Business of all sizes need clearly defined business and financial plans. The business plan needs to identify why the company is in business, a customer profile, what differentiates the business from competitors and what the metrics for success are for the next two years. For a start-up this can be a 5-6 page document. As a business gets much larger as in my former software business this became an annual “event” with all employees involved and a 25-30 page notebook.
The financial plan can be as simple as a monthly cash flow projection over the next 18 – 24 months. Seek help with this plan since you’ll need to factor in the offsets to cash collections for accounts receivable and credit card transactions. A revenue projection model needs to be reasonable and achievable. The CEO needs to make sure he/she eventually understands both a simple Income Statement and to some extent a Balance Sheet. As a company get larger, the financial plan flows up from both the costs and revenue centers of the business where mid-level managers take responsibility for their areas.
I spend a fair bit of my time mentoring small business CEO’s and entrepreneurs as a Score Mentor and Board Member. Most of these businesses are very small, usually under $2M in annual sales.
The single biggest shortcoming these business owners face is the almost complete lack of both a business and financial plan. Most of these owners do a fair job on the sales and operations side of their business. This allows them to initially maintain a “survival” mode, they found a way in most cases to become cash flow positive. However, their ability to maintain survival mode and then grow begins to deteriorate as they experience the normal changes that take place in the market. In more established businesses the CEO has already experienced and survived these expected changes. A benefit of a small business is flexibility, it’s easy to modify product and service offerings, redeploy people and get decisions made.
When I meet with new start-up entrepreneurs, they typically want to discuss things like; how do I set up an LLC, how do I maintain “cash accounting” books, what records do I keep, and so forth. These are quite easy to answer of course. What’s a little harder for the business owner to do is to; clearly identify a mission statement, provide an exact profile of their proposed customers, define exactly what their business differentiator is, provide an analysis on why their competitors have been successful, and so forth.
Small business owners and entrepreneurs can easily get help with these issues and many more by locating their nearest Score organization and meet with a certified mentor.