The concept of this article has been simmering in the background for many months, and finally I have found the time to give it the attention it deserves. I must give credit to another article I read recently about why business plans were a waste of time, as it jolted me into action.
From time to time I conduct workshops for owners of small- to medium-sized businesses. One of the 5 key sections is on business planning. One of the first questions I ask in my workshops is: who has a business plan? About 10% of the participants say they have some form of business plan. The remaining 90% don’t, and offer up a range of reasons why. Mostly they mention time constraints. To be honest, many of the companies that don’t have a documented business plan are quite successful, and I am in no way suggesting that you are doomed to fail if you don’t have one. However, I do believe that it can be a pivotal part of your business success story.
So what should your business plan include? You may read articles that suggest that your business plan should consist of only a few pages of well-defined text. However, unless your business is extremely simple and you have no growth aspirations, this is not the case. Many who offer advice along these lines state that your business plan should cover only the basics and that all other ancillaries should be dealt with in specific operational plans. We simply prefer to cover these in one document that is reviewed frequently, depending on specific business requirements.
Typically, your business plan will consist of 15-20 pages that outline the company details, organisational structure, target market, industry analysis, marketing & advertising strategy, and financials including key performance indicators and an action plan.
Now that we know what it should contain, what is the purpose of a business plan? Quite simply, a business plan clarifies what industry the business intends to operate in, what products it plans to offer and who it believes its customers will be.
NOTE: If you need help with your Business Plan why not arrange a FREE 45 minute “Business Planning for Success”consultation with our Managing Director Brent Cain CPA?
One of the major counter-arguments to business plans and planning is that nobody can predict the future. This leads many to ask, “Why bother to plan?”
Business plans provide a map to the future and guidance to the owners and management team. Yes, the business will evolve over time, and the company’s direction may change tack – and your business plan should encourage such growth and innovation. However, it should also provide guidance and raise questions when the business starts to materially change. One of the most common reasons companies go bankrupt is that they lack a clear, detailed vision of their company and its future, including how it will operating in the marketplace.
Another popular argument against business planning and plans is that they stifle creativity and opportunity by placing limitations on the business. But the business planning process and your business plan are always evolving. A common mistake business owners make is to undertake business planning when they start up and produce a business plan, but simply file it away for a rainy day, never to be seen again.
Businesses with healthy business planning processes conduct plans frequently, in line with the current market, and factor in emerging trends and opportunities. A well-structured business plan allows you to test new ideas to see whether they have merit and are commercially viable. It provides benchmarks and comparison points that can be used to track and monitor performance. This ongoing analysis and tracking allow businesses to make mid-course corrections should performance not meet expectations. The early-on framework insists that companies document core areas and their individual requirements. This allows an organisation to steer clear of common errors – such as not having enough capital, or hiring staff with the incorrect skillsets – and allows them to avoid these big mistakes.
Your business plan also establishes a common language that aligns employees and management throughout the business. It forms an integral part of the decision-making process and allows everyone to act according to corporate expectations, with less nonalignment. It allows management to facilitate the allocation of scarce resources, whether these consist of time, capital or employees.
Probably one of the most important sections in your business plan is your target-market analysis. Few businesses understand their product and target market, which is one of the easiest ways to go out of business. Many processes assume this knowledge, and their success depends on it.
Outside of guiding the business forward, a well-comprised business plan will also help the business secure funding, whether it is private equity or from financial institutions. Many banks will require a business plan, including key financials, to demonstrate the business’s ability to repay loans.
A common theme amongst small- to medium-sized businesses is that they become consumed with day-to-day operations and have little to no time for future planning and the development of key strategies. The business planning process and business plan review create a structured time whereby owners and managers dedicate time to work on their business, instead of working in their business.
The action plan, which is commonly omitted from many business plans, is one of the most important aspects of the plan. It allocates tasks, prioritises activities and creates clear accountabilities. The successful inclusion and ongoing monitoring of your action plan will facilitate greater profits and, once again, focus efforts on working on the business rather than putting out temporary fires within the business.
To answer my own question: yes, your business does need a business plan. Start with the key sectors, and work your way in from there. Don’t be afraid to engage a professional, as it will save time and pay dividends down the track.
Founder & Managing Director