If you fail to plan, you plan to fail. This is one of those proverbs that I heard decades ago and it just stuck in my memory. I’m sure it isn’t an absolute truth. Luck has intervened for some. But for those of us not familiar with luck, this proverb is generally true.
When we think about planning it is usually in the context of planning your day or planning a vacation. It is common to read about personal financial planning, retirement planning, tax planning, business planning, or strategic planning. There are so many adjectives that have been combined with the word “plan” that the activity of planning seems complicated. That may be why most adults understand the concept of planning and believe planning is important and beneficial, but like healthy eating, planning is often ignored.
Most small business owners have created a plan of some type at some time. It is common for a business plan to be created in order to convince a bank to lend their business money or to attract an investor. But if you asked a small business owner about their current business plan, I bet if they were honest, you would find their current plan is non-existent or ambiguous at best. I don’t mean they are rudderless, business leaders without a direction. They usually have a vision stuck someplace in their head, but it is natural for a business owner or entrepreneur to believe their journey to success depends on hard work more than a conceptual activity such as planning.
Another reason most small business owners avoid a formal planning process is that planning for more than a month or two seems futile. It is seldom that a well thought out plan matches reality. Our economic environment is constantly in flux, technology continually disrupts the way business is done, and unforeseen events are a reality. So why bother planning when your plan is never right? But it is these very same events and conditions that make planning important to a business’s success.
Planning is a tool that can reduce a business’s uncertainty and risk. The activity of planning allows an owner to focus on the company’s future and to ask questions that might lead to a change in priorities that increase profitability or assist in the identification of stress points that if overlooked could lead to financial loss. It isn’t the final product, “a plan,” that is important to business success. What is important is the thinking required to create a plan.
If you own a business but haven’t devoted substantial time to thinking about its future, the procrastination may be caused by not knowing how or where to start the process. There are plenty of books on planning and even some on thinking. But business planning at its core is simply taking the time to think about the future and ask what if questions. Asking, “What will it take to (fill in the blank),” is a great way to focus on important aspects of your business.
For example, ask yourself “What will it take to grow our company’s bottom line 25% a year, each year, for the next five years?” Or maybe you could ask “What would it take to recruit and train the next generation of leaders to allow the current leadership way to exit without disrupting the business’s continuity with clients and vendors.” Maybe preparing a budget for the company would be an activity that would impact the business’s bottom line beneficially.
Sometimes there are events that will happen which we cannot influence. Longer term strategies might need to be developed for the business to thrive, or maybe to survive. For example, demographics can be predictive. There were 78 million babies born between 1945 and 1964, the Baby Boomers. There were 69 million babies born between 1965 and 1984, the Generation X. Live births rebounded after 1984 to around 100 million live births between 1985 and 2010. How does that affect a business?
The average age of a small business owner is 50 years old. That means the average business owner is also the last of the Baby Boomer generation. There are a lot less people between the age of 30 and 49 when compared to the over 50 crowd. This means if you are a small business owner and hope to cash out of your business before death knocks on your door, the odds are that you will be trying to sell your business in a buyers’ market. If you are a small business owner and you have always thought your retirement would come from the sale of your business, you better start planning now. Demographics would predict that more people will be trying to sell their business than buyers actively seeking to buy a business. And preparing your business for sale, if you do it right, should begin several years before you put the business on the market. If this scenario fits you, then begin by asking yourself what it would take to prepare your business to sell in a buyers’ market. It is probable that many businesses will be unable to find a buyer. The ones that do will have prepared their company’s in advance.
This same demographic will make it more difficult in some industries to replace skilled employees that retire. It takes time for people to acquire skills and a smaller Generation X means less experienced labor in the labor pool. It will be difficult to replace key employees and probably more costly. A business with this situation might need to begin planning to face the loss of valued and key employees.
The smaller the business the more difficult it might be for the owner to spend significant time planning its future. Life is hard for a small business owner. Many owners find themselves trapped in year after year survival activities rather than activities associated with growth and increasing profitability. To break this vicious cycle, planning may be an effective tool. Planning helps you focus on the problems at hand and at least give you a change to create a solution.
For most of us it is true: if you fail to plan, you plan to fail. If you prefer to succeed, find time to think about your business and plan. If you really don’t know where to start, prepare a thoughtful company budget for 2015. Reviewing your business’s sources of income and their related costs with the intent of increasing the bottom line usually is effective.