Five Inconvenient Truths About UK Business Plans

I am a business advisor so I talk to a lot of business owners and it constantly astounds me how many do little or no planning. In the UK business plans are still not considered core tools for running a sound business. Without a plan, or at the very least an income, expenditure and cash flow forecast, it is very difficult to know how well your business is currently performing, let alone where it is headed.

Writing a business plan need not be a huge chore, there are plenty of good software programmes around, which usually include ready made business plans, to give you a head start. There are also plenty of professional business plan writers eager to assist. So why is it that the following five truths still prevail?

1. Many UK companies simply do not have a business plan

Not having a plan is like walking around in the dark without a torch. You may get where you are going but it will take longer and you will probably trip over several times on route.

I recently helped a business move from being loss making to making a good profit. All I had to do was forecast income and expenditure figures. It immediately became blindingly obvious that, unless my client put up his prices, he would continue to fail. A small price increase, against existing client accounts, soon sorted out his problem.

If he had an active, simple financial plan, which he could easily have put together using a good business planning software programme, he would not have got into difficulty in the first place and would have saved money by not needing my services.

2. Start-up businesses are often too optimistic in their income forecasts

We all tend to be over optimistic. There are plenty of high profile, high value projects that ended up with a price tag many time greater than the initial budget forecast – the building of the Channel Tunnel or the Millennium Dome (now the O2 Arena in Greenwich) are just two examples. Getting input from professional business plan writers is one way to deal with this problem.

Having an active plan also means that you can monitor actual performance against your plan and take action if you see that things are going off course.

3. Business owners do not know what is in their business plans

This can happen when professional business plan writers are brought in. The plan they create is fabulous, it secures the funds the business needs, but all too often the business owner never really understood what was in their plan, so it is of little ongoing use and their business risks going off track. If you hire in professional business plan writers ensure you understand what they have said about your business and that you know how to monitor your performance against your plan.

4. Start-up companies do a bad job of identifying their target markets

Perhaps one of the most tricky elements is identifying your target markets. It is not necessary to do lots of research but it is important to think deeply about what you know about the people who will buy your products and services. Who are they? How old are they? How wealthy are they? Where do they live? What do they like and dislike? Where and how to they currently buy similar services and products to those you will be providing?

If you have worked through the above questions and based your marketing strategy and sales forecasts on what you discovered, your plan will be stronger. If you also devise mechanisms for monitoring performance, based on the knowledge and assumptions behind your forecasts, you will have a much greater chance of improving your sales forecasts and marketing strategies, as your business develops.

5. Once UK business plans are written they just collect dust somewhere

Too many UK plans are filed on the ‘don’t bother to read this ever again’ shelf. A business plan is a tool for managing your business performance. It needs to be kept up to date and used as a monitoring tool. If you took the wise decision of investing in good software to write your plan, you will have built in monitoring tools as part of the package. This makes it easy to monitor actual income, expenditure and cash flows against your plan, which is essential if you want to avoid unwelcome surprises or even failure.

In the current economic climate it is essential for all businesses to have plans and all UK business plans should be live documents. Time invested in developing your plan is only of value if you use your plan as a monitoring tool to help you manage your business. This is even more important in the current challenging economic climate.

The One Question That Many Small Business Owners Fail to Honestly Ask

Small business owners and entrepreneurs are hard working with 70 to 80 hour workweeks. Yet sometimes these industrious, enterprising, individuals believe their sweat equity is equal if not exceeds actual dollars and cents. The reason for this gap between what is believed to be true and what is actually true is because there has not been a succession plan based upon an objective business valuation.

Recently I interviewed Mark Machnic who is not only a CPA, but holds additional credentials including CVA, CFFA, CFDP and CDFA and is the principal for Business & Matrimonial Valuation Services, LLC of Schererville, IN. Mark’s expertise allowed me to ask him a series of questions specific to these two often ignored aspects of small business management:

  • Business valuation
  • Succession planning

Why is it so important to understand business valuation?

“Most people do not understand the true value of the business. From my experience, people think the business is worth the net income any given year. They fail to take into consideration the goodwill aspect of the business, past earnings, and projected future earnings. Also, the process of valuing a business involves comparing the subject company to its industry peers by utilizing various databases.”

What part does business valuation play within succession planning?

“The business valuation can be used as a benchmark for succession planning. The projections made within the valuation can be used as a trigger mechanism for recruiting the most qualified employees and for helping train current employees for advancement into more responsible positions. The valuation can be used to set goals based on projections of future earnings.”

What is the most consistent misunderstanding that business owners have respective to the value of their business?

“Most business owners do not take goodwill into account when valuing their businesses. They tend to focus on the tangible hard assets instead of some of the intangibles such as goodwill. They also focus on the current income of the company, not taking into consideration past earnings or the future outlook of the company.”

