Should Your Club Have a Business Plan?

You already know that your club should have a partnership agreement. But has your club considered a business plan?

Business plan? Why would an investment club need a business plan? Investment clubs are businesses, and should be run like businesses. And all successful businesses have business plans.

Taking Your Club to the Next Level
In addition to the partnership agreement, most clubs also have a
mission statement. Every club should have goals, but are goals enough? Creating a business, or operations plan, takes an investment club to the next level. Some clubs put this information in their bylaws, but they can also be contained in a separate club document: the Club Operations Plan.

An Investment Club Operations Plan should state how the club will run its "business" on a daily, weekly, and yearly basis. It should state the parameters for what an investment club does, which is buy and sell stocks (for the most part), and make money. In many club’s bylaws, there is information on officers, voting, withdrawals, and just about everything else you can think of for running the club -- except for one very important subject -- the guidelines to buying and selling stocks. It's almost so basic it's easy to forget.

Many veteran clubs have a form of an operations plan. Once your club gets off the ground, you may want to consider creating such a plan. Below are some sample items that may be included in an operations plan.

  • Sector Diversification: Your club may set a percentage limit to a sector -- say no more than 30 or 40 percent of any sector. If you set 40 percent, and at the next club meeting the club realizes they have more than 40 percent of a sector represented, it is time to buy or sell a stock in order to stick to the operations plan.
  • Stock Diversification: No one stock can represent more than X percent of the portfolio.
  • Industry Diversification: No one industry can represent more than X percent of the portfolio.
  • Selling Strategies: A stock cannot be sold less than X Days after purchase.
  • Stock Types: The portfolio should have no more than X percent large-cap stocks.

The list can go on and on. It's up to your individual club to decide what’s important and take a vote. Once your operations plan is created, you and your club will have a much better idea of what needs to be done for the club. As successful businesses stick to their plans, so should your club. This creates FOCUS for the club -- and will relieve your club of the philosophical differences that sometimes come up.