How to make Business Plan Step by step

how business planning leads to better management and how to write business plan and proposal and how business plan can reduce business failure
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Dr.MattWood,United States,Teacher
Published Date:25-07-2017
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1 The business plan The business plan is your tool for managing your business in good times and in bad as well as for a range of other needs such as raising finance, dealing with business partners and selling a business. It focuses ideas; it helps you to examine what is not working and what is; it highlights areas of disagreement and allows these to be resolved; it provides a framework for putting numbers to ideas to test if they work and, if done well, it may even come up with new insights. Review your planning team Before writing a new business plan or revising an old one, think about who is to assemble this plan not just who will physically write it but who will provide the vision and the insights that are its backbone. Normally there will be several people involved in this process, except in the very smallest organisations. If the business already exists and trades, the first thing to 4 Effective Financial Management think about is how decisions are being made. Have we made good decisions or bad ones and if they are bad is there anything wrong with the way we made them? Successful businesses do not have dysfunctional management or team relationships at the top, whilst the main cause of failure is just that. So start by thinking about the business organisation, which should influence the composition of the planning team. There should be someone who is comfortable with financial issues involved but the process should not be driven by the finance function. Planning is not an extension of budgeting: it is about ideas and actions to achieve the organisation’s vision. Revise your business plan What – the house is on fire and you want me to plan an extension? Yes, now’s the time Now is the moment to make time to look again at whatever you do and to ask if your goals and ambitions are appropriate and whether your strategies for attaining them are viable. Now is the time to completely reengineer what you do and to find a better way of doing it or even to do different things completely. Are there other ways to sell or to supply? Are there different products and services that fit your skills? What are your skills? Are you using the internet effectively? Are there opportunities through the social networking sites or through Twitter? Get out there and talk to people. Use networking organisations, try local Business Link networking events – they are often free. Go to trade shows, read the trade press and tune in to the blogs. On the web search engine Google you will find an option for blog search; but look at any blogs relating to your industry. The software nowadays enables you to keep a search live on key words so that if any blogs are posted on a subject that interests you, you will be informed instantly. The directors of businesses should write down their thoughts in a formal business plan: it focuses minds on contradictions or 5 The Business Plan problems in informal plans and leads to their resolution; it highlights differences of opinion that can be resolved; it results in objectives and strategies that can help everyone to rally around, be committed to and work towards. It may also be useful to show the plan to business partners or to submit it to banks to raise finance. If trading is tough it is a lot harder to convince banks to lend, which argues for having a better business plan. Trading results Before getting on to ideas, strategies and opportunities, demonstrate how your business has performed up until now. Show the last three years’ figures and the forecast for the current year. It does not matter whether the reader is you or a bank manager – show the context because that will ensure that you are not unrealistic in your expectations and, if necessary, it will make your case convincing. If the figures tell a negative story, perhaps your business has just pottered along for the past few years and is hurting badly now; there is no reason to try to hide it. On the contrary, it forms a background for you to say, ‘Right, we are making these changes that will alter our future …’. Even if you are only outlining a survival strategy and have nothing more exciting to say than that you will cut costs, it needs a context. Show your forecast figures on the same grid as the past trading. This will highlight changes and what needs to be explained in the body of the plan. I don’t think that you need to show past budget figures in this grid – this would only reveal how good you have been at forecasting in the past but at the expense of making the table hard to read. A financier or investor may ask for this information but you should wait to be asked. Use ratios There are a number of ratios, described below, that are very 6 Effective Financial Management helpful in analysing business performance. They should be used not just for the business plan but as a regular management tool; applied consistently and compared each month they will give early warning of things going both right and wrong. Ratio analysis poses questions; it does not give simple answers. Gross margin This is the sales figure, net of any sales taxes, less the cost of sales, divided by the net sales. The cost of sales is the variable cost of getting goods to the point of sale and it differs from industry to industry. In a retail environment it will be the cost of the stocks that are included in the sales figure; in a manufacturing business it will be the cost of materials used plus the direct cost of labour to get it to the finished condition plus a share of production overheads associated with that labour. The gross margin calculation focuses attention on questions such as, ‘Are we charging enough?’ ‘Are there products in the mix that we should not be selling?’ ‘Are our costs rising too much?’ Debtor days This is the value of outstanding trade debtors divided by net annual sales and multiplied by 365 days. It shows, on average, how quickly customers are paying. Clearly there is a measure of seasonality in this and you could try to correct for this, perhaps by taking sales over a shorter period and multiplying by that number of days, not 365. I tend to think that, in most circumstances, that is probably over-sophistication: this ratio just gives a quick idea and if it is misleading just explain why and move on. What you are looking for is an increase in the time customers take to pay that looks like a trend. It would suggest a need to investigate why; maybe less effective debtor control, a single big customer taking longer to pay, or the time of year.7 The Business Plan Creditor days This is the value of outstanding trade creditors divided by annual cost of sales and multiplied by 365 days. Why should you care how long you are taking to pay your bills? Because if you are taking longer to pay that could show that you are running short of cash; or it could just be clever cash management. Ratios pose questions rather than giving answers. Why is it restricted to trade creditors? Because you don’t usually have much discretion over when you pay utility bills and the like, so including these distorts the picture. Also such costs are usually not included in the cost of sales. Stock turn This is the value of stocks at cost divided by the annual cost of sales and multiplied by 365 days. It excludes the profit margin because profit is not included in the value of stocks in the accounts. It is a measure of how much cash is tied up and can signal ageing stocks that are becoming hard to sell. Gearing This is the net debt (that is debt less cash in hand) the business has, divided by the aggregate of that debt plus shareholders’ funds. An alternative version of the calculation divides debt by shareholders’ funds alone. Gearing (also referred to as ‘leverage’) tracks how much debt (including bank loans, leasing, hire purchase and any debt factoring) the business has and can indicate shortage of cash if it is on a rising trend, and the level of risk in a business. The higher the gearing the greater the financial risk to the business but also the higher the proportionate rewards to equity when trade is buoyant. Its effects are similar to those illustrated below for operational gearing. Other measures Labour, overheads and, for some businesses, property occupation costs as a percentage of sales can all give a useful feel for trends. Clearly a well run business wants to show falling 8 Effective Financial Management percentage labour, overhead and property costs together with rising margins. Operational gearing This expresses the effect of the ratio of fixed to variable costs in a business. There are a number of slightly different ratios that all, effectively, do the same job. The simplest method is to calculate the ratio of fixed costs to sales. Higher operational gearing means that a business responds proportionately better to increasing sales and worse to declining sales, as illustrated in Tables 1.1 to 1.3. Table 1.1 Company A Company B Sales 1,000 1,000 Variable costs 700 800 Fixed costs 200 100 Operating profit 100 100 In the base case, in Table 1.1, both companies have sales of 1,000 but Company A has higher operational gearing, with higher fixed costs and lower variable costs than Company B. When sales are reduced by 30 per cent we see, from Table 1.2, that Company B, with lower operational gearing, performs better. Table 1.2 Company A Company B Sales 700 700 Variable costs 490 560 Fixed costs 200 100 Operating profit 10 409 The Business Plan On the other hand, when sales increase by 30 per cent we see, in Table 1.3, that the benefit is reversed and Company A, with its higher operational gearing, performs better. An identical effect results from financial gearing. Table 1.3 Company A Company B Sales 1,300 1,300 Variable costs 910 1,040 Fixed costs 200 100 Operating profit 190 160 Bear in mind that costs that are fixed in the short term may not be fixed over a longer period. Some labour costs may, for example, be impossible to shed over a three-month period, perhaps because of contractual compensation, but are variable from the perspective of six months. Earnings per share (EPS) These calculations can be useful, particularly if a business issues new shares to raise money, to acquire other businesses or to reward staff. The calculation is to divide profits after tax by the number of shares that are issued. It is usual to assume that all share options are taken up and other convertible instruments are converted (adjusting the profitability for interest on the cash raised). This is referred to as the ‘fully diluted EPS’. Another common measure of performance is earnings before interest tax, depreciation and amortisation (EBITDA). This looks at the underlying performance of the business, discounting the effects of more or less borrowing, changes in tax circumstances and depreciation policies. All these measures are industry- or company-specific. They are useful business tools so tailor them to your needs and circumstances. A software house, for example, may have sky-high 10 Effective Financial Management margins because so much of its cost base is devoted to product development, and it might be wise to include a proportion of those development costs in stocks and the cost of sales. Keep it truthful If this business plan is going to be handed to a financier or an investor or a bank then you do not want to be giving an incorrect view. Really, you don’t. The most obvious temptation to mislead is where there has been a bad year that you feel was not representative and you may be tempted to adjust to correct what you feel is a misleading impression. Don’t. There is a high risk of being found out together with a risk of incurring a legal liability and, once you earn a bad reputation, you