I often speak to business owners and when I ask them what their business growth strategy is I tend to get vague responses such as marketing and word of month referrals. Many times this strategy is not backed up a business plan. So why is it that so many of those in business refuse to go through a business planning process?
Well, I think there are a number of reasons but the top ones in my opinion would have to be:
- Too time consuming;
- A belief it's just a 'tick a box' thing rather than something useful;
- It's a very long winded document that just becomes a door stop;
- Don't really know how & their accountants and business advisors have never shown them.
While It's true a plan can be a meaningless document but that's only if you haven't prepared it properly.
Here are some tips that will make the business planning process much easier and much more useful.
Figure 1: Preparation is the key - it's what you do BEFORE you start the planning itself!
1. what is it that you really want?
Do you want a business by default or a business by design? A business by default is one that just evolves without any real thought. In some respects it is a 'hit and hope' strategy. A business by design is something that is the result of a series of emphatical business decisions that have been implemented to achieve a desired outcome.
Before you do anything, sit down and work out what you want your business to look like in 12 months, 3 years, 10 years and 20 years. Once you have an idea about this you can then work backwards to work out what you need to do to make this vision happen.
Fugure 2: Is yours a business by default (a 'hit and hope' strategy) or a business by design?
2. what is your why?
Why do you exist in business? What is your purpose? Some might say it's for the money but here's the thing. Once you know why you exist and what makes you come alive, the money tends to follow on as a result of that. Work out your passion and what you would like to achieve for those you will deal with directly and the difference you would like to make in your field and watch the business succeed accordingly. Drive is what is required to make your business happen. If you don't have that drive or passion it is most unlikely you will have a sensational business.
3. what financial goals will be set?
A key component of any plan is the financial side. This is naturally important as any business growth strategy will require cash flow to allow it to not only survive but also thrive. How many sales do you want in year 1? Have you broken this down into weekly and daily goals? Take into account any seasonality where applicable as the fixed costs will eat into cash flow balances where sales in those particular months are low and may require additional capital injections in the form of loans or investment from other sources. Before you do extensive numbers as you work through your plan, do a rough calculation on the back of an envelope initially.
- Work out number of units by average dollar value;
- Determine trading terms for both your customers and from your suppliers (cash, 7 days, 14 days etc);
- Work out margin on sales (i.e. Sales - Cost of Sales);
- Write down your fixed costs inlcuding a wage and/or dividend for yourself;
- What will be your principal and interest repayments on your loans?
- Put into a draft Profit & Loss Budget and then a draft Cashflow Forecast.
- Seek input from your small business accountant or business advisors Sydney.
- What would you like your business valuation to be down the track if you are looking to sell? Those that have a plan generally have higher business valuations.
When doing cash flow forecasts we recommend using what is known as 3 way budgets. They are extremely accurate and are also excellent what-if tools when doing business planning exercises.
Figure 3: Only those that plan properly end up getting the cigar!
4. WHAT Format do you want your plan to be?
There are a few ways you can go here. You can usually decide on the following:
- Detailed - usually about 30 to 70 pages;
- Simple - 5 to 10 pages; or
- One Page Strategic Plan - usually one A3 page size.
The last option in my opinion is a very simple and powerful way to chart the map fopr your business success. It's to the point (literally), can be rolled up and viewed almost anyway (planes, trains etc) or put up on your office wall.
It breaks down the plan into approximately 10 areas and can easily be updated each quarter and can also be referred to with your team.
We recommend gazelles.com for the one page strategic plan. We have had tremendous success using this system bot for ourselves and our clients.
Business planning can be seen as a chore but it needn't be that way. Before you contemplate such a process, consider the above 4 tips and not only will you be able to pull something together much more quickly, but also you will have a simple and highly effective plan that will become your business mantra on your pathway to success!