Note: This post is about making a plan that business owners will use to guide their daily activities and track progress, NOT a plan for investment, bank loans or other third parties.
I just met a man who had to close his business and make four people redundant. He told me his biggest regret was not making a business plan. He didn’t know what he needed to turnover every month or how many sales he needed to cover the costs of supplies, premises and wages. He ran out of money.
Sometimes, wonderful things happen by accident, but in business, its best to have a plan!
How to make a plan.
Like the inestimable Bill Bailey, start with the end in mind.
Are you building a business to sell, to pass on to a family member, to provide you with a retirement fund or to give you independence and a good lifestyle?
Knowing that, where do you want your business to be in three years time in terms of profit and turnover?
How will you get from where you are now to where you want to be?
What will you need to spend and what income will you generate?
Do your costs stay the same the more you sell?
Will you need to employ people or outsource work?
List all of the expenses and how many sales you need to make to get the turnover to cover them. Then figure out how much profit you will make when you’ve deducted all of your expenses. Is the business profitable enough? Do you need to raise your prices?
When you know the answers to these questions, make an outline plan for the next three years then a detailed plan for the next 12 months with spaces to add actual numbers against what you forecast.
Follow this with an action plan for every month that details exactly what you need to do to get the sales you need and how much each sale costs you (it’s approximately seven times more expensive to sell to a new customer than to an existing one).
Your action plan should feed into your monthly, weekly and daily schedule so that you never get caught spending so much time delivering work that you neglect to bring in more work.
Decision making will be fast and easy because you’ll know where you’re going, what’s working and what’s not.
You won’t be tempted by cockamanie marketing ideas or pursuing new and shiny business ideas before you’ve got this one established because you’ll be able to see how unplanned expenditure will affect your cash flow and exactly what income it needs to deliver and by when so that you never run out of money.
THAT’s why you need a business plan.
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