Jump to Main Content
USA flagAn Official Website of the United States Government

Starting

Comment Count:
23

Comments welcome on this page. See Rules of Conduct.

Get Over These Dangerous Business Planning Myths

By Tim Berry, Guest Blogger
Published: July 21, 2014

If you don’t plan your business because you don’t need a formal business plan document for a loan application or investors, you’re missing out. Planning is a tool for steering and managing your business – something that benefits all businesses, whether they need the formal document or not.

That fear and doubt so many business owners have (are you one of them?) is associated with several dangerous myths about business planning. So I want to dispel those myths with this post.

1. It’s about the management, not the plan.

Your plan exists to help you manage. It includes only what you need for its function, which is setting strategy, tactics and concrete specifics. You use it to track performance against plan, review results, and revise regularly, so the plan is always up to date. And that’s not a big document; it’s a collection of lists, bullet points, reminders and projected business numbers. I hope it’s gathered into a single place, as if it were a document, but it doesn’t have to be. And it’s only as big as you need, as polished as you need, as formal as you need.

Your business plan document, if and when needed, adds a lot of description and supporting information that aren’t in the main plan. That’s additional dressing. You add it when you have to in order to show a plan document to outsiders.

Every small-business owner suffers the problem of management and accountability. It’s much easier to be friends with your coworkers than to manage them well.

Correct management means setting expectations well and then following up on results. Compare results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating results, after the fact, to the people responsible.

2. Not all business planning needs rigorous market analysis.

Contrary to the myth, a business plan doesn’t have to include supporting information to analyze or prove a market — at least, not until later, if and when the business purpose requires it. Not that you don’t have to know your market — but you don’t have to describe it or prove it for a lean plan. You don’t have to show some outsider who you are, what you own, or any of that.

You don’t have to do a rigorous market analysis as part of your plan if you know exactly what you’re offering, and to whom. So what about market analysis? Think about the business purpose. Do you need the market analysis to help determine your strategy? Then do it. Are you ready to go with that strategy regardless? Then don’t sweat the market analysis.

3. Good planning doesn’t reduce flexibility. It builds flexibility.

People say, “Why would I do a business plan? That just locks me in. It’s a straitjacket.”

And I say: wrong. The dumbest thing in the world is to do something just because it’s in the plan. There is no merit whatsoever in following a plan just for the plan’s sake. You never plan to run yourself into a brick wall over and over.

Instead, understand that the plan relates long term to short term, sales to costs and expenses and cash flow, marketing to sales, and lots of other interdependencies in the business. When things change — and they always do — the plan helps you keep track of what affects what else, so you can adjust accordingly.

It’s not like change undermines planning; actually, planning is the best way to manage change.

So running a business right requires minding the details but also watching the horizon. Eyes down, eyes up. At the same time.

About the Author:

Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.

Leave a Comment

You must be logged in to leave comments. If you already have an SBA.gov account, Log In to leave your comment.

New users, Register for a new account and join the conversation today!

Comment Count:
8

Comments welcome on this page. See Rules of Conduct.

5 Reasons Your Business Credit Scores Don’t Get You the Credit You Need

By Marco Carbajo, Guest Blogger
Published: July 8, 2014

When you apply for a new credit line or request a credit limit increase for your business, suppliers, creditors and lenders want to see how your company has handled its existing credit obligations in the past. This enables them to determine if they should approve your request and to help determine what terms they should offer.

Lenders often use business credit scores to help them assess the level of risk a company presents. Business credit scores are calculated based on the information in a company’s credit report. In most cases, higher business credit scores mean lower risk to a lender when extending credit to a business.

Your business credit scores are calculated by a statistically derived algorithm, designed to calculate risk based on a variety of factors. Although each business credit reporting agency has its own unique scoring models, scores and ratings, other types of information – such as financials, payment history and credit diversity – all play a role in the strength of your business credit reports and scores.

