Business Planning - Lifeblood of Diverse Business Growth

In today’s economic environment, business planning is key to the lifeblood of any diverse business expansion. Ask any entrepreneur whether business creation and/or growth is possible without good planning, in our current highly-restricted credit environment, and they will tell you absolutely not. In fact, without proper business planning, raising capital (i.e., debt or equity) is almost impossible.

So what is the cradle to grave business planning strategy for the start-up entrepreneur to the mature business? Let me start by asking the following questions:

How many entrepreneurs create a business plan before starting their business?
If you did create a business plan, have you also established business credit (in addition to your personal credit)?
How many entrepreneurs know what their respective business credit score is?
Do you know your personal credit score?
Do you know the current business climate in your respective market?
Who is your customer?
What advantage do your products present to the market?
What is the sales margin that your business must achieve in order for you to make a profit?

These questions and many others are important for an entrepreneur to ask and answer as a way to self-examine whether he or she is prepared for the successful business journey.

With respect to business credit, it was recently noted, that, only about 10% percent of all entrepreneurs truly understand how business credit is established and tracked. It is important to understand the business credit process because if an entrepreneur or business entity seeks to obtain significant capital (debt) to grow or expand its enterprise, he/she must know his/her credit rating. However, in the early stages of development of most companies, whether a sole proprietorship, partnership or corporation (C, S or LLC) personal credit is much more essential to the business since limited or no business track record has been established.

Let’s now look at the essential elements that form an effective business plan. Typically, in the development of a plan, there are eight (8) elements that are business drivers:

Executive Summary (What are you striving to achieve as a business?)
Customer (Who is your customer?)
Competition (Who is your competition?)
Suppliers (Who will you use to meet your product needs?)
Marketing (How will you make your customers aware of your product & get your it to them?)
Human Resource (How do I find, develop and meet my employee’s needs and how do I maintain employees?)
Operation (What is my operational structure and how do I meet the operational/production demands of the business?)
Financial (How do I finance the development and growth of the business?)

Your financial plan, which is usually at the end of a business plan, is the section that determines whether or not your business idea is viable, and is a key component in determining whether or not your business plan is going to be able to attract any investors (particularly equity) or lenders (debt) to meet your business needs. The financial plan usually consists of three financial statements:

Income Statement (Revenue less operating expenses = Net profit);
Balance Sheet (Assets minus Liabilities = Net Worth); and,
Cash Flow Statement or Projection (Revenue less operating expenses not including such non-cash items as depreciation = net cash flow) with notes to explain basic assumptions of each statement.

As an entrepreneur, once you have fully developed your business plan, you have begun the first step in achieving a clear road map for the successful navigation of your business enterprise. However, the second step of implementation of this plan is equally as important to the success of the business as the first step. But, many businesses typically fall into the trap of having successfully developed a business plan only to have it rest on the bookshelf in their office; unattended and collecting dust. If your business finds itself in the situation, relocate your business plan dust it off and get back into strategically growing and/or expanding your business. You business plan should be reviewed at least quarterly.

Finally, let me reinforce some of the essential elements that were put forth in this article as key to the lifeblood of diverse business growth:

Business Planning is essential for business growth.
If you want to grow your business it is important to establish business credit.
An entrepreneur must always be mindful of how to correctly use his/her personal and/or business credit.
You should check your credit profile, at least, annually.
As a start-up or early stage company, the entrepreneur’s personal credit is typically weighted more highly than the business credit.
When looking for bank financing to start, grow or expand your business a bank will typically apply five (5) credit standards when evaluating your financing request: Capacity to borrow (legal), character (credit), collateral (asset(s)), conditions (market) and capital (cash or equity).

For additional information about business loans, lending or business planning, please call me, Calvin R. Tucker, Capital Manager of WPFSI, West Philadelphia Financial Services Institution, 215-452-0100 or email me at calvin@wpfsi.com. Explore WPFSI’s new website at www.wpfsi.com.

Calvin Tucker

Calvin Tucker is the loan officer for WPFSI. His diverse experience ranges from small & large businesses, commercial & mortgage banking, business development, credit analysis, management, origination, servicing [domestic/ international], and more.