will never correct it. Deal with facts you feel give an unfair impression by explaining them in words and, by all means, show – in addition to the historic figures – a pro forma set that shows well-explained adjustments. The other temptation is to give the best possible interpretation of the future, which is the right thing to do, up to a point. Most people who go too far know full well when they have crossed the line. If the past shows pedestrian growth whilst the future figures show explosive growth, the reader will be sceptical. Even more important, don’t fool yourself. The figures must be plausible. Dealing with hard times How is planning different when the market is tough or you in particular are suffering? Ask what has changed that ought to make a business plan today different from, say, a year ago. There are businesses that hold up well in a downturn and there are very few such periods where some businesses are not actually doing well. So ask, is that sales forecast still robust and are there reasons why you should be amongst the 20 per cent of good 11 The Business Plan performers rather than the 80 per cent who are suffering? This leads on to the question of what can be done to move from the sufferers to the good performers category. The second big area to look at is whether customers and suppliers are performing satisfactorily. Your plan should address the ‘what ifs’ such as what if a big customer or a major supplier failed, what contingency plans are there and what can be done to monitor the situation? For example, the collapse of the parent company of Entertainment UK, the UK’s main music wholesaler, in the autumn of 2008 precipitated the collapse of Zavvi, one of the main music retailers, because it could not replace the source of supply and credit quickly enough. The third big issue to consider is what opportunities are being thrown up when trading is tough. There may be opportunities to buy assets or businesses at bargain prices; or opportunities to change, driven by the accelerating changes in business practices and technology as people compete hard to improve their relative position. Where is cost-cutting in your list? It should be there, but cost control should be in your organisational DNA anyway and will have been considered already so it should seldom be at the top of the list unless there is a problem of short-term survival. The quickest way to cut costs is usually to cut staff but thisalso closes off opportunities to expand or develop out of trouble. Look at all these issues and amend your plan to take them into account. Re-run the numbers on the new assumptions and see what that tells you. You may have a nasty surprise, but whether or not it points to a crisis, once you have worked through them you have a firm picture of where you are that enables you to take a realistic look at strategy. The business strategy in your business plan Your strategy is central to your plan. Most of the time you just 12 Effective Financial Management know what it is, but it does help to look at it formally with colleagues and review it and write it out. Without this formal review you may not really focus on ideas that aren’t tenable any more and may not replace them with new and more appropriate ones. Don’t worry about changing course; sticking with old ideas that aren’t working is far worse than a bit of change. Remember that a formal planning process seldom results in an effective and worthwhile business strategy. That is because the production of this plan focuses on processes rather than upon ideas. To get to the business plan you must analyse and get into detail, whereas a strategy is about ideas and, above all, about insights and a vision. So, to look again at your strategy you need to gather together a few people who really understand the markets you are in and how your business works, and have them throw around ideas that you can then discuss and work up into a strategy. If anyone tells you there is a formula for creating an effective strategy then they are fibbing: there is no magic formula for coming up with those penetrating insights. Google was created by two young, expert programmers who thought they could come up with a better idea for a search engine than Yahoo. The Prêt a Manger sandwich chain in London also emerged from two people throwing around ideas but, in their case, they set up one unit, ran it for a year and then decided that many of their ideas were wrong and what grew was very different from the original concept. The linking factor behind all examples of successful strategies is that the drivers were not backroom people who were above the fray but people who were or became immersed in the detail of the operations. If there is a group who are set to review or create a business strategy then make sure it involves people who really know the ‘sharp end’, who know about the operations and the customers. The numbers matter, of course – I am an accountant myself – but get the order right: the ideas come first and lead to the numbers. In these examples the creators of Google and Prêt a Manger originated some great ideas and then looked at making money from them. Even today, Google pursues some marvellous 13 The Business Plan ideas where it is not obvious how they will earn money. Maybe the next edition of this book will admit that some of them never generated a profit, but the point still holds. And, since a high proportion of creative and entrepreneurial ideas don’t work, the more that are tested and tried the more likely any business is to hit upon success. The productivity boundary One approach to strategy is to devote your business to improving its processes and performance. This sounds like a good idea but it contains the kernel of a problem: your competitors are all trying to do the same thing. What is more, if you improve your processes and reduce your costs so you steal a march on your competitors they will try to copy your ideas: they can hire some of your staff; they can see what you are doing by buying