Without Plans, Businesses Fail

Many business owners will agree that profitability is a key indicator of business success and most measure their growth by tracking sales or market share improvements. Business owners are often on the look for new and improved ways to increase their business growth, yet many fail to see the link between long-term business sustainability and business planning. For some, business planning is a tedious process that they do not have time for, others are unsure of what to do. This article we will help you to understand the key steps when undertaking the business planning process.

According to recent figures from Dunn and Bradstreet (August 2011), business failures have increased by 25% in the past twelve months. Tony Featherstone from the Sydney Morning Herald analysed the figures provided by an ASIC study (2005-2010) in relation to business failures and found that poor strategic management is the highest cause of business failure. It accounts for around 43 per cent of all external administrator reports and has remained constant over the past six years.

Strategic business planning is essential for businesses to grow and improve. It enables businesses to see upcoming trends and create pro-active strategies to gain the best results. The clear focus and direction that comes with a plan will help you understand who your key target market is and the message that you should use when selling your business/product/service to them.

To create an effective business plan you first need to identify or confirm the overall business strategy that you are pursuing. In general you will be following one of three generic strategies developed by Michael Porter in 1980 in his book “Competitive Strategy: Techniques for analysing Industries and Competitors”:

a. Cost Leadership – Here you sell at a low price with the aim to sell in high quantities to take advantage of manufacturing discounts.

b. Product Differentiation – This is where your product has higher perceived value to that of a competitor product. E.g. BWM & Mercedes both have a higher perceived value than a Holden or a Ford.

c. Market segmentation. – This is where you target your product specifically to a specialised market niche. E.g. Maternity Clothing – you target market is very specific – ladies who are pregnant or trying to become pregnant.

Once you have re-affirmed your strategy you need to do some external and internal analysis of the markets. With external analysis, a P.E.S.T.L.E. (Political. Economic. Social. Technological. Legal. Environmental) analysis is ideal to give you a good grasp on the market around you, the upcoming trends, opportunities and threats. A S.W.O.T. (Strengths. Weaknesses. Opportunities. Threats) analysis should then be carried out for the internal section. The S.W.O.T. analysis is a powerful tool due to its simplicity and effectiveness in helping to determine the critical issues to address and pursue. Strengths and Weaknesses are internal factors, while Opportunities and Threats are external and can be taken from your P.E.S.T.L.E. analysis. V.M.F also recommend that you include financial, competitive and channel/distribution factors within your analysis to gain the best picture of your market.

With the analysis completed you need to create your business goals. S.M.A.R.T. (Specific. Measurable. Attainable. Relevant. Timely) goals are recommended as vague goals will not drive success and can lead to employee dissatisfaction and incorrect business results which may lead your business astray. With your S.M.A.R.T. goals and your understanding of the market factors you now should determine the required factors for success. What resources (people, equipment, etc) do you need to fulfil your goals?

Following this you can start creating marketing strategies and tactics, including action plans for goal achievement along with how and when you are going to measure your progress for each factor (monthly, quarterly, etc).

The final and most important two steps are to implement the plan you have created and to monitor and continually evaluate the effectiveness of your strategies continuing to make minor adjustments along the way to improve their effectiveness in driving your business towards growth and your goal achievement.

How to Create a Small Business Budget

If you run a small business, it is important to create a small business budget to help control and manage your finances. Not only will this save you time but it will also help you to save money by being more aware of income and expenditure, and exactly how that expenditure is being deployed.

A very important aspect of any business, whether a large multinational corporation or a one-person home business, is to keep tabs of where money is being spent and be aware of why such expenditure was necessary. It is not as difficult a thing to do as many people believe, particularly if you choose the right tools to help you, and the cost involved in acquiring it will be saved many times over through good financial management. In saying that, there are many excellent free financial packages available that will help you with creating your budget.

The first step to setting up any budget is to open a spreadsheet. Although you could use a simple Excel spreadsheet, it is better to use a good accountancy software application such as Intuit’s Quicken or QuickBooks Pro Financial Software although you can also use any of the free Microsoft budget templates offered such as the Start-up Expenses Worksheet or Marketing Budget Plan templates.

When you are formulating a business budget, be sure to make allowances for unexpected expenditure. If you fail to do that, it is possible that you will be caught out, and once your budget goes off track you may find it difficult to get it back again. Always include some flexibility in any budget you create.

It’s strange how many people who own their own businesses will be scrupulous at home trying to reduce their personal bills, such as power bills and service providers, yet when it comes to their business they accept what they are charged. Try to get the cheapest provider you can for your communications such as telephone and internet services, and use the least expensive power supplier you can find.

If you find it less expensive to combine your telephone and internet providers then do so – you might even get your satellite TV included. Why do more businesses not use the free VoIP services available online for their telephone systems? Skype is free and enables you to carry out video teleconferencing worldwide – with free calls to other Skype users and reduced-price calls to landlines, it’s a no-brainer for any business.

You can often reduce insurance expenses by negotiating discounts by combining your personal and business policies or taking them from the same insurer. If you buy your life insurance, personal and business liability insurance, auto insurance and accident insurance all from the same provider, you will have a very powerful negotiating platform from which to secure a very good deal.

Savvy businessmen and women review their budgets regularly, and adjust them to cater for the unexpected. If you find yourself straying out of budget find out why and cut costs elsewhere to compensate. A financial budget for a small business must be maintained – you can’t just promise yourself to better next time! They need not be fixed, and are open to change, but you must try to meet the plans you set yourself at the start of the year or whatever period you are working to.

Another useful free business template is the Microsoft Expense Budget Worksheet. Quicken Home & Business is particularly useful for home-based entrepreneurs since it enables you to manage both your home and business budgets in the same package. Quicken Online Free is another free application for personal finances. There are many more software applications available that can be used for your business and home budgets.

Do not underestimate the importance of a good small business budget because it can make the difference between success and failure. You can use any of those applications recommended above to look after your financial planning, and there are also many more online from which you can choose.