Mistake #1: Not Having a Business Plan and Budget
Every Fortune 1000 company—and every division of a Fortune 1000 company—has a business plan and budget. These companies understand the critical importance of knowing where they want to go and establishing clear objectives and action plans to get there. Most small businesses, however, don’t have a business plan and budget; they sometimes feel that such structure “holds them back”. Or some feel they opened their own business to get away from such corporate “formality”. In my 30 years of working with owners of small businesses, I have seen a direct correlation between having a business plan and ending the year with higher sales growth and greater profitability. If you can muster the self-discipline to create a written business plan—and then review it regularly and measure your progress against it—you will experience markedly better business results.
Many small business owners don’t know how to create a business plan and budget. A well thought out business plan for a company doing under $5,000,000 in annual sales does not have to be long. In fact, some of the best plans I have seen for small companies are just a few pages. At a minimum, I think the business plan should contain the following:
- Mission and Vision Statement
- SWOT Analysis
- Key Objectives
- Action Plan
The Mission and Vision Statement are aspirational and describe what you would like the business to be and accomplish over the next few years.
The SWOT Analysis lists the company’s strengths, weaknesses, opportunities and threats. Typically these are bullet point lists that outline the areas where the company excels and outperforms the competition; areas that need improvement and where the competition may out-perform them; areas or markets or new products that offer great opportunity for growth; and those significant areas of concern that could limit the company’s ability to grow and thrive.
The key objectives are the four to eight key goals you would like the business to accomplish in the coming year. Typically, if a plan has more than six to eight key objectives, the likelihood of achieving those objectives can be lower; small businesses generally do not have the uncommitted manpower to achieve a large list of key objectives. These objectives should be “SMART” objectives: specific, measureable, achievable, realistic, and time-based.
The action plan outlines how the objectives will be achieved. They cover what activities will be implemented, by whom, and how often. The best action plans include deadlines and timetables to complete tasks and activities.
The budget estimates sales volume by month as well as expenses. Assuming you and your team implement the action plans, you estimate how sales volume will grow as well as what those activities will cost, along with all of the other expenses necessary to operate your business. If you are unhappy with the bottom line that your budget shows, you go back and modify that action plan to improve the results.
The best business plans are developed with the involvement of key staff. Not only do you benefit from their knowledge of the customers, production challenges, and front-line issues, you also develop their “buy in”. The plan becomes “their plan”, not “your plan”.
The best organizations regularly review their plan and compare their actual results against their plan, both from an activity standpoint as well as the financial results. I recommend posting goals and progress in a visible area of the company, sharing this important information with your team.