People tell me that they don’t plan because they have no money. They ask, ‘Why plan if I have no money?’ I normally respond, ‘How do you know that you need money until you plan?’
People don’t like the challenge of planning before finding money. Too many people think that they need money — to think about money.
So here are 10 ideas for Strategic Planning that can reduce or remove the need for cash.
- Avoid capital intensive Strategic Plans – Forget your plan to start a new low cost airline from New York to Phnom Penh. You can’t even afford one engine! You also can’t start a luxury clothing store there either. Clothing has to be purchased in quantity in different sizes. Inventory of expensive brands is a large investment and requires cash.
- Avoid long term payoff Strategic Plans – You want to find the cure to cancer? You don’t have the time to wait 5 years for drug trials. Do you want to start a new daycare in New York City? It will take a year to update or build and license before it opens. You need to use cash to pay salaries and construction during all that time.
- Avoid low cost goods for resale. It’s very hard to buy low cost clothes from Honduras for resale. Walmart got there first and has the power of a volume purchase. They offer to buy $1 million of cheap clothes with only a 1% profit for the manufacturer. It sounds like a bad deal but it actually returns $10,000 in profit to the clothing company.
You come along next and want to buy $5,000 of the same cheap clothing. If you could get the same terms as Walmart, the clothing company would only receive a profit of $5 dollars from your order. They will laugh you out of San Pedro Sula.
Once you pay $6,000 for the same clothing, you will need to raise sale prices back in Phnom Penh. It’s a desperate game that is hard to win.
- Build a service based Strategic Plan. Why doesn’t Walmart take over nail salons? Nail salon expenses are mostly labor. Nail polish does not cost much nor does advertising. The playing field is more equal. It’s hard for Walmart to make more money than you in labor intensive business.
- Build a materials + labor based Strategic Plan – Since you can’t compete directly with the purchasing power of large companies, add a unique service to the product that you sell. For example, buy cheap clothes in Hionduras and add an identification tag printed with a name and address. The price is no longer comparable to the shirt by itself because you have added a service.
- Avoid a Strategic Plan that has a long cash conversion cycle – Dell Computers was an early company that charged customers as soon as the computer order was made. They had the cash before they made the computer! Contrast that to a specialty clothing store that has a large inventory that sells slowly. The store may be quite profitable but requires cash to buy the clothing and then wait a lengthy period of time for the sale.
- Avoid a Strategic Plan that requires high fixed costs – Renting a storefront in a mall or on a busy street will require cash even in the slow season. It’s better to sell ice cream from a cart than from a store. There is no rent and the cart can be taken to a warmer climate in winter months or stored. Street fairs are popular because there are no rental costs on the days that you choose not to be open.
- Avoid a Strategic Plan in regulated industries – Industries that involve government inspections and licenses take cash and time to learn. The companies that are already in the market have more opportunity. For example, in New York City, there is a great need for the service business of child care. It’s also a business that the City watches closely with inspections, licenses, and regulations. Each of those add to the cost of a service and require cash.
- Consider a Strategic Plan that generates loyalty – Let’s assume that you sell ice cream from a cart. You are always on the same corner and you memorize the name of every child who buys a cone. Children love that attention from adults and loyalty will become part of your business model. No cash required for loyalty
- Consider a Strategic Plan that assumes one time sales – Tourists often pay outrageous sums of money for trinkets to remember a trip. In Florida, you can pour sand into a bottle and sell Florida sand at the airport. Customers will never return to buy more but they really don’t care if you charge $10 for sand. Cash from a few sales pays for a lot of inventory.
And now, I return to my first point. You don’t need any money until you painfully create the Strategic Plan on how to invest and make more money. A plan that is good and usable is not easy to create. It’s going to take several months and need quarterly review after starting.
Some business ideas require less cash. And no business requires cash until you have a good Strategic Plan.
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