I led a US strategy and planning team in a Fortune 500 company to determine where to invest billions of dollars. Invariably, the business sections, product groups and geographic areas across America would always ask for more than we had available in cash flow.
To determine if we should invest, we developed a planning process: every part of the business would need to pitch their business case and compete for limited funds. After whittling down thousands of proposals, each group had to state their case — which played out like an internal company Shark Tank.
This approach is useful when you start planning for a successful business. Planning helps you to address critical issues and forecast whether you will hit your target.
Think about business as a journey. Where do you want to end up, and how does success look along that journey? Determine the end point first and break it down by year. For example, you might define success over the next three or five years.
What does success mean for you?
If you are sole trader or a start-up, it is worth looking at if what you are planning is actually a business. This is important!
If your definition of success is quite small-scale, your activity may be classed as a hobby. In Australia, if your activity is classified as a hobby, you will face completely different tax obligations.
Seek professional advice on how your business should be structured and insured before you begin.
Before you get too far into the detail of planning, you need to make sure you have a financially viable business.
Do a back-of-the-envelope calculation. If you give up your $150,000 job to develop a business over two years, that means you have effectively invested $300,000 at least. Even at just a 10 percent return on investment on $300,000, you need to earn $180,000 per annum after costs to finance your current salary and earn a basic return on your investment in the business.
Would your business survive Shark Tank? By doing your planning you will find out and give yourself the best opportunity for success.
Create a written business plan or update your existing one. It need not be long. Write it down and keep it updated. Templates are available online, in books, or through business coaches or accountants.
Make sure you ask the tough questions. If this is such a great idea, why has no one done it before? Or if they had, why did they fail?
While plenty of great ideas will never make a profit, there are also plenty of long-term profitable businesses that have run out of cash before the profit was made. Good planning and execution will help form a basis for your ultimate success.
Remember to schedule in your calendar specific monthly or quarterly times to do nothing else but stop and critically evaluate your performance against your plan. Develop a scorecard and key metrics to regularly review. If you are off plan, you need to change what you are doing and/or change your plan.