The Realtiy of Owning a Business.

Starting a business is a big undertaking. It’s a bold, courageous move that is very exciting, but it does carry a lot more risk than most new business owners realise. When I started my first business (a restaurant), I was not long out of university, overconfident and totally ignorant. I remember flippantly commenting to a work colleague, “How hard can it be?” Now, after many years in business, I know that small business presents a unique set of challenges. To succeed you need to be a multiskilled person who can juggle many issues, priorities, and diverse responsibilities at the same time.

Most of you who start a new business will do so like I did: with brazen optimism, taking the leap into business bursting with enthusiasm and energy, oblivious to the risks that lie ahead. In doing so, you won’t adequately prepare. It is easy to be dazzled by stories of amazingly successful businesses that started in their garage, but they are exceptionally rare. Hard work does not mean success in small business, but cleverness and persistence do.

Planning Your Journey

Imagine you are about to set off on a very long journey in your car, across an unknown landscape to a distant destination you have never visited before. You aren’t sure when you will return (if ever), you don’t have a map, there are no road signs, and you only have limited information about the destination. Would you just get in your car and drive? Or would you first plan your journey, map out your route, check on fuel locations, get your car serviced, and research your destination? Starting a business really is starting a journey into the unknown. Despite all wishful thinking, you don’t really know for sure how it will turn out.

Starting a small business with no business planning is the equivalent of making a journey with no road map. It is possible you will have a safe, uneventful journey, followed by seamlessly settling in when you arrive. However, it’s more likely that you will get lost, find unexpected forks in the road, follow wrong signs, and have breakdowns. All these upsets will cost you money (from limited funds), waste time, and cause many headaches. I have heard hundreds of such horror stories and can say with confidence that some will happen to you.

The more detail, information, and knowledge you have, the greater your chances of avoiding traps and minimising their impact when they do come along. Your business plan is also your chance to dream and to draw your picture of what your business will look like in future. It is a process of clarifying where you want your business to go and of reviewing and creating strategies to take you there. It is about creating a plan and then renewing your focus on the long term. By going through this process, you become equipped to make split-second decisions in line with your long-term goals. You will find yourself asking, “Is this in line with our overall plan and strategy?” because you actually know what your strategy is.

What Business Planning Does

For a new business, business planning,

  • Creates a detailed, clear vision of your business based on your business ideas and goals
  • Creates a list of tasks you need to undertake
  • Sets milestones
  • Creates a road map to keep you focused
  • Improves decision making, especially day-to-day decision making, to keep you focused on long-term goals
  • Makes a virtual assessment of your business idea before you decide to start
  • Draws a financial picture of your business so you understand start-up costs, operating costs, pricing, and sales targets
  • Forces you to make decisions on details that will have a big impact on your business
  • Determines viability/feasibility

Your Plan vs. Reality

You can put whatever you like in your business plan: fast growth, great profits, and new markets; the sky is the limit. But once your business is operating and you start tracking your results against your plan, your assumptions will be tested, and you will see how accurate they are. Business planning is great for setting targets and stretching goals, but if your goals are unrealistic, your plan will become irrelevant very quickly, and you will stop using it. It’s fair to say that business plans for the most part assume that your business outlook is rosier and more easily achieved than usually happens.

Some typical examples that I have seen include,

  • Growth targets are not realistic.
  • Sales targets are too high.
  • Profit margins are too high.
  • Costs are forgotten or too low.
  • Assumptions about the market not accurate.
  • Sales processes and times not well understood.
  • Understanding of financial measures is lacking.

Getting assumptions right for new businesses is tricky, since there is no trading history to guide you. This places a great deal of importance on the sanity check. Experienced consultants and businesspeople can tell you quickly if your proposed results are reasonable. If they come back with feedback that it is not, you will need to go back and review your assumptions. If your assumptions are way off, it’s a good idea to revisit your plan quickly and revise your targets based on the updated information. Business planning is a process of reiteration; the best data you can get that will predict your future comes from your own business. By analysing all the detailed metrics in your business, you will be able to know what is reasonable and can then strategize how to achieve your targets.