Your business plan by Malcolm Bacchus, SME Working Group Member, Principal of Baccma Consulting and Council Member of the Institute of Chartered Accountants in England and Wales
04 March 2016
Why do a business plan? The primary purpose of any business plan is to help you meet your objectives, keeping you and your business on track. Helping you to measure what you are actually achieving against what you had hoped. Helping you to anticipate the future and meet it head on. It really should go without saying, but it doesn’t: a well-planned business has a competitive advantage over its rivals. Both in the good times and the bad.
A good business plan serves four related purposes.
First, your long term aims. Not just a “mission statement” (or some equally meaningless corporate-speak) but what the purpose of the business is, what principles govern those aims and where you ultimately want to be. Are you looking for quick growth and an exit in five years? A business you can pass on to your children? A hobby business or the next Microsoft? The largest online fashion retailer or a small corner shop?
Second, a road map of how you hope to get there. This sets out key milestones and helps break down the work into manageable chunks. It also ensures that you do not lose sight of the far horizon when swamped with the day-to-day tasks. Often the road map will be more detailed for the next two to three years of the plan, more general thereafter. In financial terms, this can normally be translated into a two or three year (possibly five year) financial projection.
Third, a short-term action plan. For the next few milestones, the business plan will be more detailed and translatable into individual goals, possibly by date, cost and the people responsible for achieving those goals. This short-term action plan can be turned into a financial budget for the following year.
Finally, the plan will serve as a method of monitoring performance. Most businesses compare their performance against their budget on a periodic basis. Depending on the type of business, this can be as frequently as daily or weekly (such as for shop sales) but for many businesses a monthly or even a quarterly comparison is sufficient.
Of course, a business plan has other purposes. It is critical for raising finance (and will be one of the first things a lender or investor asks for) but a good business will always have its plan to guide it whether raising finance or not. The primary purpose is always to help you.
I don’t have space here to spell out what should go into a written plan and everybody has their own ideas about it, in any case. I’ll be back to spell out my views in a later blog but you can find many different templates online. How much detail you need to put down is up to you and your needs. All I’ll say for now is: don’t be seduced by too many numbers. They are very important, but the value of a business plan is much more in the work you do thinking about how to achieve your aims. The numbers are a quantification of this, but if the basic thinking behind the plan is flawed, the figures will be meaningless.
Of course, the plan will not be effective unless it is followed and reviewed where necessary. It will act as a guide to determine whether an action should be taken and at what cost. And by periodically reviewing where you are against the plan, you will be able to identify where corrective action may need to be taken.
No plan however is sacrosanct. Hopefully goals and values will remain intact, but many elements of the plan will need to be reviewed and updated as your business develops: products and services, management, capital requirements are all likely to change over time in response to the market. At least once each year, therefore, you should look at the plan afresh to see what has gone right and what has gone wrong; updating the plan where necessary, expanding those elements which are now closer to the