Practically Speaking is a weekly column that addresses your most pressing business dilemmas. The advice is the opinion of long-time business owner Gene Marks. Send your questions to PracticallySpeaking@fortune.com.
I’ve had people tell me that I should have a business plan for my company, but I’ve been running my business fine without one. Is this really necessary?
Consultants and financial advisors love to tell their clients that they should have business plans. But this column is called Practically Speaking so let’s get practical.
A formal business plan is really only important if you’re looking for money. A bank loan. An outside investor. A partnership. A joint venture. When those situations arise, it’s almost always necessary to have a plan in writing. The plan should be pretty detailed too, depending on who the reader will be. It should look out over five years and include goals, risk factors, use of proceeds, prior and projected financial statements with management’s discussion and analysis underlying previous results and assumptions made about the future. A great guide to writing a business plan is to look at the Form S-1 that a company must file when going public or use a service like LivePlans. Your document basically lays out all the information a potential investor needs to know before buying shares of a new company. Bankers and private investors will want to know the same information.
But if you’re not looking for money, a formal business plan is a waste of time. Most of my clients that run established companies don’t do it. But here’s something you should do: have an informal plan. Create a spreadsheet of quarterly objectives, both quantitative (sales and margin goals, cash flow expectations, number of orders shipped, number of quotes issued) and qualitative (a new safety program in place, a new hire completed, an upgrade to your website). Do this also on an annual basis. This way you can refer to your objectives, with your key people, and keep a good eye on whether or not you’re on track. Because no one outside of the company will be looking at this it doesn’t have to be pretty, so it’s not a formalized business “plan” that consultants like to see. But for your internal purposes, it will cut to the chase and be effective.
An employee came to me in tears. She needed major repairs on her car and didn’t have the money to pay for them. She asked me if she could borrow money from the company. What should I do?
It’s not uncommon for a company to lend money to its employees. Just remember that what you do for one you’ll have to do for everyone. So if you decide to go down this road you’ll need to create a formal policy. The policy should include the maximum amount to be lent (usually no more than a paycheck), interest rate (always the market rate — no special considerations should be given or it may be considered taxable) and payment terms. Some companies only allow employees at a certain level to be able to borrow as a sort of employee benefit based on title or tenure. Loans should be paid back through paycheck deductions and if an employee leaves before a loan is paid off you’ll want to make sure whatever is still owed is deducted from her last paycheck.
Before doing this, you may want to see if the employee has the ability to borrow money from her 401(k) or retirement plan, assuming your company offers that. Many plans allow this so check with your benefits advisor. Also over the past few years, many online credit services have sprung up that offer loans for small amounts and few hoops to jump through. The downside is that these loans come with steep interest rates – sometimes up to 50% per year! But if it’s for a very short term problem it may be a decent answer for the employee without you having to go through a whole internal process to setup an employee loan system.