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’s books: Building Wealth in the Stock Market and
The Psychology of Investing may be purchased from Colin’s website
www.bwts.com.au and good bookstores). Contact Colin at
colin@bwts.com.au or through his web site where you may join the list to receive
his free email newsletter
