HOW TO EVALUATE YOUR COMPANY
In Order to Write a Business Plan
by Joelle Steele
How are you doing? I mean, how is your business really doing these days? Are things running smoothly? Are you making a decent living from it? Are you doing better or worse than you did last year? Do you think you'll be doing any better next year? The year after that? Where is your business going? Where do you want to take it?
These are only a few of the many questions for which you, as a small business executive, need answers in order to create a new business plan, (or revise an existing one), that will help you execute daily management decisions, make plans for your immediate future, project and form long-term business strategies, secure financing, expand by diversification or acquisition, or possibly sell your business.
Once your company has been in operation for even a short time, creating and revising your business plan is a periodic practice which necessitates the in-depth evaluation of all your business activities. This isn't a matter of just casually recalling that your company did $50,000, $100,000, or even $500,000 in gross sales last year and predicting that you will do a little better next year. A good salesperson can create phenomenal numbers in gross sales, but this rarely reflects how a company is really doing, and it is not anything on which to build a realistic, usable business plan. To write a business plan, you have to look at a lot more than just your latest sales figures.
But, this article is not about how to write a business plan. It is about how to accurately and objectively evaluate your company so that you will have all the information necessary to create such a plan or revise your existing one.
THE EVALUATION PROCESS
If you hired a consultant to evaluate and assess your company, she would ask you a lot of questions about you and about your business — your goals for each, to be specific. She would ask to see copies of all your financial reports. She would want to observe your work patterns. She would probably like to watch some of your key personnel at work as well. She would likely tour your office, your warehouse, your greenhouse, or whatever else you might have. She would look at your vehicles and equipment and might even visit some of your service accounts. In short, she would leave no stone unturned in the process of evaluating your company. When you do such an assessment yourself, you should be just as thorough.
Before you can evaluate your business as it now stands, you need to put it into perspective so that you can maintain objectivity when you make your assessment. In other words, you need to look at what it is that you as an individual are ultimately trying to achieve in your life in order to determine whether or not you are even headed in a direction that will allow you to achieve your personal goals at some point in the future. It is interesting to note, that in my almost twenty years of consulting, I have found that the vast majority of small business owners lack clear goals and objectives for themselves. This results in them having somewhat unfocused goals for their businesses as well. When that happens, there are almost always conflicting directions within the company that ultimately result in stagnation, when growth is what is really desired.
ESTABLISHING YOUR BUSINESS GOALS
Remember, that what you want for yourself is the basis for all of your business goals. To determine what it is that you are trying to achieve, ask yourself the following kinds of personal questions:
- What kind of a lifestyle do I want? This means looking at not only yourself, but at your family and your community as well. If you have kids or are planning a family, you may need to look towards their college educations. If you want to own a house in a better neighborhood, you need to consider that. If you long for a fancy car and expensive clothes, consider that information too. If you want time to take long, leisurely vacations, consider that need.
- How much money do I need to maintain my desired lifestyle? This varies from one geographical location to another and will also be entirely dependent on what you want as a lifestyle. The important thing is to be as accurate as possible in setting a monetary value on your lifestyle. Don't leave anything out and try to allow for increases in costs over periods of five years or more. And, don't forget that you need to remember Uncle Sam's cut in your earnings!
- What am I willing to do to achieve that lifestyle? This could be anything from returning to college, to relocating, to borrowing money from family members or a financial institution. It could mean waiting for five or even ten years until your company grows to a point that you can make the kind of money you need. It could also mean working extra long hours, doing either a lot more manual labor or a lot more clerical work than you would ordinarily like to, and spending far less time with your family and friends than you would under other circumstances.
- Am I in the kind of business that will allow me to achieve that lifestyle? Sometimes we start out doing one thing and find out that it doesn't suit us very well. It is important to know whether you are doing what is right for you in the long run. Doing something that will not allow you to achieve your desired lifestyle will only make you miserable and you will pass on your unhappiness and dissatisfaction to others at home and in the workplace. Be honest with yourself.
- Is my business capable of maintaining me in the lifestyle I want? If it isn't already doing so, don't despair. It usually just means that you need to make some adjustments to make it work to your advantage. Also, nothing ever happens "overnight." If you've only been in business for a couple of years, your business is still in its infancy. Be realistic. If the potential is there, work hard, work smart, and give it some time.
- What form do I want my business to take? This refers to the company itself and how it is structured and run. If you want it to be a family business you will need to find out how your family feels about becoming involved in the venture. You might even envision a highly diversified business that has a retail garden center, a floral service, or any number of related horticultural activities. The geographical territory serviced should be included here, as should be the legal structure — sole proprietorship, partnership, corporation, etc.
Once you have evaluated your personal goals, you can set about evaluating and assessing your business skills and abilities to determine your role in the company, and whether you are capable of achieving your goals immediately or if you need to make some changes. You need to know your strengths as well as your weaknesses in order to do this. Try asking yourself the following questions, keeping in mind your answers to the previous set of questions as you do so:
- How do you envision yourself in a business setting? Some people see themselves as executives, firmly enthroned in wood-paneled offices behind huge, antique mahogany desks. Others see themselves as artsy designers, hob-nobbing with the rich and famous, creating horticultural masterpieces for others to admire in awe. Some see themselves as doing a little of everything, keeping close tabs on their little empires. They may see themselves as knowing all their many employees by name, never losing touch, always being a "hands-on" kind of owner. If you fantasize about seeing yourself as a rich executive taking the company jet for a spin, be sure to come down for a landing long enough to finish this set of questions.