your products or talking to your customers and distributors. Your advantage is therefore temporary. Of course it is worth having the advantage, even for a relatively short time, but eventually both you and your competitors will hit the productivity boundary where you are as efficient as you can get. Long before then you will find that the benefits of all the hard work of improvement actually ends up in the pockets of your customers and your distributors as you reduce prices to match your competitors who are themselves improving their processes and cutting costs to undercut you and win over your customers. Sustainable strategy So what you are looking for is a sustainable strategy, one that confers a long-term advantage that is hard to copy. I believe all detailed strategies will fit into only three categories: monopoly, barriers to entry and being different. There can be some blurring between these categories, such as sheer size and dominance of a market – is that a monopoly or a barrier to entry? It may enable a 14 Effective Financial Management business to achieve economies of scale that would require any potential competitor to endure years of losses to replicate. Monopoly The best strategy must be to have a monopoly of some sort. If you have the best location in town then you have a monopoly and can charge higher prices. If you are located on top of the only coal or salt mine or source of clay for bricks then you have an unassailable advantage. If you are a casino with a government licence then you are a monopolist. If you have a large bookshop or any other shop in a town that really won’t sustain more selling space devoted to that product then you have a monopoly – not quite such a complete one because someone can come in with a loss-leader, determined to drive you out of business, or they might just make a mistake. For example, our bookshop business was suddenly confronted by a large edge-of-town competitor that was forced to close eventually because it was excessive for that location, but not before it had forced us to close our shop too. So the types of monopoly include: • location; • regulation; • contractual, such as being sole distributor of a product; • patent or secret know-how; • size and dominance. Barriers to entry If you have high barriers to entry into your markets then you are hard to beat and your strategy will focus on reinforcing those barriers and building them higher. Having patents on your technology both gives you a sort of monopoly and also creates barriers to entry because competitors, even if they can do it, may have to spend more than you to mimic the effects you can achieve. Having a strong brand also creates a barrier to entry. Coca- Cola and Levi Jeans have maintained massive benefits over decades through defence of their brands. It would cost a fortune 15 The Business Plan to displace them, but brands can still be overthrown; remember that vacuum cleaners are still referred to as ‘Hoovers’ despite the fact that Dyson has been the market leader for years. Aircraft builders and engine manufacturers have fabulous barriers to entry. It would cost a new competitor an enormous amount to build the factories, to develop the know-how, to get clearances and approvals from governments and regulators, or to achieve the brand recognition. It would scarcely be worth it unless the government of a large country wanted to underwrite the costs for the purpose of building national prestige. Being different If you engage in different activities or do the same activities differently from your competitors then you can build a strong and sustainable strategy. All of the things you do will reinforce your difference and will make your strategy hard to copy. A good example might be low-cost airlines; these cannot be easily copied by the full-price airlines because there are so many reinforcing differences: they cut costs by not providing services (except at a price), by flying to out-of-town airports, by using only standard equipment, by putting rows of seats closer together, by limiting baggage allowances, and by having few people handling complaints. These are hard for the full-service airlines to replicate individually; they cannot easily move their seats around in the cabin, they cannot remove and put back cooking facilities, they already fly to major airports, they already have higher overheads to support their activities and they use different equipment for different routes. Each time you make a choice about what activity your business will engage in or how it will do it you are also excluding other options, so there are trade-offs. In the example above, deciding to be a low-cost airline precludes the organisation from offering full-service routes and vice versa. The management of the McDonald’s fast food empire allowed virtually anyone to visit its restaurants and see behind the scenes. It sees its uniqueness as coming from dozens of individual factors that all reinforce each other and contribute in 16 Effective Financial Management aggregate to that difference. The evidence is that, whether you like the product or not, there are hundreds of other fast food chains in the world but none quite like McDonald’s; whether it is the menu or the taste or the ambience, the experience is different. McDonald’s would probably argue that the way it manages its staff and the whole company culture is part of that unique way of doing things that confers a competitive advantage and is hard to copy. Although this is a powerful approach it is important to adopt it with a self-critical spirit. There are many organisations that proclaim they are different and have a unique spirit and ethos when that is simply untrue. A good example is the Mecca Leisure Group which, in the 1980s, bought Pleasurama, an even bigger leisure company. Mecca had a very strong identity and corporate culture which, it would argue, drove it to outperform competitors. Fact or fantasy, I believe the culture could not survive the acquisition of a much bigger