Plan your company's growth
By: Laddie Blaskowski
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You want to grow. You’re not alone, since most business owners would like to see growth in their companies. So you put your blood, sweat and tears into your business in hopes of seeing sales increase. But hard work alone will not create sustainable and profitable growth. You must have a plan.
Almost everyone has heard of a company that flew by the seat of its pants and was amazingly successfully. The problem is that we seldom hear of the hundreds of other business owners who tried to grow without a formal plan and had the unfortunate privilege of learning how the bankruptcy courts work.
Planning is essential. To plan for your company’s growth, you need to answer some key questions:
What are the company’s strengths?
By leveraging off of the strengths of the business, you lower your chances of failure and reduce the time required to learn new markets. The key to evaluating your company’s strengths is to focus on what makes your company different and what has made you successful in the past.
For example, if past successes have revolved around your manufacturing abilities, then processing a new product that fits well into your current manufacturing process makes good sense. If the company has name recognition in an industry, use that to your advantage when introducing new products.
The key to the evaluation is to focus on what makes your business unique and why you have been successful in the past.
Where will the sales come from?
Putting numbers on paper is easy. The hard part is justifying the validity of the numbers. Ask yourself these questions: What does the business need in order to obtain these sales? Who specifically will be buying the product? How long will it take to reach the projected sales level?
If your sales projections are realistic, they establish the foundation for the remainder of the planning process, making it easier to complete. Using the sales projections, you can decide the costs related to each area of the business, from the building size you’ll need to projected office supplies.
What are management’s capabilities?
After projecting future sales, stop for a moment. Ask yourself, “Am I qualified to operate a company of this size?” As hard as it may seem, you must be honest with your evaluation. Look at each part of the business to determine whether or not you have adequate skills in these areas. For example, the owner of a print shop may be capable of printing an additional $500,000 in sales but may not be able to handle the accounting at that level.
If the answer is, “No, I’m not strong in this area,” the next question is, “Can a current employee handle this area?” Be careful you don’t let your loyalty toward an employee affect your judgment. A long-time employee, capable of handling the accounting of a $2,000,000 business, may be lost when the business hits $5,000,000.
If neither you nor any of your employees have the necessary skills to grow, you have four choices. (1) Improve your skills. (2) Hire someone with the needed skills. (3) Subcontract the process to an outside vendor, e.g., a marketing firm. (4) Don’t grow. The bottom line is that poor business skills are a top reason for business failure. This area takes an honest assessment, and your assessment must be candid.
What resources are needed to support the growth?
If the business is expected to grow during the next few years, what will you need to support the new sales? How many people will be needed in each area of the business? Is the current location adequate or will you need new quarters? Is there adequate capacity on the production equipment or is more needed? Every segment of the business needs to be evaluated to determine when additional resources will be needed. Once the resources have been identified, consider each item’s cost. Once you start putting dollars to each part of the business, you can prepare a formal budget.
How much cash will be needed to support the growth?
The question is not how much profit the company will make, but how much cash will be needed to make that profit. Many profitable businesses have failed because the company’s cash flow needs were not understood. Of course profit is important, but cash flow is the lifeblood of any company. Cash is needed to support the equipment needs, provide expansion funding, support receivable and inventory increases, and pay expenses. Without adequate cash flow, growth can easily be stifled.
To fully understand the company’s cash flow needs, detailed monthly cash flow projections must be prepared. When the projection is completed, if adequate cash is not available, sources need to be found. Although it may appear that many of sources of cash are available, starting to grow before the money is available is like starting across the desert, hoping you will find water along the way.
What controls are needed to monitor the growth?
Planning to monitor the growth is as important as planning the growth itself. As a business owner, you should consider what monitoring and internal controls would be necessary to assure reaching the goals in your plan. Monitoring controls, such as budgets, status reports and time lines, will help you to assess the progress according to your objectives. In addition, internal controls need to be planned to protect the business. For example, if you have one store where you watch the cash register yourself, the question becomes how you will keep money from walking out the door when you have two stores.
When is the best time to put the controls in place? Before you need them. This preparedness assures that the controls will be working smoothly when accuracy is important.
Answering each of these questions will help formulate the basis for a formal business plan—and you should complete one. But remember, completing the plan is not the goal. The goal is to understand the steps it takes to get from point A to point B, and then to do them.
BusinessTruth® : Failing to plan is the same thing as planning to fail.