the airline business plan and negative bias must be avoided at all times.
Many air cargo business plans have failed because they were unrealistic. When raising money to launch an air cargo carrier, the developer(s) of the business plan often attempts to make the business concept look too good believing that any negativity would cause the idea to fail before it ever got off the ground. A smart investor knows the difference between fantasy and reality, therefore, the business plan should never try to “sugar coat” reality. The concept stands little chance of coming to life if the developer(s) does not produce an honest business plan.
Clarity is extremely important in the design of the air cargo business plan and although the concept might be good, it can go unnoticed because of this factor. The air cargo business plan contains an overwhelming amount of detail and must be structured in a clear and concise format. In today’s financial world, a shorter business plan is often more important than a lengthy one. Examples of mistakes often associated with clarity are: unclear and overoptimistic, too detailed, too much useless information, too many numbers, not able to present the need for funding in a simple manner, and difficulty explaining the real business.
Incompleteness is a common mistake made in the development of the air cargo business plan. How is this possible given the amount of information provided in the document? The answer is simple. It is associated with the lack of background work or homework into the market and the competition. Too many air cargo business plans make assumptions rather than presenting the actual facts.
Establishing sustainable, competitive advantage in the air cargo business plan is difficult but it must be done. Failure to identify market need is a common mistake made in the development of the air cargo business plan. The business plan must be superior to any potential competitor’s business plan and should be able to gain the investor’s attention and money. Adding uniqueness to the business concept is important otherwise, the airline is like any other and will most likely fail to raise the funds needed to fly.
Choosing the right person for the right job is important in the management team selection process. In many air cargo business plans, the importance of the management team is often underestimated. Many investors believe that a superior management team can make a mediocre idea successful. A strong management team will help reduce any doubts the investor might have about the ability of the air cargo carrier to be successful. The business plan must promote the team and introduce key advisors that will assist in the company’s success. The management team becomes important in outlining strategic objectives and implementation of the business plan. A good team will be fully aware of all risks involved and such risks should be highlighted in the actual business plan. With each risk should appear a solution or strategy on how the airline will deal with each risk.
Many air cargo business plans fail to demonstrate revenue growth and profitability. Historically, top line growth is mentioned but bottom line growth is not. In order to sell the business concept, bottom line growth is essential and this growth must be based on credible financial assumptions. Examples of common mistakes made associated with revenue growth and profitability are: failure to show how ROI (return on investment) will be generated for investors, no clear ROI, lack of return on investment figures, too much concentration on financial numbers, vague assumptions regarding potential cash flow, lack of understanding business start up costs, and lack of research.
There are many lessons to be learned prior to writing an air cargo business plan. It is important for the developer(s) to thoroughly research the business concept in detail and analyze the successes and failures of other air cargo operators. The air cargo operator of today and tomorrow is to be much different than the air cargo carrier of yesterday. The keys to future success include a solid business plan that encompasses the following: flexibility, diversity, the right management team, the right organizational structure, the right corporate culture, constant training and development for all levels of employees, steady and moderate growth strategies, effective cost cutting strategies that do not jeopardize safety, operation of modern and fuel efficient aircraft, fleet commonality, reasonable capital requirements, and a long-term vision.