Planning to Succeed

Building a “business road map” can help you get more from your banker and your business.Small businesses often overlook the importance of preparing an annual budget and business plan. Not only can these tools establish the groundwork for success, but creating them is an excellent way for business owners to have a meaningful conversation with their banker. The start of a new year is the perfect time to undertake this simple, but important exercise.

Goals, Strategies, Resources

Developing a business plan is the process of setting high-level goals for the year and establishing the tactics and the resources needed to achieve those goals. It does not have to be a complicated document. Goals can be varied in nature—grow revenue 10 percent, add a new location, formalize a staff training program—but should focus on four to five key things that will move the business forward.

A solid business plan does not need to exceed a page or two. In fact, it can be as simple as taking a sheet of paper and drawing three columns on it: Goals & Objectives; Strategies; and Resource Needs.

Let’s assume that one goal is to increase revenues by 15 percent, which would appear in the left-hand column.

Strategies, which would be detailed in the middle column, are general ideas for achieving the goal, such as adding five new customers, hiring two new salespeople, or raising prices 3 percent.

Specific tactics or action plans are detailed below each strategy. For example, that might mean updating the prospect list or networking through LinkedIn for introductions to prospects and possible sales candidates.

Required resources—whether that’s office space, cellphones for employees or more advertising—should be recorded in the right-hand column.

Running the Numbers

The budget can now be built based upon what you want to accomplish in the business plan.

Typically, you would start with the income statement. In our example from above, revenues would be increased 15 percent with a projected gross profit margin. Personnel and other operating expenses should be adjusted to reflect the business plan and other necessary expenditures.

In addition to the income statement, a business owner also needs to create a balance sheet and anticipated cash flow. If revenues increase 15 percent, what happens to receivables and inventory levels? What are the capital expenditures required to support the plan?

Ideally the income statement, balance sheet and cash flows will be budgeted on a month-by-month basis to show how the implementation of the plan affects the timing of profitability and cash flow and to help the owner identify financing needs.

Armed with the business plan and budget, the business owner is now prepared to sit down with his or her banker and have an informed dialogue about the business and its needs.

A good banker can help business owners anticipate challenges associated with executing their plan, identify weaknesses and opportunities, and evaluate whether there is sufficient financial capacity to execute the plan, as well as discuss contingencies. Providing the materials to your banker before the meeting will enable them to prepare and thus provide better input.

Small business owners frequently dismiss the need for business plans and budgets “because they are small businesses.” However, a disciplined process of thinking about your business strategically, setting goals and understanding the financial implications is important for small businesses that want to grow. It also creates a framework for discussion with an important, objective adviser—your banker.