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Only Captain Risky Says "Who Needs A Business Plan?"


Figure 1: Do not try this at home! Not having a plan is like jumping into the abyss.

INTRODUCTION:

Why is it that many small business owners seem to want to fly by the seat of their pants? The "she'll be right mate" attitude can be regarded as a positive affirmation but it's a bit like turning up to a place for a wedding on a long weekend only to find that no accommodation is available. You might be lucky but why take the risk?

Here are 5 things that can go wrong if you don't sit down and plan ahead.


 

1. Business becomes a business by default not design

If you just turn up to work each day hoping that things will work themselves out, you will end up with a business that just turns out like a pizza (but not the special type!). Wouldn't it be better to have a vision as to what you want it to look like and then list a set of actions that moulds it into what you dreamt it could be?

2. Business runs out of cash

Businesses can run out of cash for many reasons. It could be due to:

  • Growing too quickly;
  • Lack of profits;
  • Too much debt;
  • Personal costs too high;
  • Theft;
  • Not collecting debtors; or
  • Inventory taking too long to turnover.

The business planning process can address these issues as part of the overall design. Getting a cash flow forecast done (see 3 way budget) will allow you to work out what if scenarios and establish what sort of actions you need to take to make sure you don't run out of cash. This is where your accountant or business advisor can really assist and provide some value.

3. cannot get finance

The banks and investors like to see a business plan if you have one. Whilst they won't always insist on it, seeing that somebody is organised will give them some comfort that there is a roadmap for where the business wants to be.

Only those that are prepared to take a big risk will put money into such a business and if they do, because of the risk, they will skew the deal in their favour with higher interest rates or a bigger share of the business for a smaller sum. Any business valuation will take int account whether a business plan exists. If there is not one available, the business multiple on the adjusted earnings will drop.

Business plan

Figure 2: Captain Risky says "Let's just wing it!!!!" Photo courtesy of Budget Direct.


4. Succession plans will struggle

It's going to be much harder to bring someone into the business like a family member or employee if you don't have a vision for your business even when it's time for you to go. If you can't find somebody to take over, not only do you risk having to close the business but also you may have to keep working for years after your planned retirement date as the business proceeds will not be enough to fund your retirement. Succession planning is a key component for any exit strategy.

Business plan

Figure 3: Not having a business plan will drive you to drink!

5. It just makes sense!

History will show that the businesses who have taken the time to plan and then make sure they implement that plan, are far more likely to succeed than those who don't. If you don't know how to turn this exercise into an exciting and enjoyable process, then get help from the appropriately qualified people. Higher business valuations will ultimately be more likely and like any game, you are trying to work out how to win in the end.

Business advisors should have a successful business themselves and a strong appreciation of how the numbers tie in.

CONCLUSION:

Whilst the above comments seem fairly basic, remember it's the simple things that makes life successful.

You don't have to have a business plan, but if you don't, like Captain Risky your business days could be numbered.

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