Business Planning: Why you should do it.

Think of it this way:  You are driving down the highway at night, with your high beams on.  You can see the road, the ditch (for about 4 car lengths).  A deer shoots out in front of you and you have to react.  During the light of day, you would have seen it coming, and in fact, you would have seen them in the field much earlier.Having no plan is driving in the dark with a limited line of sight to react.

Lack of planning is one of the big reasons for failure in business.  According to Industry Canada, 80 percent of small and medium sized enterprises will not be around in 10 years.  Those that have developed skills in planning, communications, human resources, finance, operational effectiveness and technology and information management tend to have a better chance of survival and growth.

Growth is linked to the intent to growth.  Intent is established in planning.  Many business owners and entrepreneurs can see it, but they can`t say it. Some can`t see it, say it or write it down.  Neither are effective. The inability to see it and say it immediately limits the road upon which you travel. The company may well thrive as long as the owner is alive and able to keep the dream alive, but with no shared vision, there is no legacy.

Industry Canada says that we are facing a wave of retirement in the SME market, and that succession will need to occur for these businesses to continue. Without a succession plan in place, we could see these businesses sell or close their doors as a result.  This is no different than the family farm concept.  If the business planning does not occur, quite often succession is not in place and the land and farm are sold off in whole, or in parts.

There is a misnomer that small and medium sized business do not need to engage in formal planning processes and that a budget will suffice.  Business is business. Large or small, every business must be good at  certain things: planning and executing, communicating, human resources, finance, and marketing.

Business planning is number one on the list for these reasons:
1. It creates clarity. Vision and foresight shines the light on what is ahead, including trends, opportunities and risks.  

2. It creates focus on what needs to get done and keeps the business on track. 

3. It allows for balance. It allows the organization to look at multiple perspectives at once. 

No matter the size of company, organizations that apply business planning practices reap the following rewards: 

1.  Accountability is defined, so things get done. This gives the shareholders and stakeholders confidence in the management of the company. 

2.  Clarity about the the direction and goals of the company provides a clear line of sight for employees and owners. 

3.  What matters most is defined, creating focus.  

4.  Resources are aligned and money is spent in accordance with the goals of the company. 

5. Priorities and pressures are more easily managed within a cycle, instead of adhoc reactions. 

6.  Reviewing the plan allows for adjustments as needed. 

7. Companies that plan and execute are more nimble because they have developed competency in foresight, decision making and execution. 

8.  Companies with a business plan can more easily keep their eye on multiple facets of their business including customer satisfaction with products and service, employee satisfaction and experience,  internal processes and business practices, and the financial outcomes.  

Business planning is one of those things that you don`t know that you don`t know until you know.  Sounds confusing, but it`s like seeing in the dark.  If you never knew there was daylight, you would not know what you could have seen until you experience day light. 

But when the light goes on, the `aha`moment of what is possible with a plan is worth the journey.  That`s why I do what I do. 

Lemonade 101: A Business Case for the Business Plan

Back in the days of the lemonade stand, we knew intuitively that we needed to make more money than we spent to have money left over.  But embedded in this equation are important strategic questions such as what`s alluring about your lemonade, the customer service attitude that you need to win customers, the cleanliness of your stand, and keeping the lemonade cold during the slow periods.


Many businesses get off the ground with good old fashioned entrepreneurial zeal and zest.  They are lucky or very well connected. Or both.  But there are inputs. And inputs can either save you money, cost you money, or make you money depending on how well you know them.


Profile of Firms and Owners 

A report entitled The State of Entrepreneurship in Canada , produced by Industry Canada, provides a profile of the characteristics of firms and their owners. A first basic question to ask is how business ownership is changing among Canadians. 


The Report shows that: 

• In 2003 over one in 20 working Canadians (5.5 percent) was self-employed and had an incorporated business. 
• By 2008, 6.3 percent of working Canadians were self-employed with an incorporated business, which is an increase of 15 percent. 
• While there are a lower number of women business owners compared with men, there has been a larger increase in the number of women business owners over this five-year period: an increase of 17.2 percent for women compared with an increase of 12.8 percent for men.

