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 protected].