If you fail to plan … Featured

8:00pm EDT March 26, 2008

Acompany without a well-developed business plan is likely headed for failure. Even if the business owner doesn’t fail, the lack of a plan can lead to issues such as less customer traffic and lower profits.

Therefore, anybody who is planning a business must be prepared to spend a fair amount of time writing, implementing and monitoring a business plan. There are no shortcuts to business planning or to business success. Writing a business plan requires a lot of research and a great amount of due diligence. A solid business plan is the foundation of a successful business — and may require more work at the onset than actually running a company does.

Smart Business spoke with James P. Sacher, CPA, a partner with Skoda Minotti, to learn more about the importance of business plans, what to include in them and how they contribute to a business’s bottom line, regardless of how it is structured.

Is there a correlation between the form of a business and the need for a business plan?

No. Every business is going to be a little bit different, whether it is a sole proprietorship, an S-Corp., or an LLC. But that does not mitigate the need for a business plan. The form of the business is just one small aspect of the business plan, but a big consideration. Regardless, the way the business is set up from the beginning will have implications going forward.

Should business owners develop their own business plans?

Yes, whenever possible. Primarily because, no one knows their businesses as well as owners do. If owners cannot articulate what they are going to do and how they are going to do it, nobody else can do it for them. Second, developing a business plan forces owners to really think about how they are going to run their companies. They have to consider what services they are going to offer, whether they will expand them at some point, how many employees they are going to need, how much space will be necessary, etc. If the owners do not write the plans themselves, they will miss a lot of those details. Once the plan is done, the owner can run it past other people who will be able to point out what might be missing.

Do the components of a business plan change from company to company?

The fundamentals don’t. Even though there is no formula for writing a business plan, the owners always need to be able to identify fundamentals like products and services, pricing methodologies, their competition, differences between their products and services and why they are better than their competitors’ offerings, marketing strategies, financial details, organization charts and mission statements. However, the details of the individual plans may change a bit. There may be things added or taken away, depending on the type of business. But, for the most part, there is a core list of considerations that are a part of every business plan.

Should business owners monitor their business plans occasionally?

Yes, especially with the financial sections of the plan. The writers of the plan probably know the details about the products, services and competition, etc. They know what they are going to sell and how they are going to make their money. The financial sections drive a lot of decisions regarding the timing of projected revenues, the variable and fixed expenses, hiring plans, the need for equipment and space, and so forth. The financial forecast part of the business plan often turns into the owners’ budgets.

The owners find themselves in the position where they are able to measure their businesses’ outcomes against their budgets. They have goals and objectives and targets they laid out in their business plans, and the results of those plans are going to be demonstrated in their financial results. The comparison allows business owners to compare financial results against what is budgeted. And they will know how well they are doing and if and where they have to make changes.

Can changes be made to a business plan?

Yes. The plan has to be firm when the business starts off, but owners have to be nimble enough to change when necessary. They don’t have a crystal ball, and they don’t know exactly how things are going to go with the business. For example, it might take longer to get a product to market than the owner originally predicted. That may stimulate changes in the financing or hiring parts of the business plan. Or, things might be going better than the owner could have predicted, so changes in the plan have to be made to accommodate that, as well. Business plans can be changed as the situation dictates, but they cannot be changed unless they are in place to begin with.

JAMES P. SACHER, CPA, is a partner with Skoda Minotti. Reach him at (440) 449-6800 or jimsacher@skodaminotti.com.