Featuring Ernie Post, Director
Pennsylvania Small Business Development Center
Kutztown University
Kutztown, Pennsylvania
A business plan is a tool to help you effectively manage your business. But if your business plan is sitting in a drawer somewhere find out how to put it to work for you.
Transcript:
Small Business Administration
Small Business Training Network
Interview with Ernie Post
Ron Johnson: Welcome to SBA Small Business Training Network, where helping small businesses start to grow and succeed are what we are all about. You might think that once you have a business plan, you are done. A business plan is a tool to help you effectively manage your business. But are you using your business plan, or is it sitting in a drawer somewhere? And if you have not developed your business plan yet, be sure to check out SBA’s podcast, Writing a Business Plan, and other SBA training resources at www.sba.gov/training.
With me today to discuss making your business plan work for you is Ernie Post. He is the Director of The Pennsylvania Small Business Development Center in Kutztown University. Welcome, Ernie.
Ernie Post: It is good to be on the program, Ron.
Ron Johnson: Tell me, Ernie, how does a business plan help an entrepreneur effectively manage the day-to-day operations of their business?
Ernie Post: Ron, the business plan is going to outline three key segments. It is going to outline the financial goals of the business, it is going to outline the marketing goals of the business, and the operational goals. Consequently, once those goals and benchmarks are defined for each of those three critical areas of the business, it is going to allow the entrepreneur to go back at the end of each quarter and assess how they are doing against their planned projections for each of those critical areas.
Ron Johnson: A small business will often have a business plan and a strategic plan. Now, how do these two documents work together?
Ernie Post: Well, the strategic plan is generally recommended for those companies that are engaged at the start with the technology or intellectual property. It is recommended also for businesses once they reach a critical sales benchmark. And we generally advise companies to develop the strategic plan as they are approaching that one million dollar sales, benchmark, or after they have brought on five to ten employees.
The business plan is going to be sufficient, generally, for the start-up business. Again, that business plan is going to outline those three critical areas and outline some benchmarks for them to hit, and particularly, with the financial goals, whereas the strategic plan is more of an internal document. That after a certain phase of growth with the business, it allows the company and key management personnel and employees to sit back and reflect on their strengths and weaknesses as it relates to their internal strengths and weaknesses, and then to look at opportunities and threats that are developing out in the marketplace.
So I guess it is called strategic because it is more reflective in trying to steer the company in the direction that is going to capitalize on those strengths, those internal strengths. More strategic in a sense that it is really taking a look at the marketplace, and changes, projected changes in the marketplace. As a result of those changes, what new opportunities might arise that the company can take advantage of.
Ron Johnson: Now, Ernie, you advise small businesses to review their financial accounting quarterly. Now, how does this review relate back to the business plan?
Ernie Post: Oh, absolutely. The quarterly review is a chance again to monitor and assess the critical financial goals of the company. As you know, many, or the majority of companies that do fail or failing because they are running out of cash to keep the doors open. Therefore, sitting down at the end of each quarter and assessing how well they are doing in terms of capitalizing on their sales, and how well they are doing on their gross margins, on those sales that they have conducted over the past quarter, monitoring their expenses is a key element for success for any small business.
So, that quarterly review becomes just a vital means of monitoring if the company is on a critical path that is going to be able to sustain their growth from a financial perspective. And if they are going to be running short on cash, it allows us the opportunity to work with the banks to obtain the necessary cash flow and working capital to keep them sustained over the long term.
Ron Johnson: Finally, Ernie, what are the current trends in the business planning process that entrepreneurs need to be aware of?
Ernie Post: One of the key trends is that banks are requesting shorter plans, especially as it relates to the narrative. The old adage of “less is more” I guess is appropriate here, because the banker is most interested in what the projections are going to show in terms of the financial aspects.
So if the company can come in with a good five to ten page narrative with those three-year projections that outline the cash flow needs and income statement and balance sheet, they are going to be pretty well set to approach a bank for lending. So they do not have to write these hundred-page narratives and answer every canned question that might come up on some of these software programs that you can buy to develop a business plan.
And I guess just the other trend is that we really want to see the entrepreneur write the plan, not somebody else write the plan because it is critically important that the entrepreneur be able to answer the questions the bank or financial lenders are going to pose to them at the time of the loan closing.
Ron Johnson: Thank you, Ernie, for providing our listeners with yet another important reason why having a business plan is critical. Not only does a business plan outline your vision and goals for your small business, but it also helps you manage towards success.
SBA and its nationwide network of resource partners, SCORE, the small business development center, and women’s business centers are located across the country to help you compete in the marketplace.
To find the closest location to you, go to www.sba.gov. SBA’s Small Business Training Network is an on-line virtual campus, which offers free courses on the topic and more than 40 other free courses. Check it out at www.sba.gov/training. You have been listening to the small business training network. I’m Ron Johnson.
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