When I am asked to explain
why business planning is so important, my first
inclination is to quote Lewis Carroll. In Alice's
Adventures in Wonderland,
Alice comes to a fork in the road and asks:
"Would you tell me which way I ought to go
from here?"
"That depends a good deal on where you want to get
to," said the Cat.
"I don't much care where," said Alice.
"Then it doesn't matter which way you go," said the
Cat.
For me this scene encapsulates perfectly the
problems of not having a strategy, goals and plan for
your business. Without
a written plan, a business is
essentially rudderless, with a tremendous amount of
wasted time, money and resources, and day-to-day
activities are
likely to be haphazard and
reactive, in stark contrast to those businesses
implementing a well thought out
business plan.
A good management advisor should help you with all
aspects of growing your business. If you haven't done
the needed business planning in the last twelve
months or you don't already have a business plan, a
management advisor can work with you to strategize
your business and provide the expertise and
resources to prepare the business plan and financial
forecast. If you currently have a business plan, a
management advisor can help you attain the goals
outlined in the plan and develop metrics to take your
business to the next level.
The following represents a list of my top five reasons
why a firm needs a business
plan.
1. To Map the Future
A business plan is not just required to secure funding
at the start-up phase,
but is a vital aid to help you manage your business
more effectively. By
committing your strategy and goals to paper, you can
understand your business better and
also chart specific courses of action that need to be
taken to improve your
business. A plan can detail alternative future
scenarios and set specific
objectives and goals along with the resources
required to achieve these goals.
2. To Support Growth and Secure Funding
Most businesses face investment decisions during
the course of their lifetime.
Often, these opportunities cannot be funded by free
cash flows alone, and the
business must seek external funding. However,
despite the fact that the market
for funding is highly competitive, all prospective
lenders and investors will require access
to the company's recent Income Statements/Profit and
Loss Statements, along with
an up-to-date business plan and 3-year forecast. In
essence, the former
helps investors and lenders understand
the past, whereas the business plan helps give them
a clear picture of the future to make a lending or
investing
decision.
3. To Develop and Communicate a Course of
Action
A business plan helps a company assess future
opportunities and commit to a
particular course of action. By committing the plan to
paper, all other options
are effectively marginalized and the company is
aligned to focus on key
activities. The plan can assign milestones to specific
individuals and
ultimately help management to monitor progress.
Once written, a plan can be
disseminated quickly and will also prompt further
questions and feedback by the
readers helping to ensure a more collaborative plan is
produced.
4. To Help Manage Cash Flow
Careful management of cash flow is a fundamental
requirement for all businesses.
The reason is quite simple--many businesses fail, not
because they are
unprofitable, but because they ultimately become
insolvent (i.e., are unable to
pay their debts as they fall due). While the break-even
point--where total
revenue equals total costs--is a highly important figure
for start-ups, once a
business is up and running profitably, it becomes
less important.
Cash flow management then becomes more vital
when businesses pursue investment
opportunities where there are significant cash out
flows, in advance of the cash flows coming in. These
opportunities need to be assessed against any
seasonal variations in the business and the timing of
the cash flows.
5. To Support a Strategic Exit
Finally, at some point, the owners of the firm will
decide it is time to exit.
Considering the likely exit strategy, in advance, can
help inform and direct
present day decisions. The aim is to liquidate the
investment, so the
owner/current investors have the option of cashing out
when they want.
Given that valuing firms is notoriously difficult and
subjective, a well-written
plan will clearly highlight the opportunity for the
incoming investors, the
value of it and increase the likelihood of a successful
exit by the current
owner.
Visit us at
www.CEOAdvisor.com for more information, or
call Mark
Hartsell at (949) 759-8676 for a free consultation.
