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Fail to plan, plan to fail

17 Jan 2017

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By Nigel Perkins, Director, Ashton Wheelans

There’s a quote from Benjamin Franklin that’s as true today as it was in the 1700s when he became one of the United States’ founding fathers and thought leaders: “If you fail to plan, you are planning to fail”.

Recently, I presented a workshop to BizClub members on the basics of Financial Planning. I know there were many of you who wanted to make it along, but were unable to, so here goes – a recap on the importance of financial and business planning, and some tips to get you started.

First things first

When we start in business, there are number of motivating factors that push us in that direction – but how often do we sit back, take a breath and really consider:

  • Why am I running a business rather than working for someone else?
  • What is my end game – how am I going to get out of this business?
  • Does the business provide the lifestyle I was actually expecting?

More often than not financial – and business – planning is considered writing a 25-to-50 page document, as per a provided template. On this template, you diligently write down all your thoughts, goals, objectives and what you want to achieve over the next three-to-five years. Sadly, but not surprisingly, these “journals” rarely see the light of day, let alone drive your business’ decision-making processes.

The most successful plans I see are just one-to-two pages long, outline short and mid-term goals, and note a regular review period – six months between reviews at most. Your goals might be as simple as finally attracting that new customer you’ve been targeting, or as complex as taking over the nationwide market in which you operate.

All of your shorter-term goals lead to your end objective – for some, this might be setting their business up for sale at the highest price, for others, it might be generating enough income to live a luxury lifestyle.

What’s your worth?

Budget and pricing are also important considerations that are often overlooked.

It’s not uncommon for businesses to price their services based on what they feel the market perceives is their value, without actually testing what the real market price is.

Ten percent resistance to price is normal in business, so if you’re not receiving that feedback, a check is in order.

Budgeting is considered by most businesses a compliance exercise, generally conducted for banks when you’re starting a new project and seeking funding. True zero-based budgeting – a method where every expense must be justified for each new period – can really help you critically analyse your cost structure and weed out extra expenses that add nothing to your service delivery or ability to stick to the rules (e.g. complying with health and safety requirements and employment law, etc).

Cashflow management is something all small and medium-sized businesses struggle with, and establishing the rules at an early stage is important so customers and suppliers understand the terms of trade. Chasing a 90-day debt is much harder than chasing someone a week overdue. Knowing your most profitable products and customers is just as important as getting in payments. Most good accounting systems have automated invoice reminders and can tell you who your best customers are – use this information to your benefit. Also, consider the impact if your 90-day clients had paid and cleared your overdraft – are they worth the cost?

Finally, too often we try and sell our businesses without having done anything to prime them for sale – the systems manual is outdated, the product list includes obsolete items, or, even just the fact that the owner is the business. Preparing a business for sale takes forethought and planning, and shouldn’t be rushed.

Good succession planning means we can reach our financial goals faster and can enjoy the full fruits of our labour.

Nigel is an accountant, business advisor and Director of Ashton Wheelans. He spent seven years with Audit NZ, and has been with Ashton Wheelans for eight years, during which time he established the firm’s Wanaka office.

Last updated 17 January 2017