How Well Do You Know Your Business?
September 19, 2019
This could be a question to ask yourself about your own business (or a great question to ask clients about their businesses). Universally, the answers would probably be the same...pretty good, very well, excellent. The truth is, “How accurate would those answers be?”
SWOT Analysis But More Needed
Preparing an in-depth, detailed SWOT analysis can certainly be a good starting point to answer the question but is not a complete analysis.
• What has been the trend of the business regarding revenue and profit?
• What are the projections for the next year and the next 2-3 years or even beyond?
• What is the capital structure...equity versus debt?
• What new marketing campaigns are planned for the future?
• What specific new products or services can be offered.
• Is there enough capital in the business to achieve its goals?
• Is there an exit strategy to sell the business in the future?
A Strategic Plan
These and many other questions can only be answered once a strategic plan is prepared. For any size business, the preparation of a strategic plan is an exercise definitely worth the effort. It forces the business owner to not only see where the business has been but, of course, more importantly where the business is going and how goals will be achieved. Even if the owner is not currently contemplating selling the business, just figuring out how the business could be sold and what it would take to make the business more saleable than it is today can be an important element in planning for the future.
Even if the strategic plan is never seen by anyone else, dissecting the business and thinking about its future is invaluable to an owner. Discussing it, however, with partners, key employees, or a trusted business colleague can be enlightening. Important sections of the plan should include (but can also be expanded depending on the nature of the business):
• Business Profile
- Description of the business
- History and form of organization
- Current operations
- Organizational structure
• Goals and Objectives
- Short-term goals
- Intermediate goals
- Factors necessary to achieve success
• SWOT Analysis
• Human Capital
- Present organizational structure
- Future employee needs
• Target Market
- Present market
- Future market potential/additional revenue streams
• Marketing Plan
- Future marketing campaigns
• Competitive Analysis
- Company’s competitive advantage
• Financial Information
- Historical income statements
- Current year income statement
- Projected income statements
Future of the Business
After thoroughly preparing the above sections, an owner will definitely be aware of the business’ strong points, weaknesses that should be addressed, and opportunities for the future. But...the homework assignment is still not completed. Think about what it would take in terms of money, employees, equipment, software, improved website, etc. to reach a higher plateau of revenue and resulting net profit. This would include preparing sections for:
• Financial Needs
- Equity or debt
- Future employee needs/salaries
- Future marketing campaigns
- Cash flow projections
- Use of funds
• Possible Exit Strategy
- Potential valuation
- Repayment of debt or return on investment
A New Philosophy
Yes, preparing a strategic plan involves a lot of thought, tedious writing, and hours at the computer but the newly developed strategic plan tells a story. It’s a story about where the business has been and where it can be headed with certain changes and actions on the part of the owner, partners, and key employees.
It is a philosophy of “think not what is going to happen in the business but what could happen in the business” with certain changes and actions. It is this type of philosophy and change that produces positive results leading to a long-term, successful business.