==== ====For business planning strategies that work, check outhttp://www.business-plan.co.za==== ====How one writes a business plan in recessionary economy works differently. One needs toapproach the business plan from a different perspective. And one must make special efforts toavoid errors that in a good economy one would conveniently get away with.Fortunately, one can do several simple things to write a better, more realistic business plan in arecession:Recession Business Planning Idea #1: De-grandiose-ize the PlanIn a frothy economy, one can find it easy to get over-excited about an opportunity or venture. And,in a sense, thats may be good. Excitement, optimism and confidence can be contagious. If theentrepreneur or management team displays, say, excitement and confidence, those feelings caninfect - in a good way - the perception of customers, vendors, investors, lenders, and employees.In recession, however, probably one wants to be more cautious for a couple of reasons: First ofall, in a sputtering or shrinking economy, one will have more trouble selling. Period. Customersand clients spend less on everything. And this "less cash for purchases" will particularly affect non-essential purchasing.A second factor relates to the "less money for everything" issue: With fewer dollars to spend,customers and clients will logically require more time for and exercise more caution about theirpurchases. In other words, even if some customer does choose ultimately to buy a product, thecustomer may take six months longer to make the decision.Recession Business Planning Idea #2: Focus on Cash Operating ProfitsIn a recession, businesses need to focus their business planning on maximizing cash operatingprofits.This admonition sounds, perhaps, a little too obvious. But to make the point here stand out: Manybusiness plans focus too much on the liquidity event... the transaction that allows the entrepreneurto exit the business at some point in the future with a generous financial windfall.For example, the business plan may focus on doing the things perceived necessary to get to aninitial public offering. Or the business plan may optimize some element of the business that in thepast, large companies have used to value the small companies they buy. Like top-line salesrevenue or customer counts.When the economy is healthy, dreaming about and planning for "liquidity event" issues may make
sense. Focusing on the "liquidity event" issues when major public corporations need governmentbailouts to make it through the next week is dumb.Recession Business Planning Idea #3: Strip Out Geometric Growth RatesCommonly, in business plans, the people forecasting revenue, profits and cash flow use geometricgrowth rates. In a good economy, one can often get away with an assumption of geometricgrowth. Maybe. But geometric growth rates dont make sense in a recession.A geometric growth rate says that some value in the business plan grows by a specified percent.For example, the business plan might assume revenues will grow (almost automatically) by 5% ayear. Or that inflation will trigger annual (dependable) price adjustments of 3% for the foreseeablefuture. Or that customer counts will grow (magically) by 10% a year.Geometric growth rates create exponential growth - and implicitly assume that the business willjust always get better and better.Note: The subprime mortgage meltdown that triggered the current economic crisis stemmed inpart from people using geometric growth rates. Investors, lenders and policy makers assumed thathome prices would continue to almost automatically, dependably, magically increase...The alternative to a geometric growth rate is an arithmetic growth rate. With arithmetic growth, youassume that a value grows by a specific value. For example, a retailer assumes that revenuesgrow by $500,000 each time a new retail location is added.Arithmetic growth assumptions provide two benefits to the business planner. Arithmetic growthremoves exponential growth from the business plan. Arithmetic growth forces the entrepreneur toexplain the details of what drives growth.Recession Business Planning Idea #4: Do Serious Scenario PlanningIn a recession - particularly in a recession that looks to be as bad and deep as the current one -the business planning process needs to include serious scenario planning.Scenario planning means redoing the business plan for some crazy, nearly unimaginable event.Like deflation. Or the collapse of an entire industry. Or commodities prices rising or falling to levelsnot seen in recent history.Scenario planning delivers two benefits: Thinking the unthinkable should give the entrepreneur theopportunity to avoid some kinds of risks. And thinking the unthinkable - if the worst case occurs -should mean the entrepreneur can more quickly respond to a threat.A final comment: Scenario planning should not look only at bad scenarios--though that bias maybe easy in the current economy. Some of the surprises we see in the coming months will beunimaginably good.
Seattle CPA Stephen L. Nelson is the author of the MBAs Guide to Microsoft Excel, a referencefor business users of Microsoft Excel, the Write a Business Plan web site, and the Limited LiabilityIncorporation Explained web site.Article Source:http://EzineArticles.com/?expert=Stephen_Nelson==== ====For business planning strategies that work, check outhttp://www.business-plan.co.za==== ====