In one of the business forums I participate in, a business owner contacted me asking for some advice; he wrote me about the predicament he was in. What he shared with me is a good point to make to those of you starting a business or that want to start a business:
his message to me<hr />
I am one of those who never wrote a business plan because our business needed no "borrowed" start up money. We used a proven method, studied our competition, found our niche, made our sales calls, contacted mutual friends in the industry, and business came.
We sold $200,000 the first year; 2001, $1,000,000 the second; and at over $4,000,000 by the end of 2006. We branched out into new markets for us and our customers to keep them and find new ones; one stop shopping we called it. We added staff, added equipment, and trained. Then, the gas prices and the economy killed the industry.
Our diversification is working, but too slowly to keep up with the losses. An example: one of our customers 2 years ago was doing $16,000 per month, and they paid monthly. Their budget is now less than $8,000 per month.
How do I convince a bank to loan me the capital for a year to keep up and wait out the recession? Do I go to the bank? I am really at a loss and have responsibilities to the people who work for me.
I have cut payroll, I have cut bonuses, I have cut expenses, my family has personally put in additional hours to make deadlines, I have focused on new customers and worked to keep the old ones.
What can I do now to get cash flow before it is too late?
I have done a marketing plan with former jobs, but not my own. It was recommended by the SBA? Does history make a better marketing plan? Is this what I should focus on right now? How is the economy slide, recession, and my lower, slower revenue going to affect my bank's decision to "bail me out"? I know transportation will rebound, but how do I keep alive until then? I have to do something soon.
What would you advise?
my reply<hr />
Business plans are not just for start-ups. They are also necessary when established businesses hit a plateau or are staging/preparing for growth or when they are entering difficult economic times ... those are times when it is important to have a business plan in place to support meetings with their lenders (or prospective lenders) and investors to raise capital to help fuel growth or get them through the tough times. And sometimes it is important to show your plan to creditors as part of a restructuring of debt to get temporary relief from a cash crunch.
All of the things you have done would go into that plan to show what remedies you have taken to cut expenses as much as possible, to retain customers and to create new ones.
If the plan is put together well, and the picture it shows is one where you prove the viability or sustainability of your business going forward, that may be what swings getting some capital lined up to help you until things get turned around.
So, if you can do it, I recommend getting your plan (including realistic financial projections) together and using that as a means to show people you can get through the crunch. Even during tough times it may be possible to bring in an angel investor (one that understands your industry and can see your business is sustainable and should recover). So that may be something to consider as well. An equity investor as opposed to a loan (debt) would mean you don't have additonal demands placed on cash flow.
I hope the above helps you in some way.
end of my reply<hr />
One thing to point out here.
Even when you are an established business it pays to have a business plan prepared and kept current. And if you are a start-up that does not need money now. You may need it at some point and scrambling to prepare a business plan can slow you down on being prepared to talk with investors and funding sources.
There are many opportunities that occur in business, where a business plan may be needed to help you come up with the capital to grab the opportunity while its still there ... and as you can see in the case outlined above; when things turn tough and you need to lean on or find financial resources to get you through ... not having a business plan ready to present to funding sources or investors, puts you way behind the curve and at a disadvantage.