Besides not knowing what their business is worth, what is the second most common mistake you observe with business owners and executives?

“From a valuation standpoint, business owners do not understand how to add value to their business. The goal of a business owner should be to build a successful business that will attract numerous potential buyers. They need to know how to increase the value of their businesses and also to “keep the house” in order at all times. A business owner never knows when someone will come in and make an offer.”

Finally, what are some issues within the current economic environment that will require business valuations?

“Business owners or those in management roles may be looking to merge or sell during tough economic times. If the economy is causing a negative effect on a business, the owners look at their options. During tough economic times, the number of qualified buyers tends to decrease, making it more difficult to sell a business.”

When you, as the small business owner, know the actual worth of your company, hire the best of the best (because your company can demonstrate that worth) and continually add value to your business, then you can be the Red Jacket in the sea of gray suits. Not knowing may place you with all those other failed businesses and you become one of the many and not one of the few to succeed.

How to Your Start Your Offline Business From Scratch

People always have ideas flying in their heads but what matters most is getting to make their ideas a reality. Little wonder, there is a saying that the grave is the richest resource on earth as people who had great, life transforming ideas had them either aborted prematurely, tried, failed and never tried again or just did nothing about them.

Despite all the pitfalls and challenges involved, there’s been lots of success stories about businesses that started small and are doing pretty well today.

TIP: The businesses that usually thrive well are those built around the basic human needs – food, shelter, clothing etc. Find a need, provide a solution and you will be in for serious mega returns.

So let’s get your offline business started

1. Get A Viable Business Idea

Coming up with an idea is not an issue, the real question is, ‘how viable/workable is that business idea?’ You need to be very realistic and not sentimental or emotional about the facts on your business idea. Will the business thrive in your environment? Is the market already saturated with your competitors? How much of the business do you know?

These and many other questions are what you need to answer.

2. Do Your Research

You can’t just start your business without knowing the involvements. You need to do your research to know how many customers will be willing to buy or subscribe to your service. Ask questions, go on the internet, read, observe and learn. Get to know your target market, your competitors and your customers.

3. Develop A Business Plan For The Business

Virtually every successful business today has a business plan. A business plan is your blue print or your map. Here you make everything clear.

The basics of you business plan should include;

  • The Executive summary (say what the business is all about in a few words)
  • Your vision (What you intend to achieve from the business)
  • Mission (How you intend to go about achieving your goals)
  • Your unique selling proposition etc

4. Get A Business Name And Register It

Different laws are applicable to different areas. Here in Nigeria, apart from the general CAC (Corporate Affairs Commission) registration, if you were to go into products that are medicinal in nature, you would need to have a NAFDAC number or if you were to go into telecommunications, you would need to have registered with the NCC.

Be sure to be on the right side of the law, don’t get caught up in it…it’s enough distraction to get your business to fail.

5.Raise Your Start Up Capital

Every business needs capital to get started but most entreprenuer usually face challenges in this area. Here are a few tips on how you can raise capital for your business.

  • Sell some of your assets
  • Develop a good savings habit
  • Partner with investors
  • Talk to your friends and relatives
  • Talk to some suppliers who can give you credit facilities etc.

6. Select A Good Location For Your Business

This factor should not be overlooked as it is critical to saving you over-head cost on advertising.

If your sales office is located in a place that is hidden or difficult to access, you would be losing your customer-market share to other smart competitors who have theirs strategically placed.

Watch all well brand names and see where they locate there business, it is usually on the road or at the beginning of a street.

7. Advertise Strongly

Business experts say that you need to invest at least 50% of your capital into advertising. What is the use of opening shop when you don’t have customers to buy or subscribe to your service?

Especially at the pioneering stage, your business needs ‘Aggressive Marketing’. In online businesses, it is a well known fact that traffic is the life source of every website.

TIP:

At business start-up, what you should be bothered about most is getting more customers to subscribe to your service and not how beautiful your office looks.

8. Fix Your Prices Right

The price of your product or service has got to be set right or you would loose your customer base. When fixing your pricing(especially if you already have competitors), the wise thing to do would be to make your prices cheaper than that of your competitors (give your customers a good reason to patronize your service. The truth is, you might not be making profit at first but you will after you have gotten a good part of the market share.

9. Keep Accurate Records

You must have accurate financial records about your income and expenditure, your client database, your overhead costs etc.

These records will help you project for the future and have a grasp of your business’ cash flow pattern.

10. Start Now

If after planning and planning, you don’t give your business idea a shot, that would just be another dream in a man’s heart that never saw the light of day; a dream that never got to impact lives or change people’s financial status.

The only way to start is to start.