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Planning a shakeup – How to plan for big changes in your business

February 13, 2018

Planning for change at your businessThe only thing you can be certain of in business is that things will change. This might be a slow change or a sudden sharp one, but either way, it’s important to prepare for the future.

These changes are a lot easier to predict if you are the instigator of the change. You may decide to take on a partner, move location, change the way you sell, change what you sell, or even sell the business itself.

In each of these cases, there are financial ramifications to your decisions – and you should plan ahead accordingly. In fact, making a financial forecast to see the effects of your actions should be part of the decision making process for anything that could affect your business.

The best way to prepare is to have a financial model of your business – a forecast that you can change and test to simulate different scenarios.

Let’s look at a few of these shake-ups in detail, and consider how to plan for them.

Changing business structure

Changing the internal structure of your business may be as simple as becoming VAT registered or moving from being a sole trader to the owner of a limited business. These changes can incur some fees but the costs tend to be minimal. The financial advice about what you should do is another matter however.

But this isn’t the only type of change to business structure you could be considering. Changing roles within the business, gaining partners, investors and other stakeholders all have major financial ramifications.

First, consider each change you are making in isolation, then determine if it has knock-on effects on other parts of the business.

For example, getting investment from an outside source will give a certain amount of cash, perhaps on a recurring basis. But this cash comes with obligations. It may be that these are small as providing regular reports to the investor, or access to financial dashboards.

The hours you spend preparing reports or the cost of adding another user to your financial systems may seem negligible and probably won’t change your decision to agree to the investment, but small changes like this should not be ignored.

Alternatively, your agreement with your investor may also grant them shares in the company, and any dividends associated with these shares.

Once you have determined the impact of changing the structure of the business in isolation, you should apply these changes to your financial plan and see how they affect not just your bottom line figures, but other elements of your business which may not have a direct financial representation.

Are you or one of your colleagues now going to have a rush of reports and paperwork to complete at the end of each month? Do you need to purchase better analytic tools to provide an investor with the information you have agreed on?

Good buyers want to know everything

Often selling a business and selling part of a business to an investor (in the form of shares) carries some of the same requirements. But if you are selling the entire business there is a lot more risk that a potential buyer takes on than if they just invest in your company.

Potential buyers demand a lot of information about the companies they buy – and justifiably so. Nobody wants to end up buying something for more than it’s worth, or being surprised by hidden problems.

This means that both on the buyer’s side and your side as the seller there will be administrative costs to selling your business. Due diligence checks will need to be performed on the business’ history, it accounts need to be examined, financial forecasts drawn up and the legal technicalities of the sale ironed out.

Unless you are a lawyer who moonlights as an accountant, it’s in your best interests to hire external professionals to help you go through the sales process. But professional help comes at a cost – one you must build into your own forecasts as part of your preparations for selling the business.

A protracted sale could go on for 6 months or longer while details are investigated, prices negotiated, and due diligence checks performed. And at this point – you still own the business! Can you afford for the process to go on so long, while you continue to run the business?

Moving location

Most businesses move location for one of two reasons – either because the new place is cheaper, or the new place is bigger/better. In both cases, you’ll be keen to both keep your new costs as low as they can be, but also ensure that the new location is outfitted correctly for your business.

Here are a few more things you should consider the costs of when moving location:

1. Transport

You’re going to be moving your entire business from one place to another. Even for those businesses that try to keep themselves as digital as possible, rest assured there will still be paperwork to be moved, not to mention cables, potted plants, kettles, emergency kits… and that’s just as the small scale. Moving larger or industrial equipment may require specialist transport.

2. Insurance

Getting insurance for your new location is absolutely necessary – but also if you are transporting very expensive items ensure they their insurance covers them against damage when in transit and being installed.

3. Installation

You may need to hire in specialists to install items, fixtures and fittings in your new location.

4. Phone & internet, light and heating

It’s basic, but nothing can be more troublesome than the basics not working.

5. Provision for employees

Be it parking spaces, ease of access to shops or additional commuting distance, it’s likely that there will be changes involved when moving location. While you may take the attitude that it’s up to your employees to deal with these issues themselves, bear in mind that these peripheral aspects of work life will affect them.

Changing the way you sell

Here’s one I’m intimately familiar with. Changing the way you sell your products or services will come with a whole raft of costs (and hopefully benefits) you didn’t know existed.

Obviously, it’s critical to carefully research the costs you could incur, and also plan your anticipated sales realistically – but both of these are easier said than done!

The cost of attracting customers

If you are moving to a new way of selling – for example from sales calls to selling online, then getting your new sales system up and running is less than half the battle.

The major task ahead will be learning how to attract leads and convert them into sales in this new sales environment, where the rules of what works are going to be vastly different from what you are used to.

So how can you plan for this? The first step is researching businesses similar to yours and finding out what methods they are using to attract customers. Once you have judged how suitable these could be for your business, you can start to consider the costs associated with each method.

Make a list of every cost associated with the new method of selling, how often you’ll have to pay it and which costs increase depending on your volume of sales. Once the list is complete you’ll have a good idea of the regular costs you will be paying, and how these will adjust depending on how much you sell.

When moving into a new method of selling it’s a good idea to start out small and gather some data of your own as well to see what works and what definitely doesn’t work for your company.

Seeking professional advice is expensive but often worth it if you yourself don’t have expert knowledge of the new sales methods you are adopting.

Predicting revenue in a new sales environment

It’s easy to glibly say, “…and then plan your sales forecast”. But actually doing this, especially for the first time, isn’t an obvious process. How do you predict something when it’s entirely new?

When you are changing the way you sell, you have a lot in common with a startup – you just don’t know how well your products and services are going to sell in your new sales environment.

But unlike a startup, an existing business does have some data to base its assumptions on – existing customers and sales methods. You know the kind of customers you attract, the qualities they share and hopefully what kind of marketing appeals to them.

You also know the level of uptake that your current set of products or services have, so you can use this knowledge to estimate;

  • The number of potential customers available to you via your new sales method.
  • How many of them you can reach with your new marketing methods.
  • What percentage will show interest in your product/service? These are your leads.
  • And finally, what percentage of your leads will buy.

If you don’t already have some data of your own to go on then look to businesses similar to your, or the standard conversion rates for your industry.

This won’t give you a perfect sales forecast (there’s no such thing) but it will give you a starting point. Consider at least three different forecasts, one with expected sales performance and at least one with below average sales.

While you need to be able to deliver on your expected sales performance forecast, definitely be prepared for a sustained period of low sales while you discover how to sell effectively in your new environment.

About the author

This article has been written exclusively for ByteStart by Robin Booth of Brixx.com the financial forecasting app that turns your ideas into numbers. Robin is a regular ByteStart contributor, and other articles he’s written to help business owners to get to grips with forecasting include;

Business planning – Further Resources

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