Kiwibank's Andy Bray explains why business plans are not just for big corporates and how they can make your business valuable

Kiwibank's Andy Bray explains why business plans are not just for big corporates and how they can make your business valuable

By Bernard Hickey

Smaller business owners often don't have a lot of time for and sometimes don't see the need for business planning.

It often sounds like something only big corporates can and should do.

But I recently had a chat with Kiwibank's Regional Manager for Business and Markets, Andy Bray, and he explained why doing regular business reports and plans can help small to medium business owners too.

Regularly updated accounts and a robust business plan are not just useful as a way to keep a business' bank happy, Bray points out.

They help focus a business on the things that matter and can help uncover issues around funding growth, succession planning and ultimately, whether the business can be sold.

"Sometimes information a bank is looking for is the same information a buyer is looking for," Bray pointed out.

A bank will begin its conversation with a business owner by looking at the historic accounts, in particular what's happening with sales, margins and costs.

That will then lead into a discussion about profit and profitability.

"You can be making money, but are you making enough money for the time and energy and blood, sweat and tears and capital that has gone into it?," he asks.

The conversation can often then venture into the areas of what the owners is in the business for. Is it about lifestyle? Was it inherited? Is it because the owner has the tech skills to run the business?

Kiwibank would point the business owner towards a good accounting package that extracts information on a day to day basis and makes it easier to plan ahead.

Teaming up with an accountant can also provide a business owner with good advice.

One particular issue to watch is whether the business has been muddled up with the owners' personal interests and whether this has created a muddled balance sheet.

The fact many small businesses fund their operations through the mortgage on their house is often a factor to watch.

"The nature of small business New Zealand is that the owners personal affairs and assets and those of the business are quite often intertwined. It's important that the bank gets their head around that," Bray said. "The way the world operates here that's a very functional and cheap way for a business to operate," he said.

Planning?

Bray said it's then very useful to look at a business' plan.

"The historical accounts are good to know and the trends are very interesting, but really what matters is what's going on since and what's the next two years look like. Is there actually a plan? A number of small businesses don't actually have a robust business plan," he said.

Bray said it should include a look ahead at the competitive landscape and any growth aspirations.

"Growth is a good thing, but it is a thing that can put a heck of a lot of pressure on cashflow if it's not thought through and planned for," he said.

Entries and exits?

Bray said succession planning was often one area that's not thought through.

It often forces the owner to ask themselves why they're in the business and what should or could happen next.

An owner may have assumptions about the business' value that is different from potential buyers, or have views about family succession that may not tally with reality.

"Succession planning is really, really important. If you're going to sell it then having robust accounts separate from your personal affairs," he said, pointing to another reason why robust sets of accounts and business plans are useful for business owners.

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