Introduction to business planning for transport & logistics businesses
Planning your success
The Transport and Logistics industry is a well-oiled business model with an array of direct competitors and similar businesses. It doesn’t take much for the business model of a Transport Business to change from a profitable business to a business at financial risk.
I recall at the age of 14 years, I would cycle home from school and on the way I would stop at my father’s office. I would sit in the waiting room and overhear the complaints of the odd employee that might be waiting as well to have a meeting with my Dad. They would say things like “he doesn’t know what it’s like to do this run”, “no-one can complete that many stops in a day”, “I bet he’s never done it himself”, and other comments.
Feeling somewhat concerned that my father was being seen in bad light by some employees, I asked my father when I got into see him as he was sitting at his desk, what his view was about the comments that I had overheard. He commented that he understood the frustration of some and felt that a few employees simply wanted an easier job. I inquired as to whether he had actually been on any of the delivery runs himself?
He replied “well son, every delivery run has been designed and completed multiple times by me first. I trial which route is the safest and quickest, I use a stop-watch to time how long each drop-off will take, I time how long it takes to collect the product at the start of the run and how long to return to the depot at the end of the run, then I add an additional 10% of time for things like traffic and other hold-ups. The reason why I design each delivery run this way is that I would never ask someone to do something that I haven’t or couldn’t do. I also need to be sure that each delivery run can be completed in a time that is profitable or at least sustainable, otherwise the business would lose money and no-one would have a job”.
At the time I felt that I had a complete business modeling lesson delivered in just a few sentences, coming away with a better understanding that it was important to make sure each run was profitable and further the run was achievable, otherwise the 50 odd employees would end up collecting the unemployment benefit.
There are many more elements to consider in a transporting business other than the explanation I was given at when I was a teenager, with fine tuning and accuracy being at the forefront of business sustainability.
The planning of vehicle maintenance and replacement, vehicle incidents and accidents, possible fuel cost increases, employee compliance or availability, roading disruptions, the weather, tracking of vehicles and product, accounting processes, timing of deliveries, efficient utilization of transportation, administration systems, storage facilities, and other elements.
Any disruption to the expected cost of operation must be able to be covered by the charge rate per unit otherwise the business may become ‘at risk’.
Every Transportation and Logistics business should have a Business Plan as a guide to what the business model is, what business risks might arise, and how to reduce the risk at its onset as profit margins can be quite tight with Transportation and Logistics businesses, and unplanned emerging costs need to managed before any financial damage starts to impact on the business.
If the business had a Business Plan with a strategy of what the business is designed to achieve, management could reflect on the plan when balancing customer demand with the current environmental conditions. A Business Plan will highlight the risks that might impact on the business and how to reduce such risks, providing good guidance of the owner’s expectations for those managing the business.
As with any other business, one of the most important things a Transporting and Logistics Business should have is a Business Plan. If a business is operating without a Business Plan, it may well be ‘at Risk’ of having to cross some significant hurdles in its endeavor to remain sustainable.
The importance of planning
Starting or continuing with a manufacturing business carries a level of excitement balanced with an amount of risk as there is always an element of the unknown with how the cost of manufacture might change, does the consumer market still want what is on offer, and can the consumer market still afford to purchase the product.
The business owner feels passionate and enthusiastic about what they might achieve when embarking on the adventure of manufacturing their creations with the desire to transform their business ideas into products to gain profitable and successful outcomes.
Being aware of overhead variations and market trends that may influence demand for the product being manufactured may reduce the risk of the business manufacturing a product that is not in as much in demand by the market than previously. Attempting to battle through the changes without considering any variation to the process or cost factors may have consequences that are not favourable for the business.
Continuing to do the same without consideration to changes that may be occurring that affect the manufacturing or distribution of a business is a bit like going into battle without a battle plan, which would be madness for any general to even think of doing, as the losses would be great with few benefits, yet some enthusiastic manufacturing business owners feel that marching forward whilst blindfolded might be worth the risk.
Passion and enthusiasm should not be confused with strategically planned drive and determination, as there is a mountainous difference between acting on impulse and acting on a measured approach.
Simply relying on passion and the desire to succeed can also cause the downfall of the very outcome the manufacturing business owner was hoping to achieve. Passion and enthusiasm can easily override sensibility and a measured approach in starting a business borne from a product creation, yet it is also passion that is one of the most important ingredients needed for a business owner or entrepreneur to initiate and grow a business.
