By Guest commentary Friday, April 28th, 2017

Lee Schuh

By Lee Schuh

It seems like a day doesn’t go by without a businessperson asking me, “Why do I need a business plan if I am hitting industry benchmarks?”

I tell them the standards are mediocracy and ask them how long they can exist being just like the other companies. Even matching yourself against the best of the best means you are not being faithful to your own niche. If you’re just benchmarking and not taking advantage of your niche, you are just another company chasing the same clients.

A well-run company must continuously improve over time and stand out if it wants to survive. The key to success for a company is focusing on its niche, or how it differs from its competitors. It could be performing a better job, delivering higher quality or being more responsive, flexible or progressive. Don’t strive to be the least expensive because the company that accomplishes that is usually the least able to survive in bad times due to lower financial reserves.

The way to achieve success with your niche is using a business plan.  It may be called the five-year, continuity, strategic, operations or internal plan. The original plan should start out with your business mission and goals. It will include two major sections, marketing and financial. Lead with the marketing plan and build the financial section around it.

The marketing plan should project the future and have planned improvements built into the schedule to re-enforce the niche and fix any shortcomings. During the market research phase performed prior to starting a business, it is imperative that the entrepreneur establish that there is a real demand for the product or service being offered and that the physical location is good.

When entrepreneurs are objective, rather than emotional, they generally have a very good track record for identifying markets and locations. Research should go beyond determining there is a demand for the business in a location. For example, consider local laws that may handicap the company. If you are near the border of two cities with a minimum wage of $8 in one and $10 in the other, a fast food restaurant would need to be in the $8 city to be price competitive.

The finance section should cover the cash flow created by the projected sales and the related variable and fixed costs so the cash flow requirements can be determined well in advance. This up-to-date financial section will provide visibility into the profit/loss status, need for additional personnel, inventory and advertising capital investment required to support the sales projections. The financial section is also able to project when lines of credit and other additional financing is needed as advance planning can minimize the cost.

Lenders want to see a business plan before they loan any money to entrepreneurs so people usually put 110 percent into their original plan. The problem is that many small companies stop working on the plan after they receive the loans or investment funds because they see no further need for it.

Good management makes the business plan a living document that is continuously updated. Thus, changes can be monitored and variances from the niche are caught in advance. This doesn’t mean that the niche can’t change but it does mean that any change is a planned change.

You should update the entire plan at least quarterly or whenever a major change is anticipated.  Your business financial planner can help make it a living document that guides you through the years.

Updating the business plan is time-consuming and stressful but extremely important in order to stay focused on the company’s mission objective and expansion.

• Lee Schuh is a senior adjunct faculty member in the School of Management at California Lutheran University.