Does your business have a written business plan? If it does, when was the last time you or anyone else referred to it? When was the last time it was updated? Has your business, or the climate in which it operates, changed since the original business plan was conceived? I have been in the practice of public accounting for over thirty years, and in all that time I can recall only a handful of clients who had written business plans.
The process of writing or updating a business plan will help you to identify and deal with issues facing your business; short term and long term budgeting, customers, suppliers, products, personnel, marketing, competition, technology, succession, and legal issues, just to name a few. It will force you to think about your short and long- term goals and how you hope to achieve them, and provide a way to measure your progress in meeting these goals.
The elements of a traditional business plan are a business description, an analysis of markets and competition, and marketing, operating, and financial plans. The business plan will help communicate goals and ideas to investors, lenders, and employees. If your management team and employees will be responsible for implementing the plan, they should have input in its formulation. In our consulting engagements, we often find that the best ideas come from employees, who before being interviewed by us, have never been asked to share their ideas. Also, it is much easier to get buy in and accountability from someone who participates in planning rather than having the plan thrust upon them. Although it is a topic for another day, we are currently assisting a professional service firm client prepare financial projections. Rather than projecting revenue based on an arbitrary estimate of billable hours, we asked each of the firm’s professionals to give us their commitment for 2011. Not only does this help us more accurately project firm revenue, it introduces individual accountability, and an element of competition and peer pressure, which in this case is expected to result in additional revenue for the firm.
The business plan should begin with a mission statement, which clarifies what is most important to you, explain why your business exists, what it hopes to achieve, and the principles and beliefs will you employ along the way.
The market analysis section of the business plan should identify your target customers and your competition. What are the characteristics of the market for your product and how has it changed since your business was started? Identification of the profile of your target customers and why they might purchase your product or service will allow you to efficiently focus your efforts. In analyzing your competition, you should evaluate their strengths and weaknesses compared with your own.
The operating plan addresses the internal operational structure, including management, production, technology, facilities, and staffing. The plan should outline management responsibilities, production methods, the use of technology, and staffing needs. For example, is any new technology available that will allow you to reduce labor costs? Can any production methods be improved, resulting in greater efficiency and profitability? These are just a few of the issues to be addressed in the operating section of the plan.
Although the financial plan may be the most difficult section to prepare, it is also one of the most important and useful tools in running a business. The plan should be five years, prepared on a monthly basis for the next year, and an annual basis for the following four years. Accurate projection of revenue and expense will tell you how much profit you can expect to earn for the year, and monthly comparison of actual and projected results will help monitor your progress. Also, if you are falling short of goals, your will know about it immediately, while you can still do something about it, rather than after year-end, when it is too late. If your company lacks the internal expertise to prepare a financial plan, your outside CPA firm will certainly be glad to assist you with this most important task.
A thoughtfully written business plan will be a most useful tool in contributing to the success of your business. The insight gained in preparing and writing the plan will provide benefits that go far beyond the effort expended. Spend the time now and prepare a 2011 business plan; you will be glad you did.