So it’s hard enough to put the budget together for next year let alone five years. But that misses the point. Whereas your budget is a very real target for your business (and if you have investors something you will likely be measured against), a five year plan is a higher level vision of where the company is going.
It may end up being very wrong, but it is still an important part of running your business – why?
1. It brings all the stakeholders on board with the scale of the vision
It’s important that all your stakeholders – management, employees, customers, partners, suppliers, investors, directors – share the same vision. If your five year vision is to be a big player in the UK, with sales of £10m and your stakeholders want to work with a company with a global visions and £100m in sales, something, somewhere is going to breakdown. You all need to share in the expectation of what the company can achieve, given the products and market opportunity, and make sure you are all prepared for what lies ahead.
2. It enables you to plan your resources
So if you are going to reach your 5 year objectives what do you need to deliver them? You may find that some things need a little more planning in advance e.g. strengthening your board with additional expertise, hiring some senior employees, expanding your production capacity or securing a new site or planning permission. So think and plan ahead, give yourself time.
3. It gives you time to work out how to fund it
So your ambition is to grow. If it is primarily organic growth it is likely to require investment of some type in working capital or physical assets. Or it could be via an acquisition, which is increasingly an option for small business owners. In either case, unless the business is very cash generative it is likely you will need some form of external funding.
This could be debt finance such as a mortgage, invoice finance facility or stocking loan. Or for a bigger project or acquisition you may need to look at equity finance, from a new investor, or venture capital trust. Whatever it might be, all funding takes time to put in place, so the sooner you can start preparing the better.
4. You can build knowledge to make sure you get the big decisions right
So perhaps you plan to expand internationally as part of your five year plan? If so, the sooner you start to invest the effort to understand the market, the better. What is the best entry option – go alone or with partner? Do you need a local presence? Do you need to localise your product or service, if so does that impact your product development roadmap? Doing the research upfront can help you make the right decision, so that when you do start to invest significant amounts of money, you are investing it in the right way.
5. And perhaps most importantly… It makes you think about your own personal goals
How do your own personal goals fit into this 5 year plan? How long do you want to remain owning the business and what is your plan for your eventual exit? There are lots of options now for business owners to pass on the business, from a trade sale, to a management buyout, which is discussed later in this newsletter, or there is a partial or full sale to a private equity player. This is not something that should be planned in haste, as one of our clients said recently, “you only get one chance to sell the family business”. So take time to plan, and do the thinking in advance.
So have we convinced you? You may feel you don’t have the time, but investing now will help you deliver on your longer term goals. Having worked with many businesses and assisted them in developing their plans, we can assure you… it will be time well spent!
This post was produced by Stephen Reed from the Strategic Corporate Finance team. If you would like to find out more about how we could help your business contact Stephen at firstname.lastname@example.org.