It is those strategic plans which will enable the management of the small company to keep their company on an even keel. Planning is an essential element of any business, and small business, with 65% of all small businesses failing, needs every advantag e in order to succeed. This article will deal with two of the elements contained in the typical business plan; The mission statement, The strategic and tactical plans and goals, and The proforma financial statements.
The four major steps to Planning are:
The business mission statement is a companies' manifesto, its' intent on why it exists. Since most businesses are created based on the "Going Concern Principle"1, this manifesto will provide the reason the company is in business. The statement is the r eference point to which all managerial action will refer. The mission statement is dynamic, changing and growing with the company, as the company grows or shrinks.
A mission statement should not be "Smith Company, a Seller of Widget's". This statement, while reflecting what the company's does, its ultimate goal, is not specific nor results oriented, reachable, and measurable. A better mission statement might be "S mith Company, The Number 1 Regional Distributor of Widget's, where service to the customer is our prime concern".
A Planning Objective is measurable, specific, and challenging which returns a quantifiable result within a specific time frame. With Smith's objective we have clearly defined a specific and measurable goal, (number 1 regional distributor) which can be p roven through marketing and sales statistics. This major objective, in addition to any secondary objectives, requires an operational time frame. An objective and milestone must have a completion date, which satisfy's the requirement of measurability an d time frame.
The business plan will also outline those individuals who are principles or key players in the proposed company. The plan will outline the reasons why these specific people will be able to make the business succeed. Additionally, it is here where all o ther essential employees will be discussed, their qualifications, their duties and job descriptions. A well thought out growth is necessary for a company. Without planned expansion, the resources may not be available to keep the company afloat.
Other resources which need to be identified are location, market place, organization structure, sources of cash flow, and financial statements. Location refers to the area in which the company will be located, industrial, commercial, retail, professiona l parks or areas. Location also refers to the market, and access to its customers. The market place refers to the business type, ie; manufacturer, assembler, distribution, retail, etc. Also, the identification of customers and vendors to provide the co mpany with outlets into the market place. Location and market place are discussed fully in the sub-section of the business plan called the marketing plan.
Organization structure is extremely important to a business. The structure will determine the management style of the business. Remember, Smith Company stated that Customer Service was of prime concern. Since this is the case, the company should be st ructured following the concepts of TQM, Total Quality Management. TQM, simply is a theory of management where every entity has a relationship to another entity (individual, department, company) as either customer or vendor. Customer service, then relate s to how each entity reacts and treats each other.
Organizational structure will also determine the companies code of ethics, dress code, personnel policy, labor relations. It is here that the initial departments will be defined, their roles and job descriptions. Organization structure is the skeleton to company, the business plan is the nervous system. Management and the employees are the brains, and if sales is food to the company, the financial position or cash flow is the life blood of the company.
The proforma financial statement that are created with the business plan, must be as accurate as possible. These financial statements are based on the business and marketing plans. They should be able to tell management what is possible and what is not possible based on cash availability. They will tell management when they will need short term or bridge loans or when they will need long term financing to fulfill the requirements of the business plan.
The centerpiece of the financial's is the cash flow model, which in turn creates the income statement and balance sheet. The cash flow model will list every conceivable income source and expense. It calculates the true expense associated with payroll a s well as cost of goods sold. Assumptions for future periods should be based on hard facts, carefully considered, not on whim or the desire to have great looking financial statements. The cash flow model will enable management to track the growth of the business, in real terms, not just by watching the bank balance.
In order for the cash flow model to be accurate, the model will have more fields than the income statement would have. Examples of this would be in the Income Section of the cash flow model. Lets say Smith company has two product lines, Widget and Supe rWidget. The Income section will need a sales forecast for each period and product line and a division between cash sales and accounts receivable sales. Should Smith Company have multiple terms, then each set of terms needs to have its own field. These extra fields then must also be forecasted, so that the proper cash flow can be calculated. Obviously, cash sales will be deposited the same day a sale is made. However, sales made on terms such as Net 30 will not normally be collect until 30+ days after the sale is made, and then it may take more than 60 days to collect 80% of your sales. Your cash flow model needs to reflect the collection rate in order to properly ascertain your cash flow.
A realistic and valid business plan, with accompanying market plan and financial's can not be done overnight. Nor can you fully create this plan using some of the software available on the marketplace. Careful consideration and due process must be take n while developing your business plan. A properly conceived business plan might not avert failure, but it should identify diversions from what you considered the 'norm'.
Wayne Spivak is owner of SBA * consulting, start-up and turnaround specialists based in Bellmore.