Buildings Need A Business Plan, Too | Kristi Kozubal
Small-scale real estate development, frequently undertaken as a calling or a mission, is no different than any other business venture. Financial success requires a Business Plan. But, in the words of Dwight Eisenhower, “[P]lans are of no particular value, but planning is indispensable.”
While it might be tempting to download a business plan template or someone else’s outline, I challenge you to start with a blank slate and thoughtfully answer these two crucial questions:
(1) Why is this project necessary at this time and place, and
(2) How will the project create value for its stakeholders.
First – the Why.
Your business plan is a statement of what you’re going to do to solve a problem. Although it might seem obvious to you, you have to articulate the problem, whether it is a gap in the market or a specific need in the fabric of the community. This should only take 2-3 sentences. Then support the problem statement with data – demographics, price points, trends, lost tax revenue – because those are the objective measurements of success to your stakeholders. Provide authority by citing a Master Plan, Housing Study or other reports written by expensive consultants that have been adopted by the community. You don’t have to duplicate their research efforts.
It is our job as developers to provide the answers to the problems in our communities, not to obsess over their root cause, but to move the community forward. To understand the available options and creatively design a product and a capital stack to make it happen.
Second – the How.
A business plan centers around its value proposition, or how your project creates value for its stakeholders.
Let me back up a second. Who am I talking about when I say ‘Stakeholders’?
Stakeholders include everyone affected by your project. Not just the occupants who will buy or lease the project when it is complete, and not just the partners, investors, lenders, and contractors who have a financial stake in the project. Stakeholders also include every entity listed on the tax bill – school districts, community colleges, libraries, and local government among others. And don’t forget the neighbors. Each of them has a stake in the outcome of your project because it affects them.
Your business plan must analyze the financial impact of the product you’re creating for each significant stakeholder, both in short term dollars to show that it can satisfy your debt and investor return obligations and in long term property tax & utility revenue. But it should also analyze the change it will cause in the neighborhood property values, demographics and character. All of the numbers matter, not just financials. School revenue is based on head counts, traffic counts affect road conditions, eyes on the street affect perceived safety, etc. And sometimes these changes cause stakeholders to be concerned. It is your job to explain how the changes are a greater benefit than a burden.
Don’t be afraid of the business planning process. Embrace the knowledge that comes with it. It will empower you.
Kristi Kozubal is the Regional Director of the Michigan Small Business Development Center located at Delta College. The SBDC helps small business owners start, grow, transition and innovate through no-cost consulting and educational resources which can be accessed anytime by visiting the website https://sbdcmichigan.org.