5 REASONS WHY YOUR SMALL BUSINESS NEEDS A BUSINESS PLAN

1. To map the future

A business plan is not just required to secure funding at the start-up phase, but is a vital aid to help you manage your business more effectively. By committing your thoughts to paper, you can understand your business better and also chart specific courses of action that need to be taken to improve your business. A plan can detail alternative future scenarios and set specific objectives and goals along with the resources required to achieve these goals.

By understanding your business and the market a little better and planning how best to operate within this environment, you will be well placed to ensure your long-term success.

2. To support growth and secure funding

Most businesses face investment decisions during the course of their lifetime. Often, these opportunities cannot be funded by free cash flows alone, and the business must seek external funding. However, despite the fact that the market for funding is highly competitive, all prospective lenders will require access to the company’s recent Income Statements/Profit and Loss Statements, along with an up-to-date business plan. In essence the former helps investors understand the past, whereas the business plan helps give them a window on the future.

When seeking investment in your business, it is important to clearly describe the opportunity, as investors will want to know:

• Why they would be better off investing in your business, rather than leaving money in a bank account or investing in another business?
• What the Unique Selling Proposition (USP) for the business arising from the opportunity is?
• Why people will part with their cash to buy from your business?
• A well-written business plan can help you convey these points to prospective investors, helping them feel confident in you and in the thoroughness with which you have considered future scenarios. The most crucial component for them will be clear evidence of the company’s future ability to generate sufficient cash flows to meet debt obligations, while enabling the business to operate effectively.

3. To develop and communicate a course of action

A business plan helps a company assess future opportunities and commit to a particular course of action. By committing the plan to paper, all other options are effectively marginalized and the company is aligned to focus on key activities. The plan can assign milestones to specific individuals and ultimately help management to monitor progress. Once written, a plan can be disseminated quickly and will also prompt further questions and feedback by the readers helping to ensure a more collaborative plan is produced.

4. To help manage cash flow

Careful management of cash flow is a fundamental requirement for all businesses. The reason is quite simple–many businesses fail, not because they are unprofitable, but because they ultimately become insolvent (i.e., are unable to pay their debts as they fall due). While the break-even point–where total revenue equals total costs–is a highly important figure for start-ups, once a business is up and running profitably, it becomes less important.

Cash flow management then becomes more vital when businesses pursue investment opportunities where there are significant cash out flows, in advance of the cash flows coming in. These opportunities need to be assessed against any seasonal variations in the business and the timing of the flows. If you are a “cash-only” business, you can bank the income immediately; however, if you sell on credit, you receive the cash in the future and hence may need to pay some of your own expenses before that income hits your account. This will put a further strain on the company’s solvency and hence a well structured business plan will help you manage funding requirements in advance.

5. To support a strategic exit

Finally, at some point, the owners of the firm will decide it is time to exit. Considering the likely exit strategy in advance can help inform and direct present day decisions. The aim is to liquidate the investment, so the owner/current investors have the option of cashing out when they want.

Common exit strategies include;

• Initial Public Offering of stock (IPO’s)
• Acquisition by competitors
• Mergers
• Family succession
• Management buy-outs
• Investment decisions can be taken in the present with one eye on the future via a well-thought-out business plan. For example, if the most attractive exit route appeared to be selling to a competitor, present day management and investment decisions could focus on activities that would increase the company’s attractiveness to that competitor.

Given that valuing firms is notoriously difficult and subjective, a well-written plan will clearly highlight the opportunity for the incoming investors, the value of it and increase the likelihood of a successful exit by the current owner.

RENEWABLE ENERGY - CANADA and GERMANY

My wife and I recently drove from Vancouver to Saskatoon to visit friends. Neither of us had travelled through the prairies since the 1970's before we met; my wife by train from Toronto to Vancouver and me by car after crossing the border from North Dakota into Western Saskatchewan to drive back to Vancouver after an extended driving tour in the USA.

