The Importance of a Business Plan
Published December 22, 2011 | 
To chart a course of action and follow it to a successful end requires courage, convergent focus and discipline.
How important is the Business Plan?
In addition to writing hundreds of business plans, I have written many, many articles, and given dozens of seminars on the subject of business planning over the past decade, so you would think I would eventually reach the point where I had nothing left to write or say.
But as long as people keep asking questions, I’ll keep answering them, especially something as critically important as business planning to not only the level of success achieved, but the very essence of success that determines the longevity of business success and associated staying power.
I must say, if you are seeking any kind of funding, the business plan is quite critical. Most sources of funding (i.e., angel funding, venture capital, bank loans, etc.) absolutely require a business plan without exception. A simpler way to put it is, without a plan, your chances to raise funding are zero, nada, and zip. Almost without exception is it possible.
The simple fact is that if you aspire to be successful at business, you need a well-written business plan. The studies are endless that prove entrepreneurs who develop formal business plans are much more successful than those who do not.
You most likely wouldn’t think to start out on a long cross-country trip without a map of how to get to your ultimate destination, so why would you even attempt to start a business without a business plan?
If correctly developed, a business plan is a precise definition of your business, identifying your goals and serving as the ‘resume of your business.’ It facilitates the proper allocation of your resources, and manages unexpected and unforeseen obstacles and difficulties, with good business decisions. In addition, for the reason that it provides specific and highly-organized information about your company, and exactly how you will repay borrowed money, a well-prepared business plan is a crucial and central part of any loan application. And furthermore, it informs and enlightens your sales personnel, suppliers and others about your operations and goals.
Even with the volumes that have been written about the crucial importance of a business plan, many entrepreneurs make the same mistake and needlessly delay when it comes to preparing any kind of written plan. They argue without merit or proof that their marketplace changes too quickly for a useful business plan or claim they don’t have enough time.
But if a general contractor wouldn’t consider for a second, starting construction without a blueprint, enthusiastic business owners would be very wise NOT to rush into any new venture without a business plan.
The Significant Value of Planning
Let me say once again, a business plan is your roadmap for the business, a truly consequential document that provides the vision, goals and benchmarking that is the future of your business. At the plan’s very essence it creates momentum and also provides regular opportunities for reality checks including what worked in the past year, where gaps exist, and a clear picture of what next year is most likely going to look like.
The process of business planning is extremely valuable for the very reason that it provides convergent focus, clear guidance, and strength of commitment to ongoing maximization of success.
Planning is a process that is completely focused on exactly what you are passionate about, and one of the greatest things about a business plan is that it shines the proverbial light directly on your successes. It creates targeted benchmarks so when you achieve successes they are recognizable, allowing for acknowledgment of your successes, as well as the specific areas of business that still need your close attention.
Plans certainly make entrepreneurs, business owners and management teams more effective and accountable as well. Just imagine that when the year has been mapped out, you can get straight to running the business, rather than ineffectively thinking about it “in place.”
So it’s time to start planning!
Your Cash Flow Management as Important as Revenue
Published November 22, 2011 | Common Business Mistakes You Want to Avoid
Negative Cash Flow Doesn’t always Mean Disaster or Mismanagement
As with any good business enterprise, they make sure to take good care of their customers and employees, but more times than not fail to take good care of the business cash flow. It has been common in today’s economy, to find receivables that run into more than 90 days. As a general rule of the thumb, any receivable greater than 120 days can be classified as a doubtful debt, and banks look at everything over 60 days as a problem they won’t accept as collateral for additional funding for the business.
Organizations that compete on low prices have to deal with this prevalent issue on a far too routine basis. Worse yet, sales people are quite often reluctant to ask for the payment after delivering the material or providing the service.
Now business enterprises that experience continued positive cash flow, then there is really no problem, except to identify where to invest excess cash surpluses for the greatest returns. But in the more acutely-critical case of negative cash flow, the problem is very serious. Without the cash on hand you can’t pay the bills and wages in time. You most likely may not be able to borrow on a short-term beyond a certain limit that’s been established.
