Invest in a Small Business Plan

Starting your own small business isn’t easy and, rapid growth and changes to demand can also make it difficult. One of the most common reasons why new small businesses fail is that there was no realistic or workable business plan.

The same applies to investing, whether in property or the stock market. It should be recognised that serious investing is really a business, although most people do not realise it. This is why the common experience is that a large number of investors may fail, or in some way fall short of their expectations.

Harking back to starting a small business, if the founder of the business needs to borrow money to get started, he or she is likely to be asked for a business plan by the bank or other financier. This is because banks know that without a business plan the business they will be financing will struggle.

Strangely, if we want to borrow to invest, this question will not be asked very often, because there is usually security for the bank in the assets being purchased with the mortgage or margin loan. However, it would be better for the investor if a business plan was required.

Having a good business plan is one of the key considerations to starting a successful business and, so to is structuring your business loan, term loans, cash-flow finance or hire purchase in a way that matches your unique business needs.

There are many ways an investment plan might be structured. However, a simple way is to set it out in three sections:

1. Clear Objective: State the objective for the investment. This should be, as a minimum, a rate of return that can be measured objectively, not simply a vague statement of intent, like making as much money as possible. Most importantly, the objective should be realistic and achievable.

2. Game Plan: Set out the strategies that will be used to achieve the target rate of return. Again, these should be detailed, rather than just vague ideas. The strategies should ideally be proven through testing or modelling.

3. Tactics: For each of these strategies, delineate specific tactics. This is a vital aspect of the plan. If it has been done properly, all of the decisions that must be made during the investment cycle will be laid out, before the investor becomes emotionally involved in the process. So, when faced with a difficult decision, reference to the tactics section of the plan will provide an answer that was laid down calmly.

Having devised a plan, the other ingredient in the process is to measure progress against the objective, so that the plan may be revisited and revised in the light of experience in the investing process, if necessary.

Your business needs will change with time and the best way to know what is and isn’t working for your business is to measure your progress and results against the objective you had outlined in your plan. At a glance you are now able to identify any items that are no longer aligned with your business needs, once these are identified you may need to change your plan to ensure maximum results.

Colin Nicholson -The Psychology of Investing