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The business plan: the roadmap for success

Any entrepreneur planning to open a location-based leisure (LBL) business will need a business plan to secure financing or investment capital. In addition to helping obtain money to open the business, the business plan is also the roadmap to:

• whether the LBL is feasible
• what type of LBL is most feasible
• how to successfully develop and operate the business

The business plan ultimately determines whether the business will be successful.

Kep Sweeney, author of the book The New Restaurant Entrepreneur, says, "The fact is that when developing your restaurant [or LBL], the outcome is foretold long before the restaurant [or LBL] opens. Planning determines success". Our slogan at Foundations Entertainment University (see story above) states it a little differently, "Businesses don't plan to fail, they fail to plan(sm)". It is the written business plan that ultimately determines the business' success by setting out both the needed planning in precise detail and how the business will be marketed and operated.

There are a large number of business plan software packages, Web sites, books and other aids that can assist you in preparing a business plan. They all outline the needed basic contents. In summary, any good business plan includes, at a minimum:

• Description of the business
• Description of the target market
• Competition analysis
• Description and expertise of management team
• Sales and marketing plan
• Operations and personnel plan
• Start-up costs
• Pro forma profit and loss statements
• Pro forma cash flows
• Pro forma EBITDA
• Breakeven analysis

Business plans for LBLs are more complicated than for other types of businesses that are not as dependent on their real estate or location. The feasibility of an LBE is very specific to its location and market. Investors and lenders won't commit to fund an LBE until a site is identified (and hopefully secured) and a market feasibility study is included as part of the business plan. There is no such thing as a generic LBL. LBEs come in all sizes and types, the optimization of which is highly dependent on both the site and its market. Changing the location of a site, sometimes by as little as one-half mile, can have a dramatic impact on what its market will be, attendance, and ultimately, the LBE's success.

The other issue with LBLs is that the demographics and socioeconomics of its market population and the direct and indirect competition in the surrounding area have a direct impact on attendance and per capita expenditures, which must be projected to derive revenues. Bottom line, the site has a direct impact on revenues.

It is the market feasibility study that becomes the foundation for not only revenues, but just as importantly, for exactly what the LBL should be -- its mix and size. Getting the size to match potential attendance is called right sizing or determining design day requirements.

We have seen many LBLs that have performed poorly or failed due to having a poor, or no market feasibility foundation. Most often, this results from entrepreneurs who perform their own market feasibility analysis and project both attendance and per capita expenditures when they have no experience nor firm basis on which to:

• Determine exactly what the geographic market area will be
• Understand how to interpret the demographics and socioeconomics of the market population
• Determine the impact of competition (entrepreneurs, due to their belief in their business concept, tend to discount competition even when it is real)
• Understand how to interpret all the above to determine the best type, mix, and size of the LBL to best match its market
• Understand how to interpret all the above to derive attendance and per capita projections

We have actually seen LBL entrepreneurs waive a set of demographic reports of some ring areas surrounding their site in their hands, claiming that constituted a market feasibility study.

Another error we often see in LBL business plans is totally unrealistic (too low) cost projections, often based on using generic square-foot estimates to project building and other costs. Without a preliminary plan with sufficient finish scope descriptions that a general contractor can use to develop a construction cost estimate and a very detailed cost estimate of all equipment, furniture, fixtures, soft and start-up costs, any cost estimate will basically amount to mush.

We often see entrepreneurs try to launch their LBEs with nothing but a completely self-prepared business plan and no capital. We can say with 99% certainty that such projects have no hope of ever becoming a reality. One reason is that banks and investors want credible market studies, cost estimates and economic feasibility projections prepared by experienced industry professionals. Secondly, investors want to see the entrepreneurs have substantial financial risk, in the form of capital investment, in the project.

A good business plan will usually run about 40 pages long and include an executive summary of no more than two pages. This isn't something that can be accomplished in a few days or weeks. The successful business plans (meaning the ones that resulted in funding and a well-executed business) we have worked with clients to produce have taken anywhere from two to four months to write, edit, edit, edit, proof, proof and finalize.

Having a convincing and readable story is essential, but typos and spelling mistakes will quickly doom a business plan. Financiers and investors find it hard to have any confidence in an entrepreneur's ability to execute a successful business if they can't deliver a business plan free of errors. It just won't come off as professional.

It takes money to find money. A market feasibility study, detailed cost estimates and pro forma financial projections required for a credible business plan cost money when prepared by an industry expert. A deposit or option payment is usually required to secure a contract or option on a site. Special engineering or environmental studies may be required to determine site development issues and costs. For your investors, you will probably need an offering memorandum that complies with state and federal securities laws and regulations, which will require you to hire a securities attorney. Be prepared to spend anywhere from $40,000 to $100,000+, depending on the type, size and location of the project, to get all this done and be in a position to start begging for the money.

A business plan is the first step to launching an LBL business. With comprehensive preparation, it will become your blueprint for success.

Additional reading:

• How Can I Finance My Leisure Project?
• Finding the Investment Sweet Spot
• Size Does Matter. Selecting the Right Size for Your Center
• The Feasibility Study: Guard Your Investment from Wishful Thinking

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