company. Suddenly there were divisions of people who were disgruntled and unhappy with the new management, and the annual company- wide party that had been such a morale booster in previous years was seen as a vast waste of money by the newly acquired staff. A culture that had worked with a fairly downmarket product range was less appropriate to upmarket casinos and hotels where staff were rather disdainful about the razzamatazz and showmanship; and what worked in one country did not work so effectively across several. The combined company continued to proclaim its difference and its corporate culture long after it became clear that there were actually two antagonistic cultures. There is another long-term strategic technique that I came across recently in a newspaper, which was called ‘last man standing’. It is really a non-strategy and seems a high-risk approach but could work in deteriorating markets where, one by one, the players go out of business until there is only one left. Presumably the final competitor in the market would make monopoly profits for a while as the market continued its decline. Meanwhile regulators would have little scope to find any one else to provide competition.17 The Business Plan Risks, contingencies and scenarios Risks change when the economic times are tougher. It is far easier to be optimistic when sales go up each year and the only issue is ensuring that they rise faster than costs. When sales and costs fall, so may the prices you obtain for your products and services. The problem this poses is that potential customers hold off buying because they hope that prices will drop further before they have to buy. In bad times there is a temptation to believe that things have got as bad as they can and will now head upwards. This is illustrated by the rather gory term from the financial world – a ‘dead cat bounce’. This states that even a dead cat will bounce back up a bit if it drops from a great enough height. It is true that there are forces within economic systems that mean that economies do recover: the simplest of these is the de-stocking cycle. Companies in aggregate do reduce their stocks of finished goods in a downturn in order to release cash and, eventually, they are forced to rebuild those stocks in order to stay in business and that, in turn, increases the business of those who supply them. The problem for someone writing a business plan is twofold: first, markets tend to overshoot both on the way up and on the way down; secondly, you have no idea where you are in the cycle. If you knew exactly when the ‘turning point’ arrived you would soon be very rich. Therefore, there is always still ‘downside’ risk however bad you think things are. Entrepreneurs will usually underestimate the risk of things getting worse whilst financiers may (now) overestimate it. Break-even Break-even is the point at which your profit is zero: more sales and you make a profit, less and you make a loss. It is a rough rule of thumb that helps to give you a sense of how vulnerable the business is and how easily you can survive in the face of a short-term problem, but don’t read too much into it.18 Effective Financial Management No bank will want to provide finance for a business that is only breaking even. If a 10 per cent fall in sales reduces you to break-even then you are very high risk; if it takes 50 per cent then pretty low risk. Cash is what matters to a business so the point of zero profit is still not adequate to survive in the long term because cash will be needed for capital expenditure and to invest in stocks and, if there is an upturn in fortunes, in debtors. How should you calculate your break-even level of sales? It should not just be a matter of reducing the sales figure in your forecasts: you should also adjust the costs that you could clearly cut. In the very short term this would include cost of sales but not labour costs unless you can make workers redundant or reduce their numbers by natural wastage quickly. It is reasonable to show a reduction in costs that could be achieved within a month or so but, for example, if you cannot cut property costs for a year or two, that is too long; you cannot include those. To calculate what level of sales brings you to break-even you need to divide your costs into three categories; fixed, variable and semi-variable costs: 1. Fixed costs are those that don’t v ary with sales, like rent; you almost certainly can’t cut this in the very short term. 2. Variable costs are inputs such as the materials you buy to manufacture whatever you sell or , if you are a software company for instance, the licence fees you pay that are directly related to the product you sell. As sales go up or down these costs change in proportion. 3. Semi-variable costs are those that will change a bit with sales levels but ha ve an irreducible ‘floor’. Labour costs are usually semi-variable; you can shed some staff but not all of them. Telephone charges and electricity are usually semi-variable because you will pay a monthly fixed charge plus a per-unit used rate. Once you understand how these costs vary it should be fairly easy to calculate their change with sales and therefore what the break-even sales level is. You can use a spreadsheet analysis, a 19 The Business Plan formula or just good old-fashioned trial and error. Don’t try to be too exact because you will delude yourself into believing it really is possible to estimate these things to three decimal places – these are rough and ready estimates. All this is helpful to you in managing your business and also if you are using the business plan to raise new money or even to persuade the bank to continue your existing facilities. Bank managers like to see that a business is robust and knowing what you would do if things went wrong must make the business seem more likely to ride out the bad times. Skills planning You must consider what skills you will need and make sure you explain in your business plan how you will recruit, develop and retain the right