Creating a business plan

This can be a surprisingly simple exercise spanning as little as two pages. People starting out in business are often passionate about their line of work and what they propose to deliver, but don’t know how to run a business or make money out of it. 

Michelle recommends that in writing a plan, you ask the “why” and “what” questions and work forward from there. For example, why did you start the business? What do you hope to achieve from it, both professionally and personally? “Be very specific about what those things are and once you’ve answered those questions, you can start your planning,” she says.

What to include in your plan:

• The purpose of the business and your five-year vision
• What you want to achieve from a personal perspective
• Your Key Performance Indicators
• Your ideal client
• What point of difference you offer
• High-level budget per quarter
• Opportunities
• Vulnerabilities
• Your most critical challenge (this point is vital because it shows where you should be focusing your time, says Michelle).
• Goals for the year, broken down into actions per quarter

The importance of good governance

Good governance is tightly linked to business success. It comes through having a good relationship with your advisors and robust discussions to make sure decisions align with goals. Michelle recommends monthly meetings to discuss business performance.

“You need current, accurate management reports and then you have the conversation around that,” she says. “If your business has multiple divisions, you can see which are performing well and which are not, then look at the ‘whys’ behind it. Your reports can tell you the answer – and of course we help interpret them for our clients. The real value is in understanding why the numbers are saying what they're saying, and then if anything needs to change, you're right on top of it straight away.”

Gross profit

Many clients want to know what their gross profit should be. There is no magic number that fits all businesses, but the most important thing is to monitor your margins and ensure that they aren’t being eroded by continual increases in costs. Escalations to the cost of labour, supplies or anything else that affects your profits should be immediately passed on to customers where possible. In certain industries it may also be useful to benchmark against your competitors, if their financial data is publicly available.

Forecasting

A good starting point for your budgeting is past performance. You can start with that then examine what’s changed in your business with customers, suppliers, team, wages, the economic environment or so forth, and then plan around that. Forecasts should be adjusted as you go to incorporate significant shifts in revenue or costs. This will give a clear picture of the year ahead, support your decision making, and help you plan for cash requirements and tax payments.    

“We all know costs are going up, so reviewing your pricing structure is number one, then looking at whether there are different things you can do from an operational level to improve your team’s output. It's really about engaging them and working smarter.”

If you have inventory…

Regular stocktakes are a bugbear of many businesses that sell products, however your financial reports won’t be accurate without them. “If you've paid for a product and it's sitting in your accounts but you haven't sold it, that changes your results and gross profit. Many people hate stocktakes and feel they’re a waste of time, but they are crucial and there are software systems that can help,” says Michelle.

The value of a good business advisor

Business advisors help you understand the accounting side of your business and get you thinking about governance to support your decision-making process around direction and strategies. The advice is specifically tailored to your business and the advantages tend to show on the Balance Sheet and your progression over a few years.

“People worry about how much it's going to cost to see a business advisor on a regular basis – and I get that,” says Michelle. “It's not until you start delving into what their business is doing and what it looks like and what improvements they can make that they then see the benefit.”

Business advisors also provide helpful tips, for example, advocating for a good debtor system so that cash is coming in promptly. “We help people smooth out their business processes. They don't need to waste their time focusing on those little nitty-gritty things, which gives space to concentrate on what they need to be focusing on to reach their end goals.”

The beauty of having relevant people at business advisory sessions

Michelle says there can be benefits to bringing key people to business advisory sessions. It helps ensure that partners are on the same page with understanding recommendations, and guards against conflict or confusion. Alternatively, if you bring your administration or finance person it can be a useful learning exercise for them, and a means of helping move your team and business forward.   

If you want more advice from Michelle, contact her on Michelle.Valler@bakertillysr.nz or +64 6 878 7004, or get in touch with your local Baker Tilly Staples Rodway business advisor.