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Plan to Help Yourself – Not Just the Bank

USING BUSINESS PLANS PROFITABLY

Anyone who has ever approached their bank for a loan appreciates the necessity of having a business plan.

But, in my experience, few small business owners actually use their plans to help run their businesses. Those who do appear enjoy greater success than the majority who file it away as soon as the loan is approved.

An illustration of such a client is Ged, a time served plumber who has recently started up on his own near Preston. Ged has an overdraft facility at his bank, but is reluctant to use it in case his venture doesn’t take off. His caution is fuelled in part by his first few months trading being slow.

As his accountant, I am working closely with Ged to produce a 3 year business plan which includes detailed cash flow and profit forecasts.  In talking through what assumptions to base the forecast on, and objectives to set, we’ve identified the major variables impacting his financial performance.

He lives rurally and one of these variables is travel time between jobs. We’ve built a dynamic financial model which allows us to easily change assumptions and view the outcomes with just a few keystrokes. This exercise is really helping Ged clarify his thinking and understand what he needs to do to make his business succeed.  It provides a  reference point which informs his decision making.

For example, by modelling various growth scenarios, he can appreciate the level of demand he requires to be able to schedule jobs in geographical clusters, thereby minimising his travel time and cost.

Buoyed with the confidence gained from mapping out his plans, Ged now realises that slow organic growth in disparate areas is going to be uneconomic due to travel costs.  He has decided to focus his marketing on specific towns neighbouring Preston, and is considering drawing down some of his overdraft to accelerate marketing and create the required economy of scale earlier.

Ged is still nervous about being left with debt if his business doesn’t succeed. But from having worked through the business planning exercise, he’s now so much better informed about what he needs to do to succeed.

If you too are interested in having a business plan model to inform your decision making, contact us at Certax Accounting Preston without delay for a free informal chat.

(Ged is a pseudonym used to protect the client’s identity.)

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