- What are your qualifications for owning a business? Having a green thumb is fine during the early stages when it's just you and a couple thousand plants. But, as your business grows and you have to start hiring people, your role will expand. In fact, your role will always be expanding no matter how long you are in business. You will always need new and different skills above and beyond your horticultural ability just to keep up with changing trends in your industry. You need to know exactly what skills you have right now so that you can determine which ones you will need to acquire for the future benefit of your business. It's not enough to envision yourself as an executive if you lack the skills to do the job.
- How well do you handle people? Business is primarily about people, not things. If you are great with plants, but fall apart when put in relationships which require tact and diplomacy or disciplinary action to resolve them, you may face some difficulties along the way. If you find it hard to teach or train people, or if your find it impossible to "let go" and delegate authority and responsibility to your employees, you may also find yourself burning out early on. Learning how to handle people takes practice. A lack of people skills may be a signal for you to slow down, hire people gradually, and focus your attentions on learning how to interact in business relationships and situations.
- How hard are you willing to work for a living? Owning your own business is not like working for someone else, especially during the first few years when you are building a client base while you wear all the hats. A ten or twelve hour work day and a six or seven day work week are more or less "normal" under the circumstances. Anything less and your business may not make it. Anything more and you may not survive. It's a big demand either way, and one which can take its toll on both you and your family.
- What is your greatest strength? Your greatest weakness? If you are a born salesperson, you should have no trouble getting business. But, if you are also only a mediocre horticulturist, you may have difficulty keeping your accounts. If you are the greatest, most innovative designer ever born, you may create award winning projects. But, if you are also incapable of working a calculator, you may not make any money on those magnificent jobs. Knowing your strengths will allow you to use them to full advantage. Knowing your weaknesses will give you an opportunity to improve on them or delegate those tasks to someone else.
EVALUATING YOUR EXISTING BUSINESS
Now that you know yourself a little better, you can begin to evaluate your operation, as it exists today, in light of all the information you have accumulated from the last two sets of questions. Again, when you answer the following questions, keep in mind what you have already learned and see if you are doing what you need to do in order to achieve your goals. To answer these questions you should refer to any and all reports and records at your disposal.
- Do you want your company to grow, and if so, is it growing? Lack of growth is not a problem if you are not trying to grow. Slow growth can sometimes be preferable to rapid growth and is often more profitable in the long run. If you are growing, you should assess whether this was planned growth or random growth, (i.e., it just happened without you doing anything in particular to make it happen). You should also examine the way(s) in which you are growing — through new geographical territories, with larger projects, by diversification, through acquisition(s), etc. Knowing how and where you grew will enable you to continue your efforts in that same direction.
- Are you making a profit each year, even if it's only a very small one? New companies are often in debt from start-up costs, but if you have been in business for three years or more and still show no profit, this should be a warning signal that something is very wrong. Be sure that when you examine your profit/loss status, that you remember to include your draw as an expense of running the business. Anything made above all the expenses is your profit.
- Do you have high turnover in employees, high turnover in clients, high plant losses, or a combination of any of the three? High turnover in either employees or clients, and high plant losses are the most revealing problem indicators any horticultural service business can have. High turnover in either clients or employees is indicative of people problems, and it inhibits productive and financial growth. High plant losses are indicative of operational errors (probably in training, installation, or purchasing) in need of immediate attention.
- Are you keeping up with industry trends? Some companies manage to stay in business without relying on the latest technology, however, most barely get by in this manner. If you have high aspirations for big profits, you should be considering computerization along with the use of pressurized watering devices and subirrigation systems.
- Do you have a solid training program in place or, if you haven't yet hired your first employee, have you designed such a training program? It is easy to forget about training since hiring that first employee is an event that sometimes sneaks up on you quite suddenly. Even if you forget about it at first, employee training (and management) is the single most important aspect of running a service-based business. Inadequately trained personnel are extremely costly to any company.
- Are you actively motivating your employees by providing them with a wide variety of incentives to produce and perform to their optimum abilities? Again, employees are the backbone of a service business. If yours are undermotivated or unmotivated, they will not be assets to your company and will inevitably be the source of your greatest financial losses in terms of excessive turnover and all the so-called "hidden costs" which result from frequent changes in personnel.
- What is the general profile of your service accounts? In addition to their overall appearance, you should also evaluate their individual profitability. Look at the last time you raised rates. Look at the plant losses on an account by account basis to determine whether your losses may be the result of one certain technician or just a few isolated "problem" accounts. Assess the market your serve. If you service only a small, elite residential clientele, you may need to focus on the commercial market if you are seeking high profitability and diversification within your company. If you have a lot of thirty-minute stops spread out over a wide area, you may need to re-route or concentrate more sales efforts in the area to fill-in the distance. Or, you may need to reconsider whether you want to be in that area at all.
WRITING A BUSINESS PLAN
You can probably think of other questions to ask yourself as well. The ones I just listed are very general in nature, but they should set you on the right path. And, once you have all the information you need, you can set about writing (or rewriting) your business plan.
Your business plan can take whatever form you want it to. These are highly individualized documents which contain whatever you think is most important. A statement of your goals and intentions is good, along with a list of changes or programs you want to implement in order to achieve them, projections for what those changes might do to your business financially in terms of both costs and profits, and maybe some time tables which show how you plan to conduct your business over periods of one, three, five, or even ten years, always bearing in mind, of course, that you will be updating the plan annually during those times.
This article last updated: 07/21/2000.