Go ahead, admit it – if it fits.
Your business plan doesn’t really reflect your real business.
You may not even use it.
Ask yourself these questions:
- “Do you use it to run your business day to day?”
- “Does it bear any resemblance to what really happens at your business?”
- “Did you write it just to get a line of credit?”
If your answers are “No”, “No” and “Yes” respectively, your business plan probably doesn’t matter. So how do we fix that? Really, why do we care?
Why do we care?
We care that our business plan matters, meaning that it serves and guides us every month, because:
- Running a business without consistent cash flow is a drain on both financial and mental resources.
- It’s nice to know in advance where 63% of our revenue will come from next month.
- It’d be nice to know in advance that we’ll need three extra people and 34 extra pallets of flour next month, vs. finding out when the orders come in.
- It’s scary not knowing for sure that we’ll have any revenue next month, much less enough.
- We had a horrible sales month that killed our cash flow and we’d rather not have that happen again.
- We’d like to know these things by some means other than gut feel.
But how?
Knowing your numbers
Developing a way to consistently predict your cash flow and revenue numbers isn’t magic. It’s dependent on tracking month to month lead flow and how those leads perform as they flow through your business processes.
Do you know the history of your leads’ performance? What about closing percentage? Your new and returning customers per month? Their average purchase size, respectively? Can you break those numbers down for each lead source?
These numbers are critical to managing the impacts on cash flow of your operations, marketing and advertising efforts.
Manage it
Weather forecasts help us manage our expectations and alter our behavior so we don’t spend our lives cold and wet. Cash flow can work the same way, rather than simply accepting it as unpredictable.
The early years of my photo software business are a perfect illustration: Our customers hunkered down in September, October and November. They were busy with senior portraits, yearbook photos and Thanksgiving portraits that would become Christmas gifts. In December, they were focused on getting all those orders ready and shipped in time for gift giving.
Guess what many of them didn’t do during those months? Buy software.
A consistently lower level of first time sales during these months also meant that there would be low recurring revenue during those months during ensuing years. It forced us to change our revenue model to smooth out the peaks and dips in our cash flow, which made monthly revenue far more predictable.
That’s the kind of thing that many retailers face every January.
Collect them all
The primary key to dealing with events like our October surprise and the typical January retail sales drop is tracking your lead / sales / closing history and using it to predict future activity. Next, use actual performance data to improve your predictions. As they improve, you’ll see issues coming in advance – buying time to solve them.
The finance component of a meaningful business plan will depend on your lead-related performance data if you’re actually going to use the plan to run your business. This component includes financing (credit card, bank, mortgage, payables, receivables), cash flow management, taxes, legal, benefits, and insurance. For retail businesses, open-to-buy planning (OTB) is critical. Ignoring OTB can kill a retailer.
Next, integrate your lead performance data in your daily operations planning. Lead performance will always drive the resources used in day to day operations, since sales volume impacts the need for raw materials, tools and the trained people necessary to crank out what you make. This helps you predict expenses since they’re driven by the performance of your investments to market your products, manage their leads, and sell / service their customers.
Each of these components help your business plan reflect reality and actually use it to run your business.
Why do all the work to write a plan and then not use it? Make it matter.
Want to learn more about Mark or ask him to write about a strategic, operations or marketing problem? See Mark’s site, contact him on Twitter, or email him at [email protected].