Don't just sit there -- go to work on your business plan

By Bud Gayhart

Over the years I have reviewed hundreds of business plans and helped owners refine their roadmap for their enterprise. All of those plans have had one thing in common: They did not include plans to address an economy like the one we are facing.

While some of the business plans included financial projections forecasting "most optimistic," "most likely" and "most pessimistic" scenarios, not one plan anticipated current market conditions.

Statistically, we know that about 60 percent of the businesses operating today are doing so without a business plan. They react to daily challenges, navigating troubled waters without a map and sometimes without a compass. The 40 percent of companies that do employ a business plan may well have an advantage if they use the plan as a dynamic instrument, reviewed regularly and updated continuously. For the latter group, it’s time to review your business plan and consider options for this year and next.

Let’s take a look at revenues. Is your enterprise generating the dollars that you had forecast? There are probably a few companies that could answer yes, but most entrepreneurs would indicate their sales numbers are well below the forecasted levels. Are there options for recovering some of those lost sales? That may be possible either as a result of a slowly recovering economy or by proactively seeking sales in new market sectors.

The downturn in the economy exposed the vulnerability of companies that were too narrowly entrenched in certain industries. Some businesses failed because they were overly committed to supplying a single or just a few customers. When those customers reduced their orders, the supplying enterprise found itself in dire straits.

I also observed some businesses that had avoided becoming too committed to a single customer, ensuring that their sales from a single source were never more than 15 percent of total revenues. That’s a great strategy provided the customer base is diversified across several industries. Unfortunately for some of those companies, they were diversified across customers but not across industry sectors, and when a sector collapsed, such as happened with the automotive group, those businesses saw sales drop off dramatically.

As a business owner/manager, it is imperative that you find an effective strategy to spread your business risk across a broad spectrum of industry groups. If you have been heavily concentrated in the automotive industry you need to be searching for opportunities in other fields. I would suggest you look for contacts in aerospace, consumer products, medical equipment, agricultural equipment, marine applications, heavy equipment (off-road applications), mining and other industries that may be less affected by the current economic downturn. There are some markets that are either stable or trending up; find them.

This process takes time and energy but can reap huge benefits. Right now, many business owners have more time than money, and this is an area that could pay big benefits. If this is not your comfort zone, then find the resources you need to implement a search process.

An effective diversification strategy not only addresses the amount of business to be generated from a single customer, it must also ensure that there is sufficient diversity among market sectors to prevent deep declines in revenue when these crazy cycles surface.

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