Why do you need a business plan?Posted on: March 2, 2020
Many of the clients I work with in the legal, accountancy, property and other sectors are relatively small but fast-growing businesses with up to 30 owner-managers. It is surprising the number of them that either don’t have a business plan or have a plan that is out-of-date or that doesn’t include all of the right information or decisions. These businesses are successful. So why do you need a business plan?
Why don’t you have a business plan?
Many business owners will tell me that as the owners have day-to-day hands-on involvement in their businesses there is no need for a business plan. They have their finger on the pulse and are able to adapt their approach as circumstances demand.
Some argue that in these volatile, uncertain economic and political times that business planning is impossible. Things are simply moving too fast. Some feel it would cause friction with their co-owners as they are aware of differences in their aims or views on how the business will develop in the future.
Some tell me that they have always been fleet-of-foot, opportunistic and agile so a business plan would stifle them. And some, of course, are simply too busy to take time out to think about and prepare a business plan.
But every business will benefit both from the process of developing a business plan as well as having an up-to-date business plan.
Why do you need a business plan? 10 reasons
There are many reasons why I believe that even the newest and smallest business will benefit from the business planning process.
1. Vision – You need to know where you want your business to go. Business plans are not just about the financial goals you need to meet in order to make sufficient profit or grow. You need to see and feel why you are in business and where you want the journey to take you. Developing a shared vision amongst multiple owners – particularly if they are from different generations with varying degrees of motivation – is not a trivial task. But without making the effort to discuss and agree a shared vision the business will be constantly faced with conflicting priorities. A lot of time could be wasted going through the same debates without real resolution.
2. Reality check – Business planning should not be an isolated, internal activity. A key element is analysis, research and assessment of the external environment – for example, the economy, trends, markets, clients, technology, channels and competitors. This allows you to test your assumptions and goals to ensure you are being realistic. It also enables you to assess the risks and to build in contingency plans should potential negative scenarios occur.
3. Focus – Life is hectic and there are countless demands on your time as a business owner. It is easy to get swept along in the day-to-day demands from clients, staff, suppliers and the multitude of other things that need urgent attention. You can lose sight of the important things. You have to make a myriad of decisions each day that can easily take your business into areas you didn’t intend. You can waste a lot of time spinning between different options and choices – each pulling your business in different directions. You can suffer from strategic drift too. A business plan is like a beacon – it reminds you of where you are trying to get to and gets you back on course if you get swept away with ‘busyness’.
4. Choices – Every day you make choices. Some are small choices, and some are large. Each choice will have a consequence and may rule out other options. Business planning helps you to think about where you are heading and all the options and choices available. The business planning process will help you evaluate which choices will get you to your chosen aims the most efficiently and effectively. Without a business plan, you may end up reviewing the same choices again and again. Without a business plan, you may make the wrong decision in the heat of the moment.
5. Short-termism – Without a business plan offering a view of the long term aims, the business might suffer from short-termism. Decisions might be made that optimise the short term outcomes but prejudice or harm the longer term health of the business. A good business plan will have two elements – a “business as usual” operational plan for the short term and a “business as unusual” strategic plan for how it must transform to adapt to changing environmental factors or new market and client needs or new business models or processes.
6. Anticipate change – Business planning provides some heads-up time to look beyond the current business and the prevailing market conditions. The analysis should reveal trends or weak signals that indicate change is occurring. Forewarned is forearmed. When a business knows how things will change, then it can prepare for those changes in advance. Opportunities quickly become threats if early action isn’t taken.
7. Alignment – In the absence of a business plan it is difficult for the finance, marketing, human resources, technology and operational teams to align their goals and activities. Without a business plan providing at least an umbrella strategy, there is a danger that different parts of the business will pull in different directions. At best, this means that the business might not achieve its objectives and at worst it could mean that resources and efforts are wasted.
8. Recruitment, engagement and motivation – Professional service firms are reliant on a supply of high quality candidates that can be recruited to support growth. They also need to ensure that existing staff are retained, developed and motivated to deliver great client service, generate fees and profits and help with the future development of the firm. A business plan shows both new recruits and existing staff how the business will develop so that they can see the common purpose, align their contribution and develop their careers. Having a business plan will also help with change management programmes.
9. Manage resources – Businesses have limited resources. There are only so many hours in a day and limited cash in the bank. The business plan provides a way to explore all of the options and choose the strategies and actions that ensure that goals are met. A business plan summarises where time and money will be invested and for what expected returns.
10. Growth – Many businesses will require resources to support growth. Banks and other sources of finance will require a business plan in order to approve funds. If the business aims to grow through merger, acquisition or partnership then those organisations will wish to see a current business plan in order to assess the opportunity and direct their due diligence process.
A business plan is not just about the numbers
Some small business owners believe that a plan looking at the finances – revenue and profit – for the next year is sufficient. Often these plans are based on flawed assumptions (e.g. that the business will continue to grow as it has in the past) and insufficient analysis (e.g. they are internally-focused and do not take account of the external environment). Sometimes, the annual plan is little more than a “wish” of what the owners hope to achieve.
Some small businesses will look to their accountants for help in preparing a business plan. Of course, many of these financial advisers are skilled and experienced management consultants who can easily provide support here. However, if the advisers are inexperienced or too technically-focused there is a risk that the plan will over-emphasise the financial issues and neglect other critical areas such as marketing, human resources, premises, operational efficiency and technology.
The business planning process
Those who, like myself, attended business school will be able to offer an array of tools and techniques to take you through the necessary steps to produce a business plan.
However, keeping it simple is important – especially if you are time-poor and inexperienced in preparing a business plan.
So I take my clients through a simple process comprising five stages:
• Why are we in business? (Strategic intent – identity, purpose and vision)
• Where are we now? (External and internal analysis, identify the core challenges)
• Where do we want to be? (Aims and objectives)
• How will we get there? (Strategic options, values and choices)
• What do we do and how much will it cost? (Strategic and operational plans)
The business planning process can be simple and relatively quick and usually involves:
• discussions with the business owners, staff and clients;
• external and internal analyses and research;
• workshops to identify, discuss and agree on priorities and responsibilities,
• internal communications to engage the entire organisation and
• monitoring mechanisms as part of ongoing business leadership and management.
What goes in a business plan?
Business plans do not need to be long or complex. Most business plans cover the following:
1. Executive summary
2. Business description
3. Opportunity, assumptions and risks
4. Vision and objectives
5. Industry overview, market analysis and clients
7. Value proposition, products and services
9. Management team
10. Financial plan (investment and profits)
11. Marketing and sales plan
12. Human resources plan
13. Operational plan
14. Technology plan
15. Appendices with supporting information and analyses – possibly also a contingency plan
A business plan is a tool. It needs to contain what the business owners need to lead and what others need to do to manage the business.
A business plan is only as valuable as to the extent that it provides guidance. Some firms find a one-page summary sufficient for their purposes, whilst others prefer a longer document showing detailed analyses and plans of what is to be done and why when and whom.