Business Articles - On the Job

Seven Reasons Why You MUST Have a Strategic Business Plan

Can you imagine the chaos you would be in if you boarded a commercial flight in which the pilot didn't file a flight plan and had no real idea of where they were going? The end result would probably be catastrophic, or end up far short of its intended destination and your flight would be ruined in one form or another.

The same goes for your business. Without a strategic business plan in place, you're shooting from your hip and taking aim at anything that moves.

Taking the time to develop your plan is without a doubt one of the smartest business decisions you'll ever make. A good, solid plan developed around sound, conservative and documented facts will lead you to your business goals in the shortest and most profitable route. Without it, you'll fly endlessly around in circles, very much like the puppy that spends endless hours chasing its tail, only to finally collapse with exhaustion and nothing accomplished.

How do you get started?
First, if you've never done a plan, find a resource, an expert, or a business coach who can help you and lead you through the process. You don't want a "generic" off-the-shelf plan but a strategic business plan that is built around very specific known factors that almost guarantee success.

Second, in most instances, you already have most of the information you need to complete the plan. So, here are some key tips in getting started:

1. Learn your numbers. Believe it or not, 9 out of 10 home service professionals do not have a clear understanding of their numbers. Nor do they understand the process of calculating markup and profit margins. Also, they almost always have their expenditures charged off to the wrong accounts! Just by learning your numbers, we have seen home service professionals improve their bottom-line results by 300 percent!

2. Do a budget. Would you build a project without an idea of what you expected your costs to be? Only if you were willing to fall flat on your face and do the work for nothing! So why are you trying to operate your business without a budget? You need to set specific financial criteria for success, such as: Sales, Costs of Sales, Overhead and Net Profit. This criterion becomes the foundation for your Strategic Plan.

3. Look at the BIG picture! Too many home service professionals are so wrapped up in the day-to-day chaos that they create in their own businesses that they never look at where they want to go and what they want to end up with. In all plans, you must first determine the end-result you desire from your efforts.

4. Analyze your work! Not every job is the best job for you. We find that too many home service professionals want to get every single job that comes their way. But the truth of the matter is that only certain jobs by certain customers are what you really want. By performing what we call a "Project Characteristic Report" you can easily hone in on what type of work and what kind of customer give you your best results -- in terms of turnover, management, sales and profit.

5. Analyze your market. You must know where you fit in your marketplace and what amount of work you will do in the near future. By collecting this information and computing your needs and capture rates, you can easily determine what share of the market, in sales, will belong to you. I can almost guarantee this is something your competition is not doing!

6. Determine your capacities. Do you have enough manpower, equipment, and money to sustain your plan? With proper study of this information, you can determine what you need, or what you've got to accumulate, in order to make your plan work. Remember, you are "limited" and any home service professional that gets outside of their capacities always gets themselves into financial trouble.

7. Understand what profit is! The great majority of home service professionals work for nothing but a paycheck, and depending on how good or bad a year is, they make more or less money for themselves. You MUST learn to work on your business and not in it and one of the ways to accomplish this is to stop working for a paycheck! To be a little clearer, you MUST calculate a "reasonable" wage into your operating budget and then show a reasonable profit after you've taken your wages. What is a reasonable profit? A recent study showed that the average home service professional is only making 4.3 percent Net Profit. The problem with this study is that it is only focused on contractors who are making a profit. Since we have the highest industry standard for failure, the number really is in the 1.8 to 2.0 range - way too low to supply enough equity for growth and bad times. Learn how to calculate your net profit margins by Risk factor and R.O.O.I (Return On Overhead Investment). You'll find yourself making larger Net margins and able to fund growth and equity a lot easier.

Stop the erratic ups and downs, all the uncertainties, and start putting you and your business on a course of action that will increase your chances of reaching true financial success. Start by doing your Strategic Business Plan today!

By Henry Goudreau, C.S.L.

Henry Goudreau, C.S.L.
HG & Associates, Inc
"We turn contractors who dream of a successful business, into business managers who make a business successful!"

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