It still amazes me when I see people scrambling the week before the holidays to buy last minute gifts for their friends and loved ones. I often wonder why these people wait until they have to fight the crowds at the end of December when they know how busy the stores are going to be. I have come up with a formula to explain this behaviour – 1/3 procrastination + 1/3 laziness + 1/3 poor planning. I could write a whole blog on how procrastination and laziness may lead to the fall of the North American economy in the next fifty years, but that would be more self cathartic than interesting, so I’ll focus the remainder of this blog on planning.
According to the United States’ Small Business Administration (SBA), approximately 90% of all small enterprises fail within the first two years of operation. Among the primary reasons for these failures are poor planning and a general lack of organization. Unfortunately, all too often I see inadequate planning when I meet with new clients.
Running before you can walk and lacking focus are recipes for disaster in business. A properly drafted business plan can help to mitigate the risk that these factors will be the cause for an unsuccessful venture. A successful business often starts with a detailed and organized business plan. Not to be overly simplistic, but at a minimum, a business plan should:
1. ensure that specific goals and objectives are defined,
2. create roadmaps that outline how the business will achieve those goals and objectives, and
3. provide means to quantitatively measure whether those goals and objectives are met.
A good starting point for a business plan is the objective evaluation of the marketplace. This can be done by performing a S.W.O.T. (Strengths, Weaknesses, Opportunities and Threats) analysis. A S.W.O.T. analysis involves brainstorming to identify the internal (strengths and weaknesses) and external (opportunities and threats) factors that impact the probability of the business achieving its goals and objectives.
The next step is to outline how your business will attempt to achieve the defined goals and objectives and capitalize on the opportunity you perceive in the marketplace taking into account all the factors identified in the S.W.O.T. analysis. This section of the business plan must provide specifics on the following:
1. how the business will obtain customers and market share,
2. how the product or service will initially be created, and
3. how it will be provided and delivered.
It makes sense to use numbers to illustrate how the business will be profitable over a period of time at this stage in the plan. Projected or pro forma balance sheets and income statements (sometimes cash flow statements, as well) are often created using realistic assumptions. A chartered accountant can assist in preparing this financial information. A really good business plan will include some sensitivity analysis to show what would happen to the numbers should certain targets not be met or other factors change.
Finally, a business plan should provide metrics and a time frame for evaluating and measuring whether the goals and objectives are being achieved. These metrics will provide a scorecard to help the business owner quantitatively determine whether the business is performing as expected. Once the business has been operational for a period of time, the metrics should be used to determine whether anything needs to be tweaked, reworked or even intensified to ensure the business’ ultimate success.
While a business plan is not a guarantee for success, a poorly drafted or non-existent business plan will virtually ensure that the business will be just another soul fighting the crowds in the marketplace.