We were both amazed at the wide open spaces and the almost unlimited amount of uncluttered landscape which reminded us a great deal of northern Germany where we travelled extensively in 2017. The big difference between the prairies and northern Germany is the lack of renewable energy producing sources on the Canadian prairies. In Germany, we came across huge solar farms and wind farms, kilometer after kilometer. Farm houses, barns and most buildings had solar panels on the roofs. Towns had clusters of wind vanes on high ground near each town.

Saskatchewan grows many crop including canola and wheat that contribute a great deal to the Canadian economy, but much of the countryside we drove through lay fallow or was unused. While I understand the highest wind speeds in Saskatchewan are in the southwest, it seemed the unused land in the rest of this very flat land could be used to create massive solar farms. Given that Saskatchewan is the sunniest province in Canada, in all seasons, and boasting almost 3,000 hours of sunshine a year, building environmentally friendly, clean energy solar farms across the province would seem to be a no brainier.

Upon our return, I did a bit of research on Germany and came across the following information. Germany recently increased its renewable energy goal from 55 to 65 percent by 2030 to compensate for the decommissioning of aging nuclear and coal plants. Germany has been called "the world's first major renewable energy economy." Renewable energy in Germany is mainly based on wind, solar and biomass. Germany had the world's largest photovoltaic installed capacity until 2014, and as of 2016, it is third with 40 GW. It is also the world's third country by installed wind power capacity, at 50 GW, and second for offshore wind, with over 4 GW.

In Germany, the share of renewable electricity rose from just 3.4% of gross electricity consumption in 1990 to exceed 10% by 2005, 20% by 2011 and 30% by 2015, reaching 36.2% of consumption by year end 2017. As with most countries, the transition to renewable energy in the transport and heating and cooling sectors has been considerably slower.

Now however, more than 23,000 wind turbines and 1.4 million solar PV systems are distributed all over the country. According to official figures, around 370,000 people were employed in the renewable energy sector in 2010, particularly in small and medium-sized companies. This is an increase of around 8% compared to 2009 (around 339,500 jobs), and well over twice the number of jobs in 2004 (160,500). About two-thirds of these jobs are attributed to the Renewable Energy Sources Act.

Germany's federal government is working to increase renewable energy commercialization, with a particular focus on offshore wind farms. A major challenge is the development of sufficient network capacities for transmitting the power generated in the North Sea to the large industrial consumers in southern parts of the country. Germany's energy transition, the Energiewende, designates a significant change in energy policy from 2011. The term encompasses a reorientation of policy from demand to supply and a shift from centralized to distributed generation (for example, producing heat and power in very small cogeneration units), which should replace overproduction and avoidable energy consumption with energy-saving measures and increased efficiency.

Compare these statistics to Canada's record. In the electricity sector, hydroelectricity is the largest renewable energy source in Canada, accounting for approximately 60 percent of Canada's electricity generation. Other non-hydro renewable energy sources, such as biomass, wind, tidal and solar, contribute 3 percent, compared to Germany's 36% at the end of 2017.

The big issue with hydroelectricity is its impact on the environment due to the enormous amounts of concrete required. A major component of concrete is cement; the cement industry is one of the primary producers of carbon dioxide, a potent greenhouse gas. Concrete causes damage to the most fertile layer of the earth, the topsoil.

Solar energy systems have some certain negative impacts on the environment just like any other energy system, but solar energy is a lot cleaner when compared with conventional energy sources. Solar energy systems have many advantages such as being cheaper and not producing any pollutants during operation and, being almost an infinite energy source when compared with fossil fuels.
On a closing note, a common myth is that solar panels do not work during winter, but on the contrary, cold temperature will typically improve solar panel output. The white snow can also reflect light and help improve PV performance. Winter will only hurt solar production if the panels are covered with snow, a problem easily solved.

Saskatchewan, if not Canada could be a leader in this field climate and geography.