The Importance Of Business Planning

Why do so many new businesses fail?

 

It’s estimated that 92% of all new businesses that fail do so as a result of:

• either inadequate or no business planning

• lack of sufficient working capital.

It is therefore essential that you devote sufficient time and energy to your business planning, prior to starting. This means writing a business plan.

Planning is something we do already

 

Whether it’s just picking up a newspaper to check what programmes are on television, or phoning to book a table at a restaurant, planning is something we do already. There’s nothing magical about it. It's part and parcel of our daily lives. So don’t let the idea of having to prepare a business plan turn you off. It really is simple.

Before I started my business, I bought a book on writing a business plan. It was a lengthy, tedious affair and something that I finally abandoned when the author began to discuss ways of attracting foreign investment to finance new ventures. Somehow, I couldn't quite imagine having to do this to purchase my fork or spade! Clearly the book was written for those looking to borrow vast amounts of money to set up their businesses.

 

This doesn’t mean that planning isn’t just as important for running a gardening business as running a major corporation. In fact, it’s more important that we get our figures right as we will not have anything near the resources available to big businesses.

 

Your business plan will need to cover:

• Detailing your business idea.

• What costs are involved in starting it.

• How you’re going to finance your business.

• Preparing a forecast of your anticipated sales.

• Preparing a forecast of your anticipated expenditure.

• Looking at how much you’re likely to earn.

• Finally, deciding if your original idea is viable. If it is, then fine. If not, don’t worry. Far better to find that your idea isn’t as profitable as you thought it was, as opposed to starting with something that is doomed from the word go.

  

Business planning is what secures your business’ future.

Case Study

John The Builder

I met John while taking a break from a heavy gardening job. We were both having coffee and a roll in a local café. Seeing my van outside, he asked if I was a builder. When I told him I was a self-employed gardener, he scoffed and said that he’d tried running his own business and given up.

Here’s what he told me. John had decided it was time to start his own business when he had become tired and disillusioned working for others; the middlemen, as he called them. Builders who charged a great deal for the hard work that he did, while paying him a much-reduced rate.

He was a qualified, experienced painter and decorator who could also turn his hand to any other type of building work. He was an easygoing, likeable person who enjoyed chatting to people while he painted their houses. So when he began telling them that he was thinking of starting his own decorating firm, promises of work flowed in.

To put it in his own words: ‘I decided to stop talking about it and just do it. Like what it says on the T-shirt.’

He left his employment on Friday evening and opened for business the following Monday morning. Prior to starting he had already secured his first client, an amiable lady who wanted the downstairs part of her house painted.

Full of enthusiasm, John painted his first client’s house. She was delighted with the results. His workmanship was flawless. He cleaned up every evening after he’d finished. He was a pleasure to have in the house. She trusted him enough to be able to leave him alone while she went out. When she told this to her neighbours, they all wanted him to come and paint for them.

Everything was going well. John’s wife was delighted. Initially, she had been very worried when he’d told her that he was leaving his job to start out on his own. With a family of small children to feed and a substantial mortgage to pay, she’d naturally thought he was better off working for someone else. After all, he’d enough responsibilities without looking for more. But when John was working every day of the week, she was naturally relieved, and eventually came round to the idea of him being self-employed.

But there was a problem. One that neither of them had foreseen: John was rushed off his feet, but he wasn’t earning any money. While there was an ever-growing list of clients waiting for John’s services, none of these jobs were actually profitable.

The problem stemmed from John’s first client. When he’d quoted for her job, he hadn’t really given much thought to how much he was going to have to spend on materials and all the other things like tools and ladders. These weren’t important to him then. He felt it was more a priority to find his first client, impress her with the quality of his workmanship and then look at his prices.

This resulted in the job being priced too low. Word spread quickly, and unwittingly John had become the cheap and cheerful of the decorating trade.

He was now earning less than he was when he’d been employed and he was having to work longer hours. The harder he worked, the more acute became his problems. Bills mounted. Then there were the things he’d never budgeted for, expenses such as Public Liability Insurance.

He managed to survive eight months by propping up his business with his savings, and when those were exhausted, he borrowed money using his credit card.

In a final, desperate attempt to salvage his business, he raised his prices on work he’d already agreed to do. The result was devastating. Customers cancelled orders. Rather than seeing him as the conscientious, hard-working individual that he was, people perceived him as greedy. Everyone could see how busy he was, and they all assumed that if he was busy he was doing well. Even his wife was fooled. It was only when he’d finally ran out of available credit that he was forced to close his business.