When you don’t make a plan for your business, the vagaries of the business cycle will make one for you. If you made a business plan when you first opened your doors, break it out of the file drawer and give it a once-over.
Your Company’s Potential
“Someone’s sitting in the shade today because someone (else) planted a tree a long time ago.”
~ Warren Buffett
Whether you want profits now or a legacy for your family and your employees, your business plan provides a roadmap to achieve your goals. It should include short-term and long-term goals, plus alternatives that allow you to respond to market and business-cycle changes without obstacles.
Investors want to see an accurate valuation of company assets. Your business plan helps you show potential investors what return to expect on their investment. Lenders want to see where your predicted profits and income streams lie to ensure your ability to repay the loan on time. Both lenders and investors want you to have a realistic grasp of your goals, strategies and potential challenges. Your business plan does all of this while enabling you to make corrections as needed to maintain profits and viability.
Do I Need a Plan?
“In preparing for battle I have always found that plans are useless, but planning is indispensable.”
~ Dwight D. Eisenhower
Chances are, what you are doing today has veered away from your original business plan. You may have learned that your typical customer needs services you don’t provide. Your best potential customers may be spread farther from your business office than you want to travel. If you’re one of only two or three companies in the region, you may have more work than your crew can handle.
If these variances from your original plan have brought greater success to your company, congratulations. If not, it’s time to make a new one.
Isn’t a Vision Enough?
“You can’t plow a field simply by turning it over in your mind.” ~ Gordon B. Hinckley
Vision allows you to think ahead and to dream big. It’s what takes you from one or two contracts per season to year-round work. Vision applies the information from last year’s projects to next year’s potential.
If you made $100,000 on three contracts last year, how will you make $500,000 this year? How many more clients will you need to accomplish that expansion? How much additional manpower will you have to hire?
What is your debt-to-income ratio? How will that fixed overhead need to change as you scale up or down?
What equipment did you use most often last year? What repairs or upgrades do you need to make to avoid downtime? What equipment would have allowed you to squeeze in another contract this year?
Where did you find your employees? Do you have a large-enough pool of trained workers to handle all your expected business this year? If not, how will you recruit new staff, and where will you find people with the right skills? How much time will it take to train these new employees?
Did you have any compliance issues in the time between drafting your original plan and now? How much did that non-compliance cost you? Did it cause delays, cost overruns, or penalties? Did it lead to any threatened, pending or settled litigation? Include all of this in your current plan.
Consult a legal professional when making your business plan. They can help you head off potential liabilities before they become a problem.
Vision Without Action
“If you pray for potatoes, you’d best grab a hoe.” ~ Mose Yoder
The best plan ever made won’t do you a bit of good if you never act on it. You can invest time and money now or spend it later in downtime and unemployment compensation for you and your workers.
Your business plan helps you decide whether to rent or buy that new piece of equipment. Suppose you lost ten work days due to breakdowns last year. You’re wondering whether to buy a new backhoe or just rent one as needed.
You can depreciate the cost of a new backhoe over six years, according to IRS Publication 946: How to Depreciate Property. You’re able to write off about $25,000 per year if the backhoe costs $150,000. That means you need to do $125,000 worth of paid contracting this year to break even on the purchase. Add the cost of licensing, registering, insuring and storing your backhoe and rental might be a better option. Rented equipment gets deducted in the same year the expense occurs, says Tax Advisor Laura Chapman of Strojny Financial Services. If you’ve had a profitable year, your rental costs may help offset your tax burden.
Tip: Always take the final draft of your business plan to a legal or accounting professional for a final once-over before you implement any changes.