The importance of having a business plan has been highlighted with new research showing that over a third of the UK’s 4.8 million small and medium-sized businesses (SMEs) are failing to reach their full profit potential.
Independent research, commissioned by business and finance software provider Exact, shows SMEs that had a business plan in place last year were consistently more profitable (70%) than those that did not (52%). Put into the context of the £2.8 million average annual profit made by the 453 SMEs who took part in the survey, this shortfall equates to a significant amount of extra funds many are potentially missing out on.
The research set out to provide a better understanding of some of the challenges SMEs face in achieving their business goals, with ‘increasing profits’, ‘increasing revenue growth’ and ‘attracting new customers’ cited as the top three goals. The results also showed that those who had a business plan in place were more than twice as successful in achieving these goals than those who did not (achieving a 69% success rate versus 31%).
Despite these compelling statistics, 34% of SMEs said they do not have a business plan in place, with 68% of those saying the reason they didn’t was ‘I don’t see the need to have one’ and a further 10% saying ‘I didn’t know I needed one’.
Lucy Fox, General Manager UK Cloud Solutions for Exact, said: “The findings clearly show there are many SMEs who are missing out on the added value a business plan can offer, the consequence being that many may be failing to reach their full growth and business potential as a result.
“While the results should serve as a bit of a wake-up call, they also highlight that more needs to be done to address some of the misconceptions over what is involved in the planning process. Many don’t seem to realize that with the help of a trusted financial advisor, like an accountant, creating a plan can be done easily and the benefits can be enormous.”
The research revealed that among those who did not have a business plan, many believed it would take up too much of their time to do one (‘I’m too busy’ 23%). Others appeared unaware that there were people available to help them create one, with 8% saying, ‘I don’t have anyone to help me’ and 5% saying they did not do one because, ‘I’m not comfortable with numbers’.
Howard Jackson, Managing Director of FD Solutions, one of the UK’s leading providers of interim and part time Finance Directors, said: “A business plan helps identify long-term objectives; provides a blueprint of how you go about achieving those goals and provides metrics to help with checking your progress on that journey.
“A business plan joins up the dots between sales, HR and finance and provides a holistic analysis of a company as well as its market place. The fact that so many SMEs do not appear to have a plan is worrying, not least in light of the fact that much of the UK economy depends on their success, representing over 99% of all private sector businesses,” added Jackson.
“As the green shoots of recovery grow, there are real opportunities for SMEs to be at the forefront of that trend and to benefit from that growth. Having a business plan in place to address opportunities, as well as some of the challenges, is a great place to start. I would advise any SME to bear in mind the old adage from Benjamin Franklin ‘if you fail to plan, you plan to fail’”.