Why Do You Need a Business Plan? – Part 2

In the last article we talked about what is required in an external business plan. This basically outlines your business strategy which includes current position, competitive advantage, growth plan, marketing strategy and human resources. The second part is your operational plan that for the most part, outlines in detail your financial forecast, which I will call your internal business plan. In my opinion this is the most important part of your financial management strategy each year. Find out why.

Without a comprehensive financial business plan or internal plan, how can you effectively manage your inventory, booking order purchases, expenses, sales margins and overall profit goals? The simple answer is - you can't!

You need a road map to find your way to your desired destination. The internal business plan is your GPS that will guide you every step of the way. The internal business plan essentially turns your plans into numbers. The next 12 months of your fiscal year should be your focus and will be the most accurate in your planning process. You know what your current status is and what new products will be available from your suppliers. The key components of your internal plan are as follows

  1. A Financial Performance Analysis of the last 5 fiscal years operations
  2. List of assumptions for average cost per product group
  3. List of corresponding gross margin assumptions
  4. List of obtainable targets based on past performance, industry standards, and preset goals for specific expenses, working capital, credit facilities, margins and volume per product group
  5. Last year's new and used unit sales in numbers by product group by month
  6. Forecast of the next fiscal year's unit sales in numbers by product group by month

These are your building blocks for your business plan forecast worksheet that are based on history, target objectives and industry standards. As you build these blocks, remember the importance of thinking objectively. Analyzing your business from three points of view – optimistic, pessimistic, and realistic – can give you a solid idea of what to expect as you move forward.

Once you have completed your business plan worksheet you will have a comprehensive outline of revenue and expenses by month for the year. This is your comparative road map that you can review monthly to actual results to ensure you are on point with your goals. From the worksheet you can generate a cash flow statement, profit and loss forecast, sales forecast and balance sheet.

The benefits of the internal plan don't stop here. It also allows you to focus on other critical things you should be considering such as:

  • How much capital/credit facilities do you require and if you need to seek additional external funding?
  • What security can you offer to lenders?
  • How do you plan to repay any borrowings?
  • Does your plan result in favourable financial ratios and percentages in the eyes of your creditors?

A comprehensive business plan has not been an integral part of our industry's business requirements in the past, but it is essential to your future financial management strategy. Not only are a growing number of your creditors looking for this information to base their approvals on, but making a profit has become increasingly difficult since the recession. You need to stack the deck in your favour by preparing a plan each year and using it to guide your business to success.

Don't be afraid to seek out help from a consultant if you are not comfortable with this process. It will be worth every penny you spend. My mission in business is to see dealers achieve their goals and obtain a reasonable return on their investment. If you want to discuss your plan with a veteran from the industry, contact me for a free consultation.

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