A business plan is essential, but why? Many think that it is an informal talking point or perhaps something that you scribble on the back of a napkin. Ask any small business owners if they have a plan and they will likely say sure, of course I have a plan. And they probably do, but it is probably too simplistic to be meaningful. Buying merchandise from a wholesaler at wholesale prices and making a mark-up of 50% is hardly adequate enough. This may seem obvious, but as an accountant specializing in small businesses, I see this all the time.
I’ll take it one step further. Imagine someone asked you how to get from Toronto to Ottawa and you answered them by saying that you can take a train. This may answer the question, but it is not a good answer that will provide optimal effectiveness. A better answer would involve asking some initial questions such as which mode of transport do you prefer and do you have a budget? Once you get a better understanding you may be able to offer more accurate and effective advise. If the answer is that the individual enjoys driving and will be traveling with a family (therefore making more economic sense than purchasing multiple train tickets) you can establish the basic premise, that the mode of transport will be by car. Now you can get more specific by mapping out a route of how to get to the destination. This may sound overly-simplistic but a formal business plan is really no different.
A business plan is defined as a formal statement of business goals, reasons they are attainable, and plans for reaching them. It may also contain background information about the organization or team attempting to reach those goals.
Many small and medium size business owners only approach me to construct a business plan when they require one from banks, investors or other stakeholders. However, what most business owners do not understand is that business planning is primarily essential for themselves. Your business needs a goal and a route to get there. This needs to be front and centre for a business owner. Furthermore, this plan needs to be reviewed and adjusted as your business evolves, similar to the recalibration of a GPS system as you drive and take a wrong term. Ultimately the end goal is the same, but without a strong map you may loose sight of the end goal and get permanently lost. Only by being constantly viligent of the map will you ensure the quickest and smoothest route. In fact, studies show that businesses that actively plan grow, on average, 30% faster.
Contact us at Future Balance CPAs online bookkeepers for help on constructing a formal business plan for your business. Call us today for a free 30 min. plan overview.