Here are five reasons that may prevent your business from getting the credit it needs:

1) A weak or incomplete business credit profile – The report and demographics of a company play an important role in how creditors assess creditworthiness. A business with issues such as poor financials, outdated registrations or high-risk industry classification codes can trigger a denial of credit or unfavorable credit terms. So it's vital that your company’s documents, financials, filings, and registrations are complete, accurate and up to date.

2) Limited or negative payment history – Your payment track record demonstrates how well your company handles its current and past credit obligations. A company with limited or negative payment history will have a difficult time getting credit.

Aside from paying invoices in a timely manner, keep your credit usage consistent. Regular purchases and timely payments are what establish a positive payment history; it’s what lenders want to see.

3) Low credit limits – Low credit limits across multiple accounts plainly reveal to creditors that a business has limited credit capacity. However, a business with high credit limits reveals that it has the ability to handle large credit obligations. As a result, a business will receive much larger credit limit recommendations, especially if the company has low revolving debts. If your company has a positive payment track record with an existing supplier or creditor, it may be in your company’s best interest to request a credit limit increase.

4) High credit utilization ratio ­– While the size of credit limits reveal what amount of credit your creditors are willing to extend to your company, credit utilization ratios show how well your business manages it. Creditors view a high credit utilization ratio as a business with excessive debt with a greater risk of default.

Keep credit utilization ratios at 50% or below to avoid falling into this high risk category. Low credit utilization is a clear indication that your business can handle its credit obligations. Doing so will ultimately benefit you during the credit application process.

5) Lack of credit diversity – The types of trade lines your business has reporting play a substantial role in the credit granting process. Limited credit diversity may limit your company’s ability to qualify for certain types of funding. Having short term financing, revolving accounts, installment loans and open accounts reveals to creditors that your company can manage various types of credit responsibly.

Bear in mind your business credit scores will certainly have the tendency to fluctuate with each business credit agency, so it's vital to monitor your business credit profiles on a regular basis. While business credit reports and scores are an essential tool for lenders, suppliers and creditors to assess credit risk; other factors such as banking history, revenues and personal credit scores may play a larger role if a business lacks depth, diversity and density in its files.

About the Author:

Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.

Leave a Comment

You must be logged in to leave comments. If you already have an SBA.gov account, Log In to leave your comment.

New users, Register for a new account and join the conversation today!

Comment Count:
16

Comments welcome on this page. See Rules of Conduct.

True Story: Why You Don’t Want a Business Plan Writer

By Tim Berry, Guest Blogger
Published: June 25, 2014

It’s been years since I was making a real living off of business plan consulting (I migrated to business plan software instead), but I had an exchange last week that reminded me of one of the biggest problems – and most common misunderstandings – related to business plans.

Not that you, in your situation, should never hire a business plan writer, consultant or coach. In some cases that’s a good idea. But let me explain that after I tell this story.

One of my first engagements in business planning was as business plan consultant to a startup with three experienced founders. I met with them several times, listened always, and did their business plan. I built the financial model, wrote the text, and produced the document as a business plan document. But I wasn’t part of the team. I wasn’t able to promise to go full time. I was just the business plan writer.

It was a good startup. It had a good idea and, much more important, a market window, differentiation and experience to make it happen. The three founders had about 40 years of computer company experience between them. And it was a good plan too.

But there was a problem with the plan: The founders didn’t know it. They thought it was enough to have a plan, but it wasn’t. In every meeting I attended along with the founders, when there were critical questions, I had to answer them. I knew the plan. They didn’t. It was my plan.

And, in fact, the plan failed. My clients didn’t get financed, and the venture never launched. Of course I was disappointed because I spent a long time developing and revising that plan. I repeatedly changed financial assumptions and revised text.

So here is my advice about hiring a business plan writer, consultant or coach:

The best business plan is one you do yourself. Hiring out is threatened by the fact that good business plans in real business use last a few weeks at best. Business planning is about regular review and revision.

Consider hiring somebody from the outside only if you have the budget for it. It is conceivable that you don’t want to do it yourself and your time is better applied to other business functions. Cheap business plan writing strikes me as about as good an idea as cheap surgery, cheap dentistry, or discount sushi.

If you do hire somebody, look for a relationship more like coaching than consulting. Hire somebody who shares expertise and experience, makes suggestions, but doesn’t do the task so you don’t have to.

Don’t believe ever that having a business plan written is any good for more than a few short weeks. Business plans get old and useless very quickly. If you don’t have one you can keep alive, then you don’t have one at all.

About the Author:

Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.

Leave a Comment

You must be logged in to leave comments. If you already have an SBA.gov account, Log In to leave your comment.

New users, Register for a new account and join the conversation today!

Comment Count:
14

Comments welcome on this page. See Rules of Conduct.

Searching For A Franchise? Don’t Complicate It

By FranchiseKing, Guest Blogger
Published: June 17, 2014

It’s easy to do. It’s easy to search for a franchise. Looking for a franchise...or even a couple of franchise opportunities to investigate isn’t hard. There’s no pressure. You’re just “looking.”

It only starts to get difficult after you find one or two franchise concepts that actually make sense to you. I’m talking about franchises that you can “see” yourself owning.

Let The Fun Begin

A lot of things happen internally when you start to see franchise opportunities that you can visualize owning.

1.      Your adrenaline* levels increase. You start getting excited. More energetic. Nervous, too.

2.      You change from “casual looker” to “would-be franchise owner.” Things start to feel a bit more serious.

3.      You start thinking.

Don’t Complicate Your Franchise Search

Once you find a franchise you’re interested in, your wheels start spinning. You start thinking about lots of things. Like:

·        Where can my new business go? What would be the best location for it?

·        How many other franchises of the concept I’m interested in are there around my area?

·        Will I be able to secure a small business loan?

·        Will I make enough money?

·        Could I lose all of my money in this venture?

·        Will my family be okay with me buying this franchise?

·        Should I just get a job instead of risking my money now?

·        Etc. Etc.

Stop.

None of those things matter. You’re complicating your search for a franchise.

First Things First

There will be plenty of time for you to ask those questions. But, you’re wasting your time, and a lot of energy, if you start asking yourself questions like the ones I wrote above before you find out if the opportunity you’re interested is even a viable one.

In other words, don’t put the cart before the horse.

Instead, do this:

1.      Go to the franchisors website

2.      Look for the “contact” link

3.      Fill out the contact form

4.      Wait to get contacted

5.      Arrange a call with a member of the franchise development department

6.      On the call, share your story-and listen to theirs

7.      Decide if you’d like to continue learning more about the franchise

8.      Follow the franchisors “next steps”

Take the steps

If you’re still interested in possibly buying the franchise, continue down this list. If not, start your search for a franchise again.

1.      Call several franchisees, and ask questions like these*   

2.      Visit franchisees-spend a day with one or two of them

3.      Start writing a business plan*

4.      Find a franchise attorney

5.      Visit franchise headquarters   

6.      Have your attorney look over the franchise agreement

7.      Make your decision

Your Wheels

It’s right before your decision that your wheels will be spinning. Sometimes, they’ll spin out of control. Things like self-doubt will creep into your head. Fear…real-live fear will also appear on your doorstep. But, don’t worry. It’s completely normal.

If you ask the franchise development director, the franchise executives at headquarters, and existing (and former) franchisees great questions, and their answers are satisfactory, it may be time for you to become the owner of the franchise you’ve been focused on for the past few months.

But, you don’t have to say yes. You always have a choice. Don’t complicate your search for a franchise-the right franchise.

Keep it simple. Go step-by-step. Don’t get ahead of yourself.

Are you ready to start searching for a franchise?

*Non-US Government links.

About the Author:

Joel Libava

Guest Blogger

The Franchise King®, Joel Libava, is the author of Become a Franchise Owner! and is a franchise ownership advisor. He shows people how to carefully choose and properly research franchises.   

Leave a Comment

You must be logged in to leave comments. If you already have an SBA.gov account, Log In to leave your comment.

New users, Register for a new account and join the conversation today!

Pages

Subscribe to RSS - Starting