staff. People join and stay with companies not just because of the rate of pay but also because they see that the experience, including training, will advance their career. Staff development comes in many guises and does not have to mean spending money on training courses, though that may sometimes be appropriate. It is almost invariably cheaper to develop people’s skills than to recruit anew. It’s possible to over-promote someone you know but the risks are lower than with new hiring. Start by considering business goals and strategies and identifying the skills you will need within the organisation to attain them. Whilst you may need to recruit for some skills it will generally be cheaper, less risky and better for morale to develop existing staff. Plan with your staff what skills you will need from them and that they may want to develop. A member of staff may want to develop skills that are not necessarily of direct or immediate relevance to your business but you may still feel it is worth supporting them in this. Often this development process may be part of an appraisal system, with targets being set and achievement measured and rewarded. A significant part of skills development arises from giving 20 Effective Financial Management staff relevant experience at work. Supervisory skills, for example, will be developed by giving supervisory experience, perhaps in conjunction with some coaching from someone within the business. In turn, developing people’s coaching skills has an immediate payback through enabling them to support other work colleagues and making them better managers. If learning beyond what the organization can provide itself is required, there are many ways to facilitate this: allowing flexible working time or time off to study, or paying for staff to attend college or use distance learning. Larger organisations may have training provided in-house. Scenarios It is a good idea, while planning and examining risks, to consider disaster recovery planning. For example, a high proportion of businesses fail after a collapse of their computer systems. Do you have proper backups of your data, preferably off-site? Have you considered using internet-based backups or staff taking a backup off-site daily? It is clearly not practical to cover all eventualities but have you an idea of what to do if your electricity went out for a week, or the internet went down for a few days, or there was a fire or flood or a really severe flu outbreak? Are you properly insured for the eventualities that can be covered? Insurance can be expensive but it is wise to make sure that you have covered the big things that could go wrong. Not strictly a business issue, but a religious group had planned for scenarios such as attacks on their premises. They decided that they would not try to protect empty buildings but would devote their resources to protecting their congregants. They set up a system whereby e-mails could be sent to all members, at the touch of a button, warning them not to go to the community’s buildings. But someone asked, in a planning session, how the e-mails could be sent if the buildings were not to be approached. A good question, highlighting the fact that technology can provide good and relatively inexpensive solutions 21 The Business Plan but you need planning sessions to tease out all the issues. Role-plays are useful, requiring people to say what they would do, action by action. Recently published articles and books have focused on the fact that unlikely events are not as unlikely as we think. In the 1990s and the first decade of the 21st century financiers were planning financial instruments based on risk analysis that only looked back 10 or 20 years. They had forgotten that if you look back 50 or 60 years it becomes clear that some supposedly rare events are not as rare as all that. They had also forgotten ‘systematic risk’, which means that if there is an underlying cause for a bad thing to happen, it may also cause other bad things to happen, so they are not individual occurrences but linked events. A hypothetical example is that something makes the electricity grid crash, which brings down the internet, computers, heating, lighting, transport and telephones. Let us suppose that the grid comes up again within a half a day but there are all sorts of knock-on effects that take weeks to resolve. The telephone and internet are not fully back for several days, which means several days’ lost sales and an inability to reorder stock, to keep accounts, issue invoices or do your banking. This may be an extreme example, but the internet is becoming as fundamental to many of our activities as the electricity supply and is vulnerable to deliberate attacks. The business plan should, in my opinion, refer to events such as loss of telephone connections (cables are frequently cut by accident) and the internet going down – it is not that unusual for individual service providers to have outages. Other problems that are not so uncommon include bad weather, illness, strikes and economic downturn. It is not hard to plan what one would do if each of these were rather more severe than what we see as the ‘norm’, where we believe we can cope without special planning. The linked nature of our business processes –not just computing – is easily illustrated by the likely effects of a prolonged strike at key fuel depots. Contingency plans would need to be put in place rapidly: the food distribution system tends to have only a few days’ supplies in hand, increasing 22 Effective Financial Management numbers of factories work on a ‘just in time’ basis, and key workers from nurses to railway staff would be unable to get to work. A serious, even if non-fatal outbreak of contagious illness would not only depress retail spending but also lead to a shortage of employees turning up for work. Some scenarios will prove to have no solution but, in others, a little advance preparation will make all the difference.

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