Understand that once a business starts having to borrow from Peter to pay Paul, it is generally at much higher interest rates, and the business can start to spiral downward. And just like anything negative in the market about a specific business, the word travels fast and like it or not, the whole world comes to know about the business’ misfortune. Ultimately, if continued, then one goes broke and out of business. It is an important fact to be aware of, that the major cause for bankruptcy is fatality of the business caused directly by inadequate cash flow, rather than a loss in operations.
“Customer satisfaction, Employee satisfaction and Cash flow are the three most important indicators for a business” – Jack Welch
However, negative cash flow doesn’t automatically mean disastrous impact or even mismanagement. In many cases businesses experiencing rapid growth and expansion can require much larger cash flows than normal to finance new projects, along with research and development and other critically important investments. While many other companies that experience seasonality with their respective flow of cash, may not have adequate cash flow when faced with leaner periods of time. The main danger to be highly-aware of at all times is when the short term debt or current liabilities become too high to be met by current assets.
The benefits of good cash flow management are:
- A clear understanding of what the cash position of the business is and what it is likely to be, avoids unwanted embarrassment. No one wants to lie that the check is in the mail.
- A business that has an understanding of its cash position knows exactly what it needs to borrow, thereby minimizing interest expense or, if applicable, the firm can choose to invest its idle cash as part of its financial management policies.
- Simply providing the bank with a cash flow analysis is highly-impressive to loan officers.
- Enabling proactive cash flow strategies through the use of cash analyze deters surprises.
Cash flow analysis ensures that a company does not have face the decision to bounce a check before it realizes that it needs to borrow money to cover expenses, which is never a good situation. In contrast, if the cash flow analysis indicates that a loan won’t be needed for several months, the business has more than adequate times to better negotiate terms.
Cash is the life-blood of all businesses large and small and good cash flow management is critical to extending the staying power and level of long-term business success.
Make Your Business Plan a Living Document
Published November 21, 2011 | Common Business Mistakes You Want to Avoid
What Happens Once You Write the Business Plan?
One of the most difficult tasks entrepreneurs and small business owners will ever face is writing a comprehensive plan for their respective businesses. That’s why many never complete the critical planning process, let alone attempt it, and that’s not good. But those that successfully complete the planning development also cultivate the strong realization that their business plan is a valuable reference.
The comprehensive business plan you create is one of the most valuable tools for operating the business you will ever have. Therefore you need to view the plan as a living document, take the time to maintain it, and it will remain an extremely valuable component of the pursuit of the greatest-level of success you set your sights on. The really good news is that once you’ve learned how to write a business plan, keeping it updated should be relatively easy.
Understand that as you continue the operations and growth of your business, it’s practically certain that you will make strategic changes to how you do business, make important decisions on new products or services you may want to offer, and just as importantly, which to discontinue. You might also change market strategies which may include distribution of your products or services, and continue to discover new methods and processes to improve your business operations and how you manage it.
There are important benefits to keeping your business plan current including (1) if you ever need to apply for additional funding through either sources of equity-based private funding, or debt-based lenders and directly related SBA loan programs, the more up-to-date your business information needs to be, and your updated plan should already be available. 
Time is money and because you are ready to submit your updated business plans, you’ll already have saved on both. (2) By maintaining your virtual-living plan, you force yourself to regularly re-examine the document, which in turn helps keep you clearly focused on what’s important to the success of your business.
How Often Should You Update Your Business Plan?
First of all, understand that depending on the nature of your business and the market conditions, you can update your business plan either 
(1) on a schedule, such as once every quarter or every six months, or (2) you can choose to update it on a virtual (real-time) basis, as changes occur.
Keeping plans updated in real-time is a new concept of understanding to many entrepreneurs and small business owners, and may seem like a nuisance, but it’s really the ideal method. Consider that it allows you to quickly act when you need additional funding, or if you need to sell your business, and by turning your plan into a more useful “business road map” it keeps you on top of business at all times. And that’s exactly where you need to be to greatly increase your business’ staying power and chances for success and growth, as your clear focused awareness makes even difficult tasks much easier, with an increase in successful results.
Your Job is a Great Asset before You Start the Business
Published November 18, 2011 | Common Business Mistakes You Want to Avoid
You Need the Freedom to Create a Business with the Best Chance for Survival
The very moment you become dependent on the income from your business to pay your personal expenses, you will immediately have more financial demands than you can imagine or your new business has the capacity to take care of without some degree of negative impact. Use the time you have at your day job to create a solid financial foundation you can build your business on, so that the business you create is the perfect one for you.
