Call to rethink business plans

Shaun Maloney of Aranz Geo
Shaun Maloney of Aranz Geo

Business owners are not in the habit of writing works of fiction.

Yet that was what Aranz Geo chief executive Shaun Maloney used to feel he was doing when putting together the company's business plan.

Traditional measures of cash flow and forecasts would be out of date the week after the rapidly growing 3D geological modelling software company wrote them down, he says.

''From a small business perspective they were always seen as something you had to do for the bank,'' Maloney says.

But things would never be static long enough.

''When we did our first three-year plan [the kiwi dollar] was 75 cents to the US. Now we're hovering around 85 cents and we have been higher than that. That's what I mean.

''It's almost the more detail you go into the more a work of fiction they become. I don't give them a lot of credence, to be fair.''I

t's an issue most SMEs struggle with - how to satisfy the needs of their financials-focussed bankers and accountants, while at the same time giving a useful view of where the business is going.

The Canterbury earthquakes jolted Christchurch-based Aranz Geo into action in more ways than one, Maloney says.

''I've always said that did us a favour.''

The huge challenges posed by the quakes - the firm had to shift premises five times - together with its fast-growth trajectory and market conditions in the mining and exploration sector it serves, forced Aranz Geo to take a completely different attitude to business planning, Maloney says.

''A business plan, particularly in our case, is more about what we're going to do, how we're going to do it, what we're not going to do, and the 'what-if'.

''Our business plans are far shorter and more succinct, more around actions than numbers. Whereas before it would be four times that and full of all sorts of numbers and cash flow forecasts.''

The company also does far more homework than it ever did before, and considers $100,000 invested in a feasibility study money well spent even if the result is not entering a market, he says.

Craig Tuffnell, CEO of biological detection startup Veritide, says the key is writing a plan which enables the firm to be flexible and open-minded. Started in 2006, Veritide originally made anthrax detection devices but has since shifted focus to the food safety sector and is developing ways to detect bacteria in meat.

"Because we're a startup we're not even a hundred per cent sure of where we're going,'' Tuffnell says.

''Our philosophy is you've got a long term goal, then you've got short term plan for around a year. But that's just like a direction you're heading and you know full well you're going to veer off that when something better comes along.''

It means being open and upfront with staff and investors. But it also means putting some numbers on the table, because ''when you change plan you've got to show why it's a better plan'', he says.

''We've done a plan change recently where we're looking at a slightly different business model - rather than straight product, as in selling devices, going into consumables.

''The reason is the numbers are completely different - they're way better.''

However the balance between the numbers and the vision can be a delicate one, and it can involve some educating of outside stakeholders, Tuffnell says.

Jo Williamson, co-owner of Christchurch fast food maker Golden Goose Foods, is also sceptical about numbers-heavy business plans. Having a vision of where you're going is important, but producing three and five-year financial projections can feel like a waste of energy, she says.

''It just seems a disproportionate amount of effort and time you put in to planning and what the actual results are going to be.''

The financials in a small business like Golden Goose can vary greatly depending on its supply contracts, and ''you can be talking to a key account for three years before anything happens'', Williamson says.

''It's impractical to say 'right, we're going to have this nailed in six months'.''

Also badly affected by the Canterbury earthquakes, Golden Goose is changing direction by developing a new range of branded hotdogs.

The first Howler Hotdogs are currently being rolled out to supermarkets and other products under the brand are set to follow. Even before the earthquakes the company had identified that its range of generic takeaway standards such as battered sausages, pineapple rings and meat patties had no point of differentiation, and this was a weakness for the firm, Williamsons says.

''We have got a written plan, but I'm probably more in favour of a one-page thing that focuses you on your overall vision... as opposed to a lengthy 20-page document that may sit and gather dust.''

Aranz Geo's Maloney believes there has been a general trend by business owners away from the weighty financial tome, but their advisers still have a tendency to gravitate towards what they feel comfortable with.

''There still is this numbers focus by the more traditional kind of accountant and bank manager approach.

''They haven't yet understood.''