Take Benjamin Franklin's advice: 'If you fail to plan, you are planning to fail'
Putting together a business plan isn’t just for banks or investors.
A COMMON MISCONCEPTION in companies is that a business plan is for the bank or a potential investor. It is not.
A business plan is for the business, it clearly lays out the road map for where the business wants to go and how it intends to get there. As Benjamin Franklin said: “If you fail to plan, you are planning to fail.”
A great analogy to illustrate this point is food shopping. Every week how much food do you throw out of the fridge because it’s expired? If you didn’t use it then why did you buy it? Surely you would be better off thinking about the meals you intend to have, identifying the ingredients that you need and only buying those.
Similarly in your business, how many of the activities that keep you busy actually don’t add value? If you took the time to stop and actually think about what you are doing, would you actually do it?
In developing your plan the first thing you need to understand is your current position. Gather as much hard data as you can on your businesses performance. In essence you are attempting to quantify where the strengths and weaknesses of the business lie, what opportunities exist and what threats your business faces.
Seek information on the profitable customers and products, the strength of the management team, shareholder ambition levels, competition, economic factors and company culture – to list but a few.
20-20 vision
Once you have a clear understanding of your current business, you need to articulate your vision for the company. Ask yourself: What does success look like? What will it look like in three to five years? Am I happy for things to continue as they are or do I want a €100 million company?
To quote Lewis Carroll: ”If you don’t know where you are going, any road will get you there.”
The focus now will be to identify actions that will allow you to close the gap between where you are and where you want to be. Brainstorm ideas, encourage wild and unrealistic solutions, build on ideas put forward by others and do nothing to discourage creative thinking.
A high-level cost-benefit analysis will be necessary to evaluate and prioritise those actions that will help you achieve your desired vision. Ultimately this analysis will feed into the financial projections.
An important aspect of every planning process is to consider the resource allocation, both in people and money. You won’t be able to do everything so make sure you select those that have the greatest chance of succeeding.
Time is also going to play a factor here as well: the faster you want to grow the more resources you will likely require. Does rapid growth require an equity investment and, if so, are you willing to consider this?
A continuous process
The financial plan is the business plan, but it is in numbers rather than letters. It will assist you in considering alternative scenarios, pinpointing bottlenecks and limiting factors, helping with the phasing of projects and, most importantly, identifying a funding gap which will prove invaluable if seeking external funding.
This article seeks to raise awareness amongst SMEs of the need for business planning and to provide a high level roadmap for how to develop a comprehensive plan. It is important to note that this is not a one-off activity but a continuous process.
Based on what you achieve and market conditions your plan will more than likely need to be revised. The choice is yours to react to the world around you and hope that your business can handle it or proactively identify risks and position your company to seize opportunities for growth.
Tom Early is a senior investment adviser at Enterprise Ireland, which is running a series of workshops for exporting SMEs on ‘finance for growth’.
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