Every spring my mother would begin the annual event called "spring cleaning", which brought a fresh look and feel to our home. As a business owner it is a good time to do the same thing to your business.
Take out the 2011 Business Plan that you completed in the 4th quarter of last year and determine if you are still on track, or if adjustments need to be made. Remember a lot has happened since last fall that can have an effect on your business. Just waiting to react to these events can have a negative effect on cash flow unless you have a comprehensive plan..
Some questions to answer are:
- Are my new product development programs on schedule?
- If the schedule changes what is the effect on sales?
- Should I change my sales forecast for the following reasons:
- Product Development Schedule
- Market/economic conditions
- Sales team performance
- Is my capital expenditure plan still valid or should it be modified?
- Is my advertising/marketing plan performing or do I need to adjust it?
- Do I need to adjust my hiring plan?
- Do I need to adjust my production plan to meet current conditions?
None of these questions has a right or wrong answer, but not answering them and adjusting your Business Plan accordingly can have a negative effect on your working capital and lending relationship. Remember lenders and other stakeholders do not like surprises.
A few of the surprises may be:
- A delay in new products can result in lost sales, bringing in capital equipment before it is needed, and increasing inventory if the production plan is not changed.
- If new products are ahead of schedule, will the capacity be available to produce them.
- If sales are less than forecast, with no corresponding change in production, the result will be less profit and increased inventory.
- If the advertising/marketing plan is not performing, you will have lower sales and less profits.
The common thread is cash flow. Will I have enough working capital available to run my business effectively and not surprise my banker with a cash shortfall.
The way to avoid these surprises is to have a dynamic business plan that is monitored for current conditions during the year and includes not only a sales forecast and income statement, but also a balance sheet and cash flow projections.
Just like my mother's spring cleaning we need to take a fresh look at our business during this time of the year.
