A Living Document
By Jim W. Hart, RBC
By Jim W. Hart, RBC
A Living Document
Advice on how to make your business plan work
ften consulting engineers find themselves assessing a new project to determine if it is a good fit by considering their own expertise, capacity, and the business opportunity. How often though, do these same firms spend the time making sure their own business plan is in order — in effect, seeing how their own “financial specs” look?
Here are some questions to consider:
Why review your financial plans?
For the most part, engineering firms put a lot of time and effort into crafting their original business plan and then they file it away after the start-up phase or until it is time to update their financial statements.
However, the best business plans should be considered living documents that should be reviewed and updated more often than yearly. While that approach may seem ambitious when you are in the midst of managing day-to-day requirements, the benefits outweigh the time that the review and update takes.
What are the benefits?
Taking a close look at your financial plan allows you to:
Assess where you are now. Maybe you’ve entered new markets or shifted your focus; your plan should now reflect your evolution. Reassessing your business plan lets you take a step back and really look at where you want your business to be in five to 10 years.
Get back to basics. It’s always smart to return to business fundamentals. By reassessing your plan, you can deepen your understanding of your business, including your capabilities, limitations and your strategic goals. Review the current business environment, including the competitive landscape and market opportunities.
Get credit. A business that can demonstrate a solid, well-articulated business plan that reflects current realities improves its chances of obtaining financing support.
Get prepared. Planning for the unexpected is now as important as planning for success. By continually updating your business plan, your company will have a blueprint to guide it through any business and economic cycle.
Having the right partners at the table can be invaluable, especially if business financing is not your main area of expertise. For instance, your banking advisor can give you advice on financing options, growth and market considerations and risk management, as well as provide access to a network of experts within the financial institution.
What should the plan cover?
Once the right players are at the table, every business plan should come back to assessing these six fundamentals:
Your firm — What differentiates your firm now from the competition? Be specific, describe why your service is unique, your value proposition, how you target clients and how you stand out.
Your industry — What is the current industry environment? Have there been systemic changes? Are there new opportunities, risks and threats? What are your plans to address any risks, such as diversification, downscaling operations and lowering your leverage?
Your management team — Think of past accomplishments, as well as current capabilities, limitations and succession plans. Are you proactively managing the business. Are you reviewing fixed and variable expenses, identifying ways to reduce costs, managing cash flow and managing receivables more aggressively?
Your competition — What is the competitive landscape now? What are firms of similar size doing today and what could they be doing in the future? Is new competition emerging?
Your business strategy — Think about your overall business goals outside profit and revenue. Describe your objectives and your plan to achieve them. Also, consider your business strategy for the long term: what critical risk factors could stand in the way of those goals? For instance, are you relying on a limited number of markets or clients? Does the firm have the right expertise required to successfully grow? Is your long-term strategy backed by a solid financial plan?
Your financial strategy — It’s important to look at your financial forecasts and check that they are aligned realistically with the business strategy. A lender will test these to assess if the company is flexible enough to withstand changes in its business environment. You must consider how unexpected events could impact the viability of the plan.
Since consulting engineering IS project-based, what should firms be looking at when it comes to cash management?
No matter how well you manage your cash flow, things can still go wrong: a major customer delays payment or a contract falls through. One of the best ways to prepare for these unanticipated events is to have access to cash through credit. For instance, your financial advisor may suggest a revolving line of credit, which essentially tops up your operating account if it drops beneath a certain level so that you can maintain a strong operating fund. Don’t be afraid to borrow to cover a shortfall — provided that it truly is a shortfall and not something more systemic that requires other corrective strategies.
A business plan that is reviewed and updated regularly will help guide your business decisions on a daily and long-term basis. cce
Jim W. Hart is senior manager, client & business strategy, with RBC, in Toronto.