Why you need a business plan


I have seen too many good businesses failing because of reasons that have nothing to do with their products.

Often, rather than the lack of specific skills is the lack of willingness to fill that gap that kills most entrepreneurs’ dreams.
This happened in Germany circa 2003.

The owner of a food truck was ready to open his first brick and mortar restaurant.

He’d spent every weekend of the past 5 years travelling with his blue van, visiting markets and fairs in northern Germany small towns, serving grilled meat sandwiches and fries to hungry customers

The place was in the Dusseldorf old town. He managed to put together all his savings to cover the costs for the fitting and the deposit. And quit his job

I was working for a retail group at that time and a friend introduced me to this tall enthusiastic gentleman. As we went through the figures on his rather succinct Business Plan it became evident that the numbers didn’t add-up.

An entire business model where sales forecasts is complete guess work and running costs are based on assumptions is a recipe for disaster.

He didn’t like my feedback I felt…

We agreed he would register all the costs, items sold, revenues and perform a stock count before and after each day of trading for the following week.

Unfortunately, that didn’t go well too. Figures showed high wastage and a much lower margin per product that he thought he was running at.

Numbers were inconsistent too, some days the business was running at a lost, other days it was doing fine despite very similar number of customers. That often is the result of not measuring the ingredients when preparing the food to sell therefore using more inventory to produce the same number of finished products.

When those figures were applied to the sales forecasts and we factored in the running costs of the restaurant like rent and bills – significantly higher that the truck- the inconvenient truth was revealed.

The plan was not viable, the business was destined to run out of cash in less than one year

He didn’t like that either… We spend few hours discussing the plan. My advice was taking more time and make a much thorough analysis. He wanted to open and was convinced that hard work and enthusiasm would fix all

The place opened in March and there was a nice ceremony. Lots of people and free burgers, there was also a short article on the local newspaper.

The following weeks were as busy as expected. After all the food was great, there was a charismatic man behind the counter, friendly staff and a nice picturesque location all contributed to the success of the place.

But the lifeblood of a business is not sales. It’s cash! And that was not enough. It was less and less every day!

As the figures initially suggested the business had a problem of cash flow caused by low profitability. The unexpected success made it even worse. The business was facing bankruptcy 8 months after opening.

After few calls we reached an agreement and started working on this nice little burger shop again.

All the figures were reviewed, often arguing for long hours at night. After one week we had a plan that involved:

  • Measuring ingredients when preparing food to sell
  • Performing regular stock takes
  • Taking off the menu products that were not generating any profit
  • Changing the supplier of the drinks
  • Fixing the menu prices

After four months the business started generating cash. One year later the breakeven point was reached.

As of today, the place is still up and running, and creating fantastic burgers

In conclusion...

All the solutions implemented helped the company to reduce waste. Yet no food company can expect to operate on a zero wastage. Therefore, in addition to work towards reducing wastage, food companies must be able to manage the waste

The most valuable tool food companies can use to manage waste is to have a budget. A waste budget.

Usually defined in terms of a percentage of the total inventory value to be measured weekly or monthly. By checking our real wastage figures against the budget, we can spot any problem or trend before it becomes an issue.
Again, the secret is measure it, so it can be managed.

As an entrepreneur you might feel that only certain skills are required. Charisma, enthusiasm and the ability to engage with the customers.

Yet business management skills, a basic grasp of accounting principle are necessary to make sure the business stays afloat.

It’s OK if, at stage 1, some of those skills are not mastered yet. Accept the fact that those skills are important and take the time to learn. Else outsource!

Ultimately; You are responsible and accountable for your business success or failure

When it comes to business knowledge make no excuses

  • Know it. If you don’t:
  • Learn it. If you don’t want to:
  • Outsource

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