Merchant Advance Blog

Blog Article: Short vs. Long Term Business Planning

Your intrepid blogger is feeling a bit rough this morning, having competed in his first ever fencing tournament. Yes, fencing: with the white suits and the swords… don’t ask how I got myself started in it, but it’s ended up being one of the more interesting athletic pursuits I’ve undertaken. Aside from a collection of bruises and a sore wrist, I was also able to take away a small business idea from this experience. Namely, it got me thinking about the importance of short-term vs. long-term business planning.

In a tournament, you start off with a round-robin of five-point matches. They’re quick, aggressive, and give you little time to feel out your opponent’s quirks. Based on these results, you then enter into fifteen-point matches: much longer, much more endurance-based, and with more room to mentally adjust, digest and set up against the person on the other end of the piste.

I can hold my own in a long bout, but the short, snappy five-pointers proved my undoing in this competition: I simply wasn’t prepared or confident enough to do what I needed in a very short timeframe.

Being able to manage actively at all different time frames is a competitive advantage for any small business. Short-term business planning usually involves processes that show results within a year. Companies aim medium-term plans at results that take several years to achieve. Long-term plans include the overall goals of the company set four or five years in the future and usually are based on reaching the medium-term targets.

Small business financing, too, needs customization for different time frames in order to be effectively matched to your business planning goals. Most small businesses are best served by short term loans, rather than long-term debt financing. Short-term loans are helpful to businesses that are seasonal in nature such as retailers who have to build up inventory for the holiday season. Such a business might need a short term loan to buy inventory well in advance of the holidays and not be able to repay the loan until after the holidays.

However, planning for the financial long term involves a different set of strategies: longer term loans may be used for acquiring new equipment, R&D, cash flow enhancement or company expansion. To avoid the difficulties often associated with obtaining longer term financing, including barriers to application success, sales fluctuations and higher interest over time, small businesses can establish recurring relationships with alternative lenders. At Merchant Advance, many of our clients have come back to us to help stabilize their long term financing needs, when they might have originally thought that their needs would be immediate or short term in nature.

 

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