Better to plan than have your dreams shattered

DFN: Jon Stow makes a great point about business plans not just being prepared for bankers, their a vehicle through which we can test on paper whether a business will be successful on not, and thus avoid great losses and disappointment.

Better to have a business plan than have your dreams shattered By Jon Stow © Jon Stow 2009
http://onourbikes.com/2009/10/10/better-to-have-a-business-plan-than-have-your-dreams-shattered/

I was shopping in our village this morning and found the butcher’s shop was closed. There was a notice in the window, presumably put there by the shop landlord, which announced that the shop owners had paid no rent since they started trading last April, six months ago.

I always try to support our local shopkeepers, especially on a Saturday when I always go the village, sometimes with my wife. It is hard-going for many local traders. We are blessed with a very successful hardware shop who seem to sell virtually anything from light bulbs through egg-timers and fire guards to those things you use to unblock toilets. The business has been in the same family for 100 years and they know exactly how to cater for the needs of local people. Recently they have expanded into the shop next door.

We also have a successful baker’s shop. They do a roaring trade in the morning and also make sandwiches for the lunch time trade from local workers from the offices, shops and the factory units we now have down the road. They again cater for a known need.

Until a year ago, the village butcher’s shop was occupied by a local family of butchers, who also own a “farm shop” a couple of miles from the village in which they sell local produce – all the usual things you would expect a butcher to sell, including game. They closed the shop last Autumn because as they told me, the overheads in the village were just too high, and whilst the shop was quite busy they were not making very much money. They had decided to concentrate on the business out of town where they owned the premises on the farm and had more control.

The sad reality is that many people now prefer the one-stop shop available at the two large supermarkets within ten minutes drive and where parking is free. In the village, unless you know where to park, you will have to find 60 pence even for an hour, which of course discourages people for shopping locally even with the high price of fuel used in driving to the supermarket.

The people who took the butcher’s shop last April should have asked themselves why an apparently successful business from down the road could not maintain their village venture profitably. The likelihood is that the rents and business rates prevented the shop from being viable. Such a shop would have to rely on a very high turnover to cover the costs, which frankly they were never going to be able to do in the face of supermarket competition, and of course the farm shop owners who were their predecessors.

It reminded me of the cafe owners in a local town who asked me a couple of years ago to help them make their business profitable. They had a dozen tables, but were paying an annual rent of £17,000 as well as a large amount for utilities given that they were cooking all the time. It was clear that they could never make a profit even if they employed no one else. The figures did not stack up and never could have even before they opened. Rents based on floor area tend to reflect a higher expectation of profit often through a turnover of higher valued items. If you have a cafe you have to have a fantastic following or be really exceptional to stand out in a seaside town with numerous similar offerings. My clients lost the business they should never have started.

The lesson is to always have a business plan. A business plan is not just something we put together for the bank to raise finance. Sometimes we have to look past our romance and our dreams and think whether we really have a shot at making our ideal business work. If we have not done our sums properly and have not thought about
contingencies for our teething problems and things that go wrong, our dreams can become nightmares and our hopes can be wrecked, as well as our financial security. A business plan is not just for the bank manager, but something that has to be carefully thought out, and adhered to. It can be changed as circumstances alter, but always has to make sense, otherwise starting a business will just be a leap in the dark.

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