November 1, 2022
Let’s take a deep dive into how you can utilize your business plan to help grow your business. Business plans are one of the most underutilized tools available to us as entrepreneurs and I am always amazed by how few people use them to plan their budgets, marketing, growth strategies and overall operational plans. Hopefully this article will help to change that!
Until I started my first business, I really had no idea what I needed a business plan for. All I really knew was that there was no way I was going to get funding from traditional lending institutions without one. I don’t come from a family of business owners. I had no formal business education. All I knew was that the banks were going to want this thing for me to get a business loan and that’s exactly what I needed to start my business. This might seem counterintuitive to some, you know the whole “borrow from friends and family” thing. My pride just always seemed to get in the way of asking for help, so I opted for the loan route. Feeling like I was getting the money based on leveraging my owned equity and the merit of my idea reassured me that I was following the right path. That being said, the business plan really opened my eyes to what lenders are looking for, how they evaluate the merit of business owners' ideas and how my business needed to perform to become profitable and continue to grow over my first 5 years in business.
The beautiful thing about a business plan is that while you're creating it, you’re doing the research you need to start/grow your business and in a way, vetting your ideas before you have to put them to real world test. This allows you an opportunity to pivot, without having to endure the failure that would have eventually told you the same thing. Although there can be many intricate parts to a good business plan, today I'm going to highlight the 5 most important areas to help you grow your business.
Every good business plan needs to start with a summary section. The reasons why your business exists. This section should consist of the following:
These statements should mean something to you, both in business and as a person. Your company's summary statements need to capture all that it means to be a part of your company, to do business with your company and to be a proud customer of your company. I can’t stress enough the importance of making sure these statements align with your true beliefs and values. Every decision your company makes should be reflective of the guiding principles, goals and visions you lay out in this section of your business plan.
Once you decide where you are going, what it will look like when you get there and principal values that will lead you along the way, it’s time to start crunching numbers! Some of the things your statistical Analysis should cover are…:
Any metric that has the potential to affect the viability of your business should be measured and optimized. Some metrics carry more weight than others, but you should consider as many as possible in your business plan to ensure and prove viability. This not only reduces the ambiguity of risk, but also makes it measurable. Lenders love things that clearly measure and assess, so should you. If numbers aren’t your forte, welcome to the club! There are definitely resources available to help with this section, feel free to reach out if you need any guidance!
Next you have to figure out how much money your business has available for growth. Since this post is focusing on how to use your business plan to grow your business, we will assume that your business is already making some money. Now the question becomes, how much money do you have to spare for expansion? We want to know:
One question I'm sure is on some readers' minds is “ What’s the difference between cash flow and EBITDA?”. Simple answer, cash flow calculations account for the money you have to pay out for interest and tax expenses because those things require cash on hand. EBITDA is a good overall indicator of the value of your business but should not be mistaken for the amount of cash you actually have to spend each year. For a simple example, if you budget last year's EBITDA for capital purchases this year, and you have no increased revenues or decreased expenses, you are going to come up short on cash. Capital expenditures have to be amortized according to government regulations. While you can claim the ITP (Input Tax Credits) for the GST paid on capital expenditures, the full purchase price typically has to be broken up over the current and subsequent years. This can be very complicated stuff and I would suggest you talk to an accountant before making any assumptions about these figures. We can help you build the framework for what numbers you need to know, but we are not accountants and do not offer financial advice.
Now that you’ve got some solid statistics about your current and potential markets, as well as your current and prospective financial situation, it’s time to create a budget outline. Your budget itself should be a separate document, whereas this document should serve as a guideline for how you will build out that budget, what considerations have to be made for expenses and how much you actually need. You want to include things like:
One of the key elements of this section is your OpEx Analysis. You don’t necessarily need to capture the exact costs that will be incurred, but you do need to take a deep dive into what areas you expect to spend money on and a ball park cap on those costs. The delta between your OpEx figures + CapEx commitments(including interest) + taxes = how much free cash flow you have for expansion. Now, you should have your ballpark figures for cash flow from the section above, in this section you’re going to break that down further and make sure you accounted for everything.
Last, but not least, you’re going to need a marketing plan. This section will serve 2 functions:
Here’s what you should consider:
There’s a lot to dive into here, but if i had to pull out two key points i would say this:
You need to look at BOTH cost per conversion and percent of impressions being converted to get a clear picture of what marketing strategy is best for your business. For example, a highway sign might cost you $3,000 to have made and $2400 a year to lease the land that it is on. Over the 10 years that sign is there, the total cost is $27,000. If you’re on an average highway coming into a large city, you’re going to get around 15,000 impressions a day conservatively that is about 55 Million impressions over 10 years. Now those are low cost impressions! Some big media giants charge up to $12+ per 1000 impressions … These are some things to consider in your marketing plans, and we can DEFINITELY help with that!
I leave you with this, a big misconception of marketing is that customer acquisition should always be your main focus. Retention needs to be as if not more important to you if you are going to grow your business and have stable cash flow to do it. Money spent to keep customers happy, coming back and telling their friends is ALWAYS worth it!