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 [email protected].