Here are some interesting facts: 

• Roughly one in 15 working Canadians owns an incorporated business.
• Just over one-third of Canadian SMEs are owned by women.
• Canadian SME owners are acquiring higher education levels.
• Canadian SME owners are becoming older and need to start planning for succession. We will soon see a greater transfer of businesses to next-generation family members or to outside buyers.
• Canadian SME owners have become more diverse, reflecting a greater diversity in the Canadian population.
• Owners of larger businesses are wealthier.
• Most SME owners started their business from scratch.

Source:  http://www.ic.gc.ca/eic/site/sbrp-rppe.nsf/eng/rd02475.html

Reasons for Failure 

Industry Canada`s report on Small Business Research and Statistics reveals the following reasons for failure

• Recent Statistics Canada data show that over two-thirds of micro-sized firms (less than 5 employees) and almost half of small sized firms (5-99) fail within five years of start-up. Nearly 80% of all new SMEs are gone within 10 years.
• Almost half of the firms in Canada that go bankrupt do so primarily because of their own deficiencies rather than externally generated problems. They do not develop the basic internal strengths to survive. Overall weakness in management, combined with a lack of market for their product, cause these firms to fail
• The main reason for failure is inexperienced management. Managers of bankrupt firms do not have experience, knowledge, or vision to run their businesses. Even as the firms age and management experience increases, knowledge and vision remain critical deficiencies that contribute to failure. 
• In the early stages of life, internal deficiencies are so prevalent that most bankruptcies occur for these reasons. Management must master the basic internal skills – general and financial knowledge, control, communications, supervision of staff, and market development – or it will fail solely or primarily from the weight of these problems. As a surviving business grows, a new set of problems arise that are associated with the increased complexity of running an older and often larger firm.
• Managerial issues such as the poor use of outside advisors, lack of emphasis on quality, and unwillingness to delegate responsibilities, departure of key personnel, and personal problems associated with the owner/manager become relatively more important factors contributing to failure as a firm ages. (From Baldwin et al.: Failing Concerns, 1997)

Source:  http://www.ic.gc.ca/eic/site/sbrp-rppe.nsf/eng/rd00260.html

How to Succeed 

Business Planning is identified as the top skill needed for small business owners, operators and entrepreneurs, followed by marketing, sales and service, fiscal planning and human resource management. 

Box 1: Framework For Management Skills and Competency Standards and Guidelines
For Small Business Owner/Operator/Entrepreneur
Prepared for Sector Councils Steering Committee by Robert Dénommé and Associates, 1995

Competency Blocks

1. Business Planning
2. Marketing/Sales/Service
3. Fiscal Planning
4. Human Resource Management
5. Business Operations
6. Professionalism
7. Automation (Technology)
8. Industry Awareness
9. The Business Cycle
10. Entrepreneurial Values

Box 2: Small Business Owner/Operator Competency Guide
Sector Councils' Steering Committee and HRDC 1997

A. Professionalism

1. Exhibit Professional Skills
2. Communicate Effectively

B. Business Planning

1. Define Business Planning Terms
2. Evaluate Status of Business
3. Implement Business Plan
4. Describe Strategic Alliances

C. Finance

1. Prepare Budget
2. Manage Accounting and Cash Control

D. Marketing

1. Prepare Marketing Plan
2. Use Promotional Activities

E. Human Resource Management

1. Evaluate Human Resource Plan
2. Hire Employees
3. Train Employees
4. Manage Employee Performance
5. Dismiss/Lay off Employees

F. Operations

1. Manage Office Operations
3. Manage Products and Services
4. Manage Projects

G. Sales and Service

1. Maintain Positive Business Image
2. Manage Products and Services

Box 3: Core Management Competencies (Gasse 1997)

VISION:

Positioning/Adapting, Strategic Planning/ Implementations

PEOPLE:

Leadership/Involvement/Communications, Learning/Training

OPERATIONS:

Organizing, Managing/Decision-Making

RESOURCES:

Cognitive Ability/Information, Financing Capabilities

STRATEGIES:

Technical Capabilities, Entrepreneurship/Innovativeness, Shares of Markets and Export Rates

The Opportunity 


The bottom line on success is that it takes a toolbox of skills and competencies to create success.  Small business owners can access the tools and services needed by contracting and partnering with professionals in the community.