Small businesses in Australia's most competitive markets are setting a risky precedent when it comes to business planning in key areas of marketing, cashflow and growth, according to a recent survey.
New research, commissioned by Bibby Financial Services , shows that around one in three small businesses in NSW, Victoria and Queensland does not usually plan its growth potential, cashflow or marketing activity, or if it does, then only on an ad hoc basis.
Planning for growth proved the most overlooked aspect of business planning with 44% of the 647 businesses surveyed responding that they do not usually plan or do so only informally. Two in five (39%) forgo regular planning of marketing activity and 32% do not plan cashflow consistently, if at all.
Bibby Financial Services Business Development Manager, Tony Adhore, said the tendency to start off on the wrong foot is the greatest cause for concern.
Growth, marketing and cashflow are vital elements of a new business plan and yet our research shows they are being neglected, he said.
"The first two years in business are critical. It is important to make planning in these areas a priority from the outset, as growth is essential in building solid foundations for the business and healthy cashflow helps fund the marketing efforts needed to deliver this growth".
The research showed that more than one third (36%) of businesses in their first year undertake no planning of marketing activity, or do so, on an ad hoc basis only.
"Too many businesses set out with a very short-sighted view into the future. Of course, it's great to have a customer or two to get things started, but it's not enough to base the entire business on. Early marketing is crucial and doesn't have to cost money to be effective - it just needs some thought. In the early stages it might simply be a word-of-mouth campaign".
Cashflow is another critical area needing planning in the early stages. Nearly half (47%) the businesses surveyed in their first year of operation responded that cashflow planning is not undertaken at all or is done ad hoc. Adhore said businesses that take steps to secure cashflow from the outset are far less vulnerable and more likely to survive the tough times, not to mention more able to increase their marketing activity for growth.
"Businesses that invoice monthly these days need to plan for a three month cashflow cycle. Three months is a long time without funds if you are not adequately prepared."
Debtor finance provided by Bibby Financial Services is a fast growing cashflow solution allowing small businesses access to up to 90% of the value of their receivables as soon as the invoices are raised.
Bibby collects payment from each client's customers and once full payment is received, the remaining 10% (less a small fee) is returned to the client.
Victorian based Kenbrock Flooring Pty Ltd has been working with Bibby for four years. Owner Trevor J Morris enjoys the freedom the relationship gives him to concentrate on business growth and profit, rather than spending time managing cashflow at the micro level.
"Since being with Bibby, we have achieved 100% sales growth thanks to the flexible package offered by them," Mr Morris said.
Morris says planning is an invaluable tool in driving business growth and maximising the return on assets employed.
"We prepare a fresh business plan every 12 months and in the process everything is questioned," he said.
"Because we have a very good grip on what is happening with our business, we can introduce strategic change during the course of a year.
"Planning allows you to look ahead and be pro-active, instead of re-active," he explained.
Morris said business virtually cuts out between 15 December and 15 January, but simply understanding this and planning for it allows you to cope.
"We encourage holidays to be taken during this lean period and we also plan our stock holdings accordingly, which is effectively a form of cash flow planning," he said.
Adhore said the key to good business management is proactivity.
"Planning is vital. Businesses have to be one step ahead of the game all the time."