Business Management: Planning tips for small shops

Are you too busy working in your business to work on your business? It’s something we have all heard, and while the operation of a small business can be a consuming task, the reality is successful organizations indeed have a game plan. But the larger question remains; why do so many Canadian businesses operate without one?

According to a recent BDC/Nielsen survey conducted on 1,139 small and medium-sized enterprises (SMEs) across Canada, “over 70% of the most successful businesses had some medium-term business plan and one third had a roadmap for growth.” Most successful is defined as the top 20 per cent of firms in each industry based on total revenue, growth and profitability over the past three years.

There are various reasons why business owners do not adopt a formalized business planning process, including the perception that it is time-consuming, irrelevant and unnecessary. Some owners think that because their business is small, there are minimal variations in the day-to-day processes, they have been servicing the same customers for a number of years, and the only things they need to be great at are fulfilling orders, timely collection of receivables and acquiring more customers.

When owners are asked what they want for their business, they almost unanimously agree; they want to grow their business. But without an adequate strategic plan and a roadmap, growth for small businesses becomes increasingly challenging due to external forces including the introduction of new environmental regulations, arrival of disruptive technologies, and low cost global  producers breaking into the market.

The bottom line is you can’t get to where you want to be without knowing how to get there.

The following steps will help in creating a simple but workable planning process for a mature business.

Analyze the current state of the company, including annual sales and estimated market share and whether these variables are growing or sinking. Also examine production capacity and whether operating processes and methodologies are up to date by industry standards. Find out what makes your products and services superior or inferior compared to competitors. Finally, look at industry trends and anticipated challenges over a short term and long term horizon. One simple and commonly used method of assessing the current state of a company is a SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats).

Determine your goals and objectives over the next 12 months to five years. Should the company expand overseas, acquire a competitor, or grow organically? What level of revenue and cumulative growth rate do the management want to achieve? What will the balance sheet look like? In conjunction, create financial projections based on these specific goals and assumptions.

Take an inventory of the financial and non-financial resources the company currently has and what additional resources are needed to achieve these goals and objectives. Decide on how to achieve the plan and most importantly how to execute. Without putting the plan in writing, communicating it to middle managers and employees and persuading them to take action it can become very challenging and lead to a failed execution.

Identify activities and courses of action that the company needs to embark on to accomplish these objectives. These may involve building a stronger management team, investments in new products and R&D, or securing additional financing to support the planned revenue growth.

“Complexity is the enemy of execution” is one of my favourite business quotes. This notion holds true for any size of business, even more so for smaller businesses. Therefore, it is absolutely essential to create a plan that is simple and actionable, especially for companies that have not previously gone through this exercise. A plan with few variables provides better clarity and has more impact, providing each stakeholder the ability to focus and execute seamlessly.

Establish key performance indicators (KPI) to quantifiably measure the company’s performance against specific activities that management has identified or against key success factors in the industry. For manufacturing companies, common KPIs include capacity utilization and manufacturing cost as percentage of revenue. My personal point of view is to identify one or two KPIs across the company’s value chain that are crucial to achieving the company’s objectives. Perhaps limit it to a total of six actionable KPIs. It is often realistic to stick to six KPIs that the company can excel at than to 12 which could lead to a mediocre performance. Further to this, over-analysis of the current situation and future direction of the company can become counterproductive.

In my nearly two decades of banking experience, I’ve seen businesses, that after several years of treading water, one day became extremely successful. They come asking for a significantly larger credit facility.

When asked about the drastic surge in purchase orders and projected revenues, I often hear, “we hired a marketing consultant” or an advisor, who helped them realize what they’ve been doing wrong.

With the abundance of “business” demands pulling managers in many different directions, the task of business planning can be overwhelming.

In such scenarios, I strongly recommend that managers consider engaging an external consultant to achieve short term goals and an Advisory Board for long term goals. Both will have entirely distinct views and will help objectively create a roadmap for the company. That way, managers can keep their eye on the ball and focus on what they’re really great at while competent advisors facilitate the execution of their plan.

Review performance and accomplishments against the plan on an on-going basis and do not hesitate to pivot if necessary. For most shop owners, there may not be a perfect solution to all challenges or a flawless strategy for every single initiative, but the most effective option is often at their disposal.

Some businesses with very long histories sometimes fail because they failed to change with the times. With a myriad of changes impacting businesses today, complacency and status quo are no longer effective.

Alma Johns is President of Bench Capital Advisory Inc., an independent corporate finance and debt advisory firm based in Toronto. She can be reached at alma.johns@benchcapital.ca or www.benchcapital.ca.