Maintain Your Ability to Take Risks
You remain in a position where you can take bigger risks when you maintain your new business as a side business at the beginning. You should plan to use this valuable time to push yourself. The reality is that wonderful things can happen when you can take the right risks.
Stay Precise, Disciplined and Focused
Understand that people who are busy are much more disciplined and focused, and work with greater precision, so building a business while working another job will most certainly keep you busy.
Practice Does Make Perfect
Let’s face it. Most entrepreneurs who are just starting their business aren’t at their best right from the beginning, and need time to go through the learning curve of operating the business with the highest-level of efficiency with the best results. So while you maintain the job, use this time to gain valuable preparation and training operating your business.
Pay Off Debt
It’s a simple fact that debt is the very worst enemy of entrepreneurs and new business owners. Writing loan payment checks to your bank while you are in the critical process of growing your business while preserving positive cash flow. So pay off your debt while you still have a job, and have a plan in place to pay off any debts.
An Emergency Fund is a Great Asset
No one can imagine the enormous financial stresses new businesses puts on their owners. Most business owners experience slow times where critical cash flow is tight, and a job will give you a regular pay check, so while you still maintain your day job, make it an important point to build an amount equal to 6 to 12 months of operating expenses in your emergency fund.
Your Education Never Stops
There are obviously a lot of things you need to learn before starting a business. So learn as much as you can about business while you still have your job.
People Skills Can Always be Improved
It’s a great understatement that business is all about people skills. Be sure and use this valuable time to improve your own people skills including how to treat your customers, how to treat your employees, and how to effectively network.
Get to Know Yourself
The more you know you can make you successful as business owner or doom you to failure if you don’t know yourself. So what are your strengths? What are your weaknesses? What type of work do you really love?
Growing Your Business
The stability of your job can be invaluable to growing your business. You will be busy and you can continue to build your business in your off hours without enormous stress.
Choosing the Right Business to Start
Published November 16, 2011 | Common Business Mistakes You Want to Avoid
Life is full of great business success stories that people tend to focus most of their attention when deciding if and how they are going to start their own business and the important decisions they will sometimes be unknowingly faced with.
Unfortunately, people fail in their attempts at starting and owning a successful business every day, many times because they make avoidable mistakes, either by not knowing about which mistakes to avoid or ignoring them thinking they will be different with their business.
Start-up entrepreneurs are possessed with a great deal of energetic enthusiasm and high confidence, but much too often are completely unaware of many potentially fatal business potholes and pitfalls that lie waiting for them on the road to business success before them. They don’t have a clear understanding that all it simply takes is one single mistake, a wrong step, and a business can be history even before it gets started or shortly thereafter. So let’s look at and discuss some of the most commonly made business mistakes entrepreneurs and prospective small business owners need to be clearly aware of.
Carefully Consider Your Business Commitment
To understand what you are strongly contemplating committing to, start by looking at the numbers and do a little simple math.
- The average person spends 40 hours a week at work. So if you begin working at 21 and go until let’s say your 65 years old, that figures out to be approximately 91,520 hours of your life!
That really sounds like a lot of time, right? But when contrasted with the approximate hours that you’ll spend operating your own business, it doesn’t even come close in comparison. That’s a very good reason why it’s absolutely essential that you carefully choose a business that you’re truly passionate and will stay excited about. Why? Because when you do something you really love and have a real passion for, your chances of success can substantially, and more important, you will actually enjoy the longer hours. This is what many call a “labor of love.”
Over two thousand years ago Confucius once said, “Choose a job you love, and you will never have to work a day in your life.” Seventeen simple words that remains amazingly true and powerful advice that still ranks with some of the best you will ever hear, even in the challenge of today’s global economy.
Your Skills Really Matter
So, your first real challenge as an entrepreneur is to choose a business in which your true skills apply and fit well. For instance, if one of your strengths is being good with people, then consider the selection of a business that relies heavily on interpersonal activity, such as consulting, marketing sales or public relations.
The really important point of focus is to find a business in which you will not only really shine, but be well-suited and highly-compatible for the critical functions of that business.