A solid business plan allows an owner to manage growth and expectations, obtain financing and take advantage of market opportunities when they arise. In today’s economically challenging environment, reviewing that plan annually is critical to stay current with customer demands and technological advances. As industries evolve, so must businesses and their plans.
“A business plan allows you to make decisions in hard economic times when you may experience some profit squeeze or declines in revenue,” says John Helmuth, a director in the audit and accounting group at Kreischer Miller. “The plan will help you address what direction to lead your business, whether focusing on different products or more profitable areas of the business or attacking different opportunities in the marketplace.”
Smart Business asked Helmuth about the foundation for a strong business plan and how to update that plan annually so it is relevant to current and future operations.
What are the key components of a business plan?
First is the executive summary, which informs the reader, whether a potential lender or your management team, upfront with key ideas covered in the plan. It explains the fundamentals of your business, including your products and services, customers, owners, and the overall direction of your business and industry. It can also include a request for funding from investors or lenders.
Next is the business environment, offering a more in-depth industry description and outlook, with the direction of the marketplace and an evaluation of your competition.
The company description includes your mission statement, the structure of your organization, your management team, products and services, technology, and company operations. It also addresses your marketing plan and company strengths.
Next is company strategy. This is where you expound on: basic strategies for dealing with major facets of your business, anticipated changes in the industry and how the company will adapt to economic ebbs and flows, and opportunities to grow your business. As you develop the company strategy, ask yourself these questions: Where do you expect to be as a company next year? What about in five years? What products and services do you anticipate will show strong/weak performance? What opportunities may crop up in the future? How will you react to those? The compiled answers to these questions will shape your company strategy.
Following is the financial review. Include historical income statements, balance sheets and cash flow statements for the last three to five years, along with projected financial data for the next five years.
The final section is the action plan. How will you reach your goals? Who will help you implement the plan? If you decide to market new products and services, how should the management team realign itself and what changes are needed to handle future growth? The first sections of your plan map out the ideas. The action plan component tells how your company will accomplish these goals and measure its progress along the way.
What mistakes do owners make when creating a business plan?
The worst mistake is failure to plan in the first place. But even with a plan, some owners do not formulate accurate financial projections and realistic goals and objectives. Additionally, they avoid asking themselves two key questions: Have we gained or lost significant customers? Have we evaluated the profitability of major product lines? It is important to consider these questions, along with historical results and growth opportunities, in order to set achievable targets.
Another mistake is their unwillingness to accept change as industries evolve and technology continually becomes more sophisticated. If you base your plan on outdated information, you will not be prepared for changes in an uncertain future. Finally, business owners who do not assemble the proper team could have difficulty implementing a plan to drive the business forward.
At what point should business owners review an existing plan?
Review and make appropriate amendments to your plan at least once a year. If your business is in a rapidly changing industry, you may need to evaluate your plan more often even every quarter. Refer to the plan frequently to determine whether your business is achieving its goals and objectives.
What side effects might a business suffer without a solid plan?
In a worst-case scenario, lack of planning can result in business failure. Management teams that do not plan potentially spend more time resolving issues than guiding their companies’ futures. If your industry is constantly changing and your product mix loses position in the marketplace, not addressing potential issues immediately could mean playing catch-up later to regain market share. Lack of business planning could also reduce the likelihood that an outside investor will lend you capital to grow the company.
Finally, and perhaps most important, if you don’t get your goals down on paper in the form of a business plan, you will likely not achieve those goals. Without a vision, you could miss opportunities that may lead to increased profit, new customers or additional revenue streams.
JOHN HELMUTH is a director in the audit and accounting group at Kreischer Miller, Horsham, Pa. Reach him at (215) 441-4600 or email@example.com.