BUSINESS PLANNING-HOW DOES IT HAPPEN IN THE SMALL BUSINESS SPACE?
The next few blogs will address this planning issue for micro/mini businesses.
It has been my long held view that small businesses have very little in common with the BHP’s , CBA’s and Caltex. Indeed, they have nothing much in common with any listed company. Most small businesses have to outsource all of their technical requirements especially the accounting and planning functions. Once they have sufficient size and scope to employ an in-house accountant then some real changes start happening in terms of the supply of real time/quality financial data suppied to proprietors. But sadly, most small businesses never get to that stage and they battle with every conceivable challenge by themselves. So when it comes to business planning the business owner has some very limited choices:
- do it yourself
- get help from a bookkeeper
- ask your tax accountant for help
- get assistance from your bank
- go to a small business centre and get some free advice
- in the farming sector there are farm advisors in private practice and within government departments
- All of these pathways come with their own advantages and disadvantages.
In large companies they have the advantage of financial resources, multi-disciplinary teams and time to do the planning properly. In the small business area everything is in limited supply including the critical components of money and expertise.
So the starting point for any small business owner is to get the right team in place from the outset BEFORE any planning starts.
I am going to be quite blunt in my recommendations regarding your initial team. You do not want inexperienced people who have not run businesses setting the framework. Similarly, you do not want tax agents who have never had any ‘skin in the game’ and see everything through the prism of the Tax Act.
What you want is someone by your side who can add objectivity, knowledge, experience and strategic thinking skills which are necessary in the challenging process called ‘business planning’.
There is nothing wrong with seeking opinions from a wide range of confidants. There is nothing wrong with a big dose of self education. But unless you are serious about testing your business model I am strongly of the view that you must seek outside assistance at the earliest possible stage so that all assumptions are tested, your skill-set is examined, a broader view is tabled and the road ahead is mapped out properly.
Most problems that I have seen in the micro space are brought about by the proprietors trying to do everything themselves. One of the vital skills that they have to acquire is the judgement/intuition as to when to ask for help and who they should go to.
The obvious path is something like this:
- this is all too difficult, I do not have time to plan when I have everything else to do
- my bookkeeper and banker have never thought that this ‘business plan’ is necessary so why do one?
- I have gone to the small business centre and they really don’t know me or my business, they had lots of resources and they were free but at the end of the day the advice was superficial
- I will go in and have a talk to my tax agent.
The reality is that most tax agents are far too busy with ATO compliance programmes to spend time on business plans. They have small ‘windows of opportunity’ to do some in depth analysis around May/June and perhaps in January each year. Apart from those few weeks, their time is taken up with bookkeeping, tax returns and tax planning. There is rarely any time for 5 year plans, profit analysis, marketing ideas, exit strategies and due diligence [see previous blog on DD].
Remember I am specifically talking about micro/mini/small businesses and the types of accountants they normally deal with. I am not talking about the big 4/5 practices or the mid tier firms that have dedicated audit/business planning units.
The reality is that most CPA firms do not have dedicated sections of their practices devoted to business planning. There is simply not enough demand for these services nor is there enough profit generated for accountants to be pulled away from compliance activities.
So the small business proprietor has yet another hurdle to overcome. Who should they seek out to help them in this vital aspect of their business ?
The answer will depend on the facts of each case. There will be an important preliminary ‘process of discovery’ which should lead to the right person being appointed to work alongside you on this challenging journey.
Start by talking to business groups like Chambers of Commerce, Rotary members, industry groups, business associates, your solicitor, your banker, the local small business centre and friends. Whilst some will be unable/unwilling to recommend consultants you will be surprised those who are in a position to do so. Spend some time chasing down these leads. Build your knowledge of who is working in this area and talk to them. They will often provide the initial interview free of charge. Ask for referrals and testimonials from businesses they have worked for.
In subsequent blogs I will outline why I consider business planning to be so important and I will open your eyes to what is involved.