What is a Business Plan
The meaning of the word ‘plan’ as described in the dictionary is “the representation of anything drawn on a plane, and forming a map or chart; a scheme devised; a project; disposition of parts according to a certain design; a method or process; a way; a mode. To invent or contrive for construction; to scheme’ to devise; to form in design.”
Why have a Business Plan
Developing a plan prior to initiating a manufacturing business would assist in identifying any risks that may arise and how those risks could be reduced should they occur. The plan can also guide the business owner to issues such as how to sustain the manufacturing business whilst moving through various hurdles once the business has been established, and the identifying financial impacts of the business from conception, through to profitability.
Types of Business Plan
A basic plan may be used for an individual starting their own business in providing goods to an organization or collection of organisations. It may be that the individual has left employment and is offered a long term contract with the organization they had left or another similar organization. For the individual to provide such services, they may have to initiate a business entity as a sole trader or possibly a limited company.
In doing so the individual may consider developing a basic plan for their business, as there may only be a low level third party (i.e. accountant, lawyer) requirement to view such a plan. The basic plan would simply entail the steps taken to transition from past employee into a business entity, and further maintain a level of financial sustainability that suits the individual.
A basic plan might include information such as:
- Who owns the business (individual or shares)?
- What type of business entity is required?
- How will the financial matters be managed?
- Are there any medium or long term liabilities that need to be managed?
- What are the products/services of the business?
- Are there any constraints in conjunction with the customers?
- What are the business liabilities and risks?
- Will the business plan for any further employees in the future?
- What is the duration of any long term contracts, and what happens when the contracts expire?
- What is the exit strategy of the business?
If the business has no intention of employing staff, does not operate from a leased or purchased facility (operated from home), does not require any marketing input to gain or maintain a customer base, and has no or low equipment overheads to maintain the product/service, a basic plan may provide all that is needed for the business to operate.
When wanting to initiate, restart, or grow a business that has employees, regular overhead costs, or a need to gain and maintain a customer base, having a plan for the business would be valuable.
As with all business entities in NZ business ownership carries a significant level of accountability. The business owner is entirely accountable for all actions within the business and carries the responsibility for anything that occurs within the business they own, whether the business is new or long established.
A component of that responsibility is the business owner being aware of the risks the business may be affected by, having enough financial support to ensure the business will survive the start-up process, implementing and monitoring all regulatory and compliance measures, and ensuring that all employees and other stakeholders are protected by the required employment and safety measures required of the business.
If things go wrong within the business, it is the business owner’s responsibility to show they had taken all practicable steps to identify the possible risks and have a plan to mitigate them. If no evidence can be provided showing the due diligence the business owner has taken, it is likely the business owner could be held accountable by the current government Laws and Acts for negligence of operating the business at risk.
As a business grows to a size needing employees, and further requiring a director, or board of directors that are not owners of the business, liability for any adversities within the business will reflect on the directors initially, then liability may continue through to the shareholders of the business, depending on the adversity and business structure.
One of the mechanisms to reduce negligence is to construct a business plan that would indicate the risks that have been considered and the actions to be applied to mitigate the risks, should they occur.
The business plan should include the critical operational components of the business that need to be managed, supply chain requirements, and the financial impact of implementing the business as well as any growth strategies. Prior to constructing the business plan, identifying who will view the plan and why, will influence the level of detail required. Third party stakeholders viewing the plan will want to understand the direction the business in heading in, and will seek to gain confidence in the soundness of the business, including the competency of the business owner.
Stakeholders that may seek to view a business plan:
- Shareholders (Stock Market listed)
- Management team & employees
- Regulatory & compliance stakeholders
- Banks (for borrowing)
- Suppliers (supply agreements)
- Large Customers (supply agreements)
- Community (based on the product/service)
The business plan should provide enough detail for the plan to clearly indicate the information required to specify what type of business entity it is, what is the purpose of the business, who owns the business, is there enough financial input, what are the risks and have they been mitigated.
There are many types of templates for business plans for a wide range of businesses ranging from owner operator sized businesses through to multi-national corporations. Small to medium business entities wouldn’t be expected to produce the depth of detailed documentation more commonly produced in businesses listed on the stock exchange, or the multi-national corporations, yet there is a framework with minimal information to provide a clear pathway and intent for the business, without the need to document details that may not be significant to the business.
Noel Rodgers MBA – CMC
For further information on this subject please email Noel Rodgers
E email@example.com M 0274 775583