Around 25% of new business owners will be looking for new employment in less than a year. 50% of new businesses will not make their fifth anniversary. Is this because they did not plan properly or are they just unlucky in today’s poor financial climate?
When you start a new business and require a business bank account, the bank will ask to see your business plan, especially if you are going to be asking for an overdraft facility or a loan in the early months.
Where you require any type of investment into your business, however long it has been running, unless the money is coming from a friendly uncle, the investor will want to analyse your business plan.
Banks and the majority of investors want to see that you have a fully working and accurate business plan which forms an integral part of your overall strategic planning.
Nevertheless, if you know your business back to front and understand all about your marketing and finances, why do you need to commit this all to writing when almost all bank managers know that a business plan is just a work of fiction and bears no resemblance to the business you will be running?
Despite the amount of educated guesswork you put into your business plans, most business operations will vary considerably from the figures that you originally forecast. Businesses are particularly dynamic and need to adapt to the demands of the marketplace. While you may be on top of your finances, managing income and expenses in your business, when you review your business plan, which might only be six months old, the figures may be grossly understated or overstated.
There are many good reasons for formulating a business plan. It gives you the opportunity to carefully analyse your business idea and to consider all of the risks involved. It shows you how you might grow during the course of a year or more and gives you a guide as to how you will need to change your business to match future income levels.
For anyone starting in business, the expense of hiring an expert to put together a business plan for you is most probably a waste of money, unless it is the only way that your investor will help you. There are many business plans available as templates, on the Internet and there are many business tools that can help you put cash flows and projected balance sheets together.
When you need a further injection of capital into your business after it has been running for a few years, it will be much easier for you to put together a business plan that is more relevant and realistic, based upon your experience.
The best entrepreneur will know their business intimately and be able to quote you all of the relevant figures about income and expenses and profit levels, without needing to resort to a business plan. For those, the plan is a formality, for the rest it’s an important planning tool.
Samuel Rosenberg is the founder and CEO of Axcel Finance Ltd., the leading regional microfinance institution. Share your thoughts and email your questions to [email protected]