Proper Planning Prevents… (Part 2)
Do you know where your business is going?
You might remember last month’s article. We commented that most business owners spend more time planning their family vacation than they do planning for the future growth of their company. This month we are going to take a closer look at how to create that written business plan. The starting point of our family vacation was determining where we wanted to go and when. Your business plan starts the same way. Where do you want the company to be in one, three or five years from now? Do you want to double gross sales, pick up additional products and services, or simply increase the bottom line profit in percentage and/or dollars? You can’t create a plan to reach your goal until you know where you want to go. Most families know their vacation destinations before they start their trip. Your business is no different. Step one: what do you want your company to look like several years in the future?
We now know what our five-year goal is. You will remember the destination of the family vacation was set months before the trip took place. It was going to take some planning. Mom and Dad had to plan the route, get the vehicle checked out, purchase games for the kids and make reservations at hotels along the way. This all took place before the trip began. The same principle applies for your business plan. Once the goal is set it’s going to take some planning before the game plan moves forward. The end goal might include hiring additional techs and/or support staff. How many will you need and when? Few company owners can hire that perfect employee within 24 hours. The process must begin weeks, and perhaps months, before the employee is hired. What process will be used and when does it need to begin in order for the right people to be on the team at the right time.
Let’s back up a step. If you are going to need two more techs and one additional staff member in twelve months, wouldn’t it be nice to have work for them to do? If the plan calls for additional employees, that means the company needs to increase its gross sales. Increasing sales won’t just happen. Marketing and advertising plans need to be developed and implemented. By the way, that will cost money, so keep your budget in the back of your mind. We will talk about the budget a bit later.
Let the marketing and advertising begin! As the company grows you’ll need to buy additional inventory, including hand tools and vehicles. What will you need when? Back we go to the budget because these investments, again, will cost money.
Each stage of growth needs to be planned and each will involve spending additional dollars. That’s why we need to create — and constantly update — our budget. The budget will include our projected sales and every dollar you expect to spend. Our basic overhead costs (rent, utilities, insurance, gasoline, vehicle maintenance, Yellow Pages, etc.) will need to be adjusted. We will also need to put in additional dollars for marketing, advertising and those new employees we will be hiring. The cost of doing business a couple years from now looks a lot different than what we are spending today, right? So guess what else needs to change? That’s right; our pricing needs to be adjusted as well. Please listen to this next statement. Whenever your cost of doing business changes your labor rates will, by necessity, need to change as well. I strongly suggest you review your labor pricing at least twice a year. Nothing ever stays the same in terms of your costs of doing business. As costs change your labor rates will need to be adjusted.
Growth takes planning and planning requires a vision of where you want your company to be several years in the future. Reaching your goal will be a work in progress. The work will begin with step one, then step two and so forth. You have probably heard this little phrase before, “Plan your work then work your plan.” That is what a detailed business plan is all about.
We have just touched the tip of the iceberg in terms of creating a detailed business plan. Below you will find an outline of a basic business plan. If you are serious about profitable growth you might want to use this outline as a guide.
1. Executive Summary:
a) History of your company
b) General market conditions
c) Status of competition
d) Company goals
2. Financial Plan:
a) History of company from a financial standpoint
b) Current financial statements
c) Capital expenditure forecast
(what equipment will be needed and when)
d) Month-by-month cash flow budget for the next two years
e) Cash flow projections for the next five years
3. Marketing Plan
a) How will you market your company
(radio, TV, yellow pages, pay for
b) Show the cost of each
and the expected results
c) What will be done when and
d) What is the “cost” of the plan,
4. Production Needs:
a) Labor needs
b) Material forecast including inventory
c) Assets — what equipment will
5. Organizational Plan:
a) Organizational chart
b) Training — salaried and technical
To paraphrase Lewis Carroll, the author of Alice in Wonderland, if you don’t know where you are going, any road will get you there — the only problem is that you will never know when you arrive. That is a powerful statement and it applies to your business. Growth, all by itself, can lead to failure. However, planned growth, via the development of a detailed business plan, can lead to profitable growth!