There is little doubt that successful enterprises are built on solid foundations. Efficient companies have clear goals and are precisely focused on how to achieve them. Unfortunately, many small to medium sized enterprises (SMEs) overlook the importance of planning. In any list of the top reasons why businesses fail, an inadequate business plan is certain to be one of them.
A recent study by One Poll demonstrates that one in ten small businesses are jeopardising their growth and productivity by failing to plan effectively. A solid business plan is a must for any new start up, yet all too often the enthusiasm that accompanies a fantastic new business idea sees preparation fall to the wayside.
A common misconception is that only start-up businesses need a business plan. A well-considered business plan forces the owners to think about the future and the challenges they are likely to face and so all businesses should go through this process at least once a year and then monitor actual performance against their plan.
Rather than formulating a detailed business plan that covers all eventualities, many SMEs risk their future by relying on ad hoc projections and ill-considered strategies that provide a poor starting point. From a professional perspective, there is nothing more frustrating than seeing a promising business fail in its infancy due to problems that could have been avoided with more care and attention in terms of preparation.
An important aspect to remember is that business plans are not just designed to secure financial support. Although this is an important aspect that a plan should address, a good business plan goes much further and will act as a blueprint for the company you intend to build. A thorough business plan will encapsulate the key aspects of a company’s aims, ethos and finances in one accessible document that can be revisited and adapted as necessary in the future.
Unfortunately, some SMEs struggle due to the fact that business plans do not follow a set format – each plan needs to adopt different angles depending on the purpose and intended audience. Despite this, they share some common essential ingredients, including a concise description of products and services, an overview of business strategy, competitor analysis, market research, operation and management details, borrowing requirements and financial details.
Managing cash flow and accurate forecasting are notorious areas of concern when it comes to poor planning and subsequent problems, but accurate budgeting is a sure fire way to minimise cash flow problems. A budget is essentially a projection of income and expenditure for a set period of time and is usually accompanied by a Cash Flow Forecast. Normally prepared in advance of a new financial year, a budget serves as both a target and management tool for the coming year. It goes without saying that all businesses benefit from accurate budgets to manage performance and identify potential future investment requirements.
It’s all too easy for SMEs to rely on “post-it-note planning”, basing important decisions on hunches, spontaneous assumptions and ideas jotted on the back of napkins. Ambitious entrepreneurs may thrive on the front line, building their customer base and brokering new deals, but that counts for little if a business lacks direction and robust structure. Although thorough planning may not be the most glamorous side of growing a business, there is no denying it is one of the most important.