Business Consultancy

Lots of SME businesses start off with lots of enthusiasm, a multitude of fantastic ideas (products / services) and a determination to succeed. They have produced an impressive Business Plan (using some of the many excellent Business Plan tools), so how can they fail?

When running the business and monitoring yourself against a Business Plan, any subsequent variances can easily be explained like, “the order will come in next month”, or “I could not resist that marketing offer” etc.

Just like a Project Plan, a Business Plan provides a baseline from which to run and control the business. Similarly, a project manager expects to encounter situations not in the Plan, but also resolve issues as they arise due to the timings being out, be it under his control or not.

So why do some business people see the Business Plan as just a means to raise money from the bank and confirm the ‘big idea’ is a money spinner? Perhaps it’s because monitoring yourself against the initial Business Plan does not seem relevant anymore, especially when you are working every hour of the day.

If you cannot find the time, or inclination, to see where the variances to Plan are, then try to understand some of the basics, eg:

1. Burn rate – How much are you spending each month (rent, rates, salaries, suppliers, take average for expenses etc)?

2. Available Cash – How much Cash have you at the Bank, and take what you believe will be collectable from the oustanding Debtors?

3. Coverage Factor - Divide Available Cash by Burn Rate, I recommend this be computed each month, and see how it varies.

In most small businesses a factor of over 3 would be comfortable, as the business would generally have enough funds to recover from any short term glitches. Some businesses may not have a positive figure due to loans etc, but the priniciple is still the same. Monitor the Coverage Factor monthly.

This does not replace standard accounting procedures, but does give a very simplistic metric on quickly determining your financial health with getting bogged down in P&L, cashflow forecasts etc.