By Bart Basi
Second of two parts
In the last installment of the “Financial” column, we covered the beginning steps required for a strategic business plan, an essential element of your blueprint for success. Today, most investors and banks will not even consider putting money into your company without first seeing a strategic plan. Here, I finish explaining how to organize your outline.
Many people do not realize that with increased sales comes an increase in inventory. This requires a larger amount of space to store the inventory and more people to service the extra warehouse space.
In writing this section, you must ask yourself the following questions:
•Is the current available space large enough to handle the projected sales?
•Where will the company acquire extra warehouse space?
•How will the company pay for the extra labor required?
•Will the extra costs associated with the inventory bring a greater profit? If you answer no to this, please consider stopping this process.
There is no worse feeling than not being fully prepared when entering into a business venture. Having these questions answered provides the business owner with a sense of confidence in his strategic business plan, as well as his business.
It is critical that the funding needs be documented with financial statements that are dependable and reliable, showing an overall asset and debt structure on a current basis together with the operational aspects of the business.
Once the financial structure is prepared, the next step involves forecasting. A strategic plan will need financial statements and projections for the next three to five years, including:
•Projected statement of operations
•Cash flow statement, and
This section requires some knowledge of accounting and finance so if you do not have the expertise, it is imperative to obtain some outside help with this section of the strategic plan.
Even though it said that money is the root of all evil, it is difficult to run a business with- out it. You should always ad- dress your plans for cashing out the investors or paying off debt when you are structuring the deal. Lenders want to know how long you plan on having the outstanding debt. By addressing these concerns in the beginning, a bank is much more likely to commit the funds to the business, since the payoff is incorporated into the initial plan. The end result should be cash flow projections for three to five years that are very accurate.
The strategic business plan is your most important strategic document. It is used as the blueprint to finance your business and represents the foundation on which any future deal will be structured.
It should be regarded as a key marketing proposal that will gain the maximum level of interest from potential investors. An adviser will play a key role in the drafting of the business plan, ensuring that it is drawn up in a way that will appeal to the finance community.
Bart Basi is an expert on closely held enterprises. He is an attorney, a certified public accountant and the president of the Center for Financial, Legal & Tax Planning, Inc. He can be reached at 618.997.3436.