Green Tree Planning

It has been documented over and over by the US Small Business Administration, university researchers, and others that the majority of most new small businesses will fail in the first three years of their life.  The statistics are downright scary.  The odds are better at Black Jack.  The most salient reasons are:

• Insufficient capital
• Miss-direction of available capital
• Non-existent or insufficient business plan
• Non-existent or insufficient finance plan

A prudent business plan when coupled with a prudent financial plan will reveal capital insufficiencies and how existing capital can be best used.  This means that planning is the lynchpin or crucial element or precursor to the success of a new business. 

Who should you seek to secure advice from?  Before reaching for the telephone directory or calling your business friends and associates or going on line, make a list of what skills and knowledge you have and what skills and knowledge you do not have or need assistance with.  This list is then your guide to who you must seek out for advice.  Typically this list will include:

 Attorney who is experienced and knowledgeable in organization of small businesses

• Accountant who is likewise experienced and knowledgeable
• Banker who has the capability of providing financing support

Beyond those, the nature of your business, its location, need for public access, equipment requirements, personnel requirements, real estate requirements, and others will dictate who you need to secure advice and information from.

When should the plan be started and what are its contents?  The plan should be started ASAP even though many parts will take some time to complete and many parts will be modified as other parts are developed and information is obtained.  It is an evolutionary process that certainly does consume productive time and personal resources.  But short cuts in the development of a plan will usually lead to the undoing of the business as the statistics on new business success bear out.  There are many published and on line guides that offer excellent places to begin but do not fall into the trap of following any particular model business plan where your business diverges from what is offered.

A typical business plan will start out with a description of the business, its scope and what makes it unique.  This is similar to the mission statement of a non-profit entity.  What follows are sections devoted to the business:

• Organization type (i.e. corporation, LLC, partnership, proprietorship, etc.)
• Ownership and capital structure
• Management needs, organization, and responsibilities
• Marketing methods, costs and resources
• Production means, methods and equipment if products are being made
• Inventory management and controls
• Sales operations and controls
• Identification of competitors and their possible impact on the business
• Emergency plan

Typically, the financial plan for a business will be focused on the financial aspects of the various elements in the business plan and then project the anticipate revenues, expenses and costs  onto spreadsheets that project what the owners think the business can do if all of the parts of the business plan perform as planned over the next several years.  It becomes the initial budget of the enterprise.

Financial plans need to be actively used from day one.  Divergences from the plans need to be carefully noted and when the differences become so great that a different business is emerging then the plans need to be updated and amended so that the modified plan becomes the map for the developing business.  Keeping business and financial plans up to date can be burdensome but changes in the plan when compared to the original plan will give management important clues to how best operate the business.

Since most new ventures fail (survival rate is in the 20-30% range), why would you not have an emergency plan so that you and your family will have some economic survival.  If you are going to make this gamble then you should have some way of extricating yourself with the least possible damage.  The emergency plan may included the titling of assets in the name of a spouse, limitations on personal guarantees to lenders and fellow investors, preservation of cash, security interests in selected business assets, casualty insurance, life insurance on key employees, personal disability insurance (you are five times as likely to be disabled as die while operating your business), bankruptcy and insolvency law considerations.  The real point of an emergency plan is to have an exit strategy should the enterprise not develop as planned or other forces or events occur that make the business unlikely to survive.  Many small businesses were destroyed by 9/11.  Once the emergency has arisen it is too late as steps that could have been put in place early on can no longer be done or if done can be easily unraveled.