Is your plan fit for purpose?
In other words, does it do what it is meant to do? Now the question I have for you is, just what is it meant to do?
Let’s start by looking at what is a “business plan”. Actually, I prefer the term “strategic business plan”.
When you don't know where you are going then how do you know when you get there? That's what a strategic business plan is all about.
It starts with where a business is NOW (its strengths and weaknesses), WHERE it wants to get to (the strategic bit 3-5 years out), and HOW it proposes to do so - the Business Plan bit.
Breaking it down into its elements:
A Strategic Plan:
- is for businesses, organisations and business owners that are serious about growing their business.
- is used for planning, implementing and managing the strategic direction of an (existing) business. I’ve put the word ‘existing’ in brackets, as many people say a strategic plan is only for existing businesses. I don’t agree; even start-ups need to know where they are going.
- is used to provide focus, direction and action in order to move the business from where they are now to where they want to go.
- focuses on building a sustainable competitive advantage and looks to the future.
- is critical to prioritising resources (time, money and people) to grow the revenue and increase the return on investment.
- generally covers a period of 3 to 5 years
A Business Plan
The Business plan is operational (more detail) and is in fact a "tool" that is used to implement the objectives/targets of the Strategic Plan. This now moves into things like planned Sales volumes/prices, production costs, inventory turnover, cashflow management, employee numbers (rates/utilisation/down time) etc.
Your business plan:
- determines how the business will successfully achieve its strategic objectives
- is a formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals.
- may break the plan down into the key areas of the business; marketing, operations, and finance. It beaks the business down into its components and looks across all functions. Or
- a series of Action Plans to achieve the business goals
- identifies potential troubles spots ahead
- may also contain background information about the business or team attempting to reach those goals.
- is, typically, normally no more than one year.
There are two main purposes of business plans
They will determine how it is prepared, and presented – to do what it is meant to do.
Obtaining finance is the first of these, meeting the requirements of a financier – a fund raising tool.
As my bank manager once wrote to me, commenting on a business planning workshop I was developing: “Don't forget to tell us about you and your business! This is effectively who we are lending too. I tell my customers that their business plan is their stage – it’s their opportunity to take the floor and convince me as to why I should "invest" in them and their business.
I know what the economy is doing. I know what different industries are doing in the market. What I don't know is why their business is different to Joe Bloggs down the road. I don't know why their life experiences will make this business a success. I don't know what gives their business that competitive advantage. I don't know them, I don't know their business. And don't assume! I'm a banker, don't assume I know what the business does specifically!”
Your strategic business plan should include your business model, budget, cash flow projection, and how and where you will use the funds.
“A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line.
You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business.” (Elizabeth Wasserman, Inc.Com)
"This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008),
The second purpose is the road map. In the road map, you set out your destination, and how you plan to get there. That doesn't mean you don't gave flexibility to change your route if road conditions change, but it does enable you to progress to your desired destination.
It’s an internal document, to guide you and your team, put you on the path, remind you of the steps you must take, when you must take them, and the outcomes those steps should achieve. It tells you how you will achieve your operational and financial objectives over the period of the plan.
A couple of other issues arise:
The first is implementation. The majority of business plans aren't implemented. I've read studies suggesting the figure is as high as 70%. I'd agree with that. Over the last 28 years my most successful clients have been those who implemented their business plan. The rest just stuck it their drawer, and said they had a business plan.
The second issue is measurement. Most businesses don't measure what is going on in their business; which lines are more profitable, and which are less profitable. They may measure their sales by products or customer groups, but rarely their gross profits by these groups. A good business plan will provide lead and lag indicators to guide the business and help make informed decisions.
There is a third issue – business failure!
Just in case you thought you might not really need a business plan, after all, you have a clear idea in your head of where you are going, and know your market.
A survey by accounting software provider CCH and global information services group Wolters Kluwer, revealed SMEs see inexperienced management, a bad business model and lack of access to capital as other key reasons for small business failure.
Of those surveyed, 61% of SME operators said small businesses failed because of an inability to manage costs, 50% said inexperienced management, 50% said poorly designed business models or no business plan, 49% said insufficient capital, 37% said poor or insufficient marketing, and 35% said insufficient time managing the books.
Note that 50% - sure, there are other factors, but even those would be addressed in a good business plan. As the old saying goes “Failing to plan means planning to fail!”
Make sure your business plan is “fit for purpose”, and does what it is meant to do.
How Well is Your Business Performing?
When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, they are sometimes held back by lack of knowledge of what is possible. A lack of focus of potential improvements leads to a lack of control over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business, and what their peers are achieving.
- For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand where and how they may change their business to be a leader in profitability, productivity, and competitive advantage. I assist you analyse:
The strengths, weaknesses opportunities and threats of your business
- Determine where you want to be – clear, achievable goals, and
- How you are going to get there – strategies to achieve your goals
This is sometimes known as the NOW – WHERE – HOW model.
If you would like to discuss with me how you might do that, book a Strategy Consult here.
© Copyright 2017 Adam Gordon, The Profits Leak Detective