The importance of longer term planning
Running a business is hard and time consuming. Days are taken up making operational decisions, dealing with customers, staff, suppliers and general admin. For many of your clients, things may be going well, but where are they headed? What are their goals for the business, and for them personally? Many SMEs do not really look beyond next year’s budget. But having a longer term plan is an important part of running a business – here’s five reasons why.
- It brings all the stakeholders on board with the scale of the vision
It’s important that all stakeholders – management, employees, customers, partners, suppliers, investors, directors – share the same vision. Is the vision to be £10m revenue business or a £50m revenue business? If owners, shareholders, employees are aiming for different goals, or have different aspirations, something, somewhere is going to break down. All the key stakeholders need to share in the vision so you all know the direction of travel.
- It enables the business to plan its resources
So if the company is going to reach its 5 year objectives what does it need to deliver them? Some things may need a little more planning in advance e.g. strengthening the board with additional expertise, hiring some senior employees, expanding production capacity or securing a new site or new piece of equipment. So think and plan ahead, give the business time to deliver.
- It gives you time to work out how to fund it
Many businesses will have the ambition to grow, but how? If it is primarily organic growth it is likely to require investment of some type in working capital or physical assets. Or it could be via an acquisition, which is increasingly an option for small business owners. In either case, unless the business is very cash generative it is likely to need some form of external funding. This could be debt finance such as a mortgage, invoice finance facility or cashflow loan. Or for a bigger project or acquisition they may need to look at equity finance from private equity. Whatever it might be, all funding takes time to put in place, so the sooner clients can start preparing the better.
- Planning gives time to build knowledge
By thinking ahead businesses can identify what they don’t know, or put another way, what they need to research. So perhaps your client plans to expand internationally as part of the five year plan? If so, the sooner they start to invest the effort to understand the market, the better. What is the best entry option – go alone or with partner? Do they need a local presence? Do they need to localise their product or service, if so does that impact the product development roadmap? Doing the research upfront can help businesses make the right decision, so that when they do start to invest significant amounts of money, they are investing it in the right way.
- And perhaps most importantly… It makes the owners think about their own personal goals
How do your clients’ own personal goals fit into this plan? How long do they want to remain owning the business and what is their plan for eventual exit? They may feel immortal but they can’t carry on forever, and the best legacy they can leave is a healthy business that can survive once they have hung up their boots. There are lots of options now for business owners to pass on the business, from a trade sale, to a management buyout, or they could consider a partial or full sale to a private equity investor. This is not something that should be planned in haste, as one of our clients said recently, “you only get one chance to sell the family business”.
The more you can help your clients to think through their future, the better for them and their business. Having worked with many businesses and assisted them in developing their plans, we can assure you… it will be time well spent!