Build Your Financial Plan First
© 2004 Door & Access Systems
Publish Date: Fall 2004
Author: Bruce McConnell
Build Your Financial Plan First
By Bruce McConnell
An important and critical element of any door dealer’s business plan is the financial portion.
The First Step
The financial plan, or projection, should be your first step. Done properly, the financial plan will provide the foundation for building the rest of your business plan.
After all, the purpose of a business plan is to establish the objectives and strategies that will make your business grow and/or be more profitable. By doing the financial portion first, you can set objectives that are more realistic and verify that the needed resources are in place.
It’s Not That Hard
Many door dealers omit the planning from their operations because of the perceived complexities involved. Resistance is also fueled by the time requirements and lack of needed skills. Having a simple financial portion of the business plan in place, however, is an excellent compromise between being overwhelmed and not having a plan at all.
Perhaps the biggest reason why many resist is the misconception that your business plan must be a fully documented and detailed overview of your entire business. On the contrary, your plan should be in a format that meets your needs. Your plan is for you and not Wall Street investors.
Developing the financial plan is easier than you think. Although the numbers used need to be supported and easily explained, this justification doesn’t need to be overly extensive to validate them adequately.
A plan carries many benefits. The most important is the plan’s ability to improve communication and teamwork within your company. This starts during the development stage when you discuss the assumptions and objectives with your key employees. Including others will greatly improve your confidence in the assumptions as well as increase the employee accountability needed to meet your objectives.
The plan also forces you to use your financial data more effectively. Taking the time to interpret and understand your Balance Sheet and Income Statement is key to developing a financial plan. It’s also a great way to learn how to use your financial data.
The Basic Components
The financial projection typically contains two parts: the Profit & Loss and the Cash Flow. The Profit & Loss portion projects your operating and net profitability. The Cash Flow portion reflects your cash position throughout the same operating period.
A quick glance at the final plan should provide a reasonable vision of how you feel financial results will look. The numbers should make sense to you and provide a summary of both the profit and cash flow expected by month and for the year. All of this information should be in a format that can be easily shared with employees, lenders, and even suppliers.
Timing Is Everything
Make sure you have adequate time to research, confer, and develop the assumptions and objectives in your plan. Delegate some of the research; this saves you time and it involves others in the process. Good plans take time and require input from several individuals.
It’s a good idea to have your plan wrapped up before the next year begins. For many, this is difficult, especially since it is often the busiest time of year. However, a lot of dealers start early by putting the main assumptions and objectives into draft form. The plan is then finalized when the current year’s final numbers are available.
The best time to finalize your annual plan is during the review of your prior year’s financial results. The knowledge gained from this analysis will help you make sure that the future objectives are reasonable. More importantly, it ensures that the necessary corrective actions have been included. Planning is much easier to do while your problem-solving efforts and creative juices are still flowing.
No matter how good your plan is, you still can’t predict the future. You can, however, use your financial plan to look forward and prepare yourself well in advance of its arrival. How does your future look?
Bruce McConnell is president of McConnell & Associates of Dixon, Ill. He has counseled hundreds of door dealers on issues related to financial analysis and planning. He is available at 815-288-3556 or at firstname.lastname@example.org.