#1: Create a business plan

As someone once said, “If you fail to prepare, you are preparing to fail.” And yet, in a research report published in 2018, a striking four out of five businesses surveyed had no formal business plan. Furthermore, the same report found that only one in three businesses surveyed regularly spent time refining their growth strategy, even though 98% of participants felt their business had growth potential. 

What is a business plan, and do you need one?

A business plan is a written document created to detail all aspects of a business on a comprehensive level. The goal is to establish and examine the organization’s objectives and the best strategies for achieving them. To put it more simply, it is an outline of the path you intend your business to take and how you intend to follow that path. 

However, creating a thorough, meaningful, and actionable business plan can be difficult and time-consuming. Writing the plan requires significant research, and it can take time and attention away from other needs. Consequently, some entrepreneurs prioritize simply getting the business started and choose to maintain flexibility when it comes to the company’s subsequent development. 

Every business is different, of course, and this approach may work for some. Broadly speaking, though, a business plan is still one of the most effective ways to establish a strong foundation for your company—one that pays off with many vital benefits. 

For example, the process of researching and writing a business plan can sometimes reveal potential problems. Even the simple exercise of outlining your business’s strengths, weaknesses, opportunities, and threats (the ever-popular SWOT analysis) can be enlightening. 

Many banks and investors require a written business plan before lending or investing. Furthermore, a carefully thought-out business plan can also help define short- and long-term goals for the business and the methods for measuring the level of success in reaching them. 

What’s more, by carefully examining each aspect of a company at its beginning, one can structure that business to create the maximum level of tax advantage for the owners.

Finally, and just as importantly, your business plan provides a means to measure your business against others in the industry and identify areas of improvement. By including milestones you want to reach, you can maintain accountability to your long-term strategy and keep your company on track. 

#2: Use careful budgeting

If this sounds like a no-brainer, it may surprise you to learn how many businesses are not diligent about budgeting. In fact, a 2018 survey revealed that 61%, or nearly two-thirds, of businesses, did not create an official, documented budget at all that year. 

Although this was most prevalent in businesses with ten or fewer employees, 21% of larger firms still reported operating without a formal budget. 

In almost any imaginable case, skipping the budget is ill-advised. The key to managing most businesses is balancing revenue and cost-effectiveness. Without a clear-eyed understanding of how this balance applies to your business, you are likely to create unnecessary challenges and endanger the organization’s financial health. 

Moreover, without a budget, you have no perspective on your company’s financial decision-making, no ability to measure your performance over time, and no way to ensure your company can meet its financial obligations. 

With a budget, on the other hand, you can reduce your costs, ensure your resources are appropriately allocated, and assess whether or not your company met its goals. 

How do you get started creating a business budget?

The life cycle of a budget breaks down into four phases: 

  • Preparation
  • Approval
  • Execution
  • Evaluation

A good business plan can help prepare your budget. After all, if you’ve already set realistic goals and priorities, it will make it easier to allocate available funds. You should also study industry forecasts and analysis, as well as any financial data or statements your company has generated. 

Use this information to help anticipate revenue and expenses, and break your estimates down by month, quarter, and fiscal year. 

During the execution of your budget, be attentive to whether or not your estimates are accurate and whether you need to make any changes. If revenues are lower than you anticipated, you discover something new about your customer base, or if something unexpected occurs, you may need to make adjustments. 

Think of your budget as a living document, which you can modify as needed.

Evaluate your budget regularly during and after execution, and apply any lessons you learn to your next budget.

#3: Establish internal control procedures

Internal control procedures are there to safeguard the assets of a business. 

Without them, dishonest employees or owners can misappropriate cash, property, or supplies with little effort. But with a few simple rules and systems in place, you can safeguard your business and improve operational efficiency. 

Here are some examples of policies you might consider.

Separation of duties

Small businesses often operate with a small staff. This can lead to the same individual conducting multiple duties. In turn, this can allow that individual to conceal theft very easily. Separating those duties by having different people perform them can assist in detecting the misappropriation of assets. 

Some examples of duties that you should have different people perform include:

  • Receiving, recording, and depositing customer payments. 
  • Sourcing, approving, ordering, and receiving supplies or merchandise. 
  • Inputting, approving for payment, and paying vendor bills and payroll. 
  • Balancing and inputting transactions into bank accounts. 
  • Counting cash and inventory on hand at the beginning and end of the day. 

Suppose your business is not able to hire sufficient staff to properly separate duties such as these. In that case, the increased involvement of owners and management in daily operations can also be effective. 

Mandatory vacations

Often, schemes to steal from a business require the thief to be there in person, manually perpetrating the scheme. A mandatory vacation policy, however, would force the perpetrator to spend time away from work. This may allow you to uncover the system during daily operations. 

To be effective, mandatory vacations should be a minimum of two weeks. During this time, the vacationing employee should have no access to the business or its records. 

Environment of detection

If an employee or owner believes they are unlikely to get away with embezzlement, they are much less likely to choose to embezzle. Creating an environment of detection is the process of alerting all employees and owners that systems are in place to detect embezzlement and theft and that you will prosecute such acts if perpetrated. 

You can accomplish this through training, one-on-one conversations, and establishing a hotline that employees and owners can use to report suspected theft. 

Background checks

Backgrounds checks can do more than just screen prospective employees for criminal history. Many background checks also include credit histories. This can help uncover any financial conditions which might motivate an employee to steal from a business. 

In closing

Guiding an organization to success takes dedication and hard work, and nobody is born with excellent business management skills already ingrained. There are plenty of pitfalls along the way and many potential mistakes.

But with the right information and guidance, you can approach business management with confidence…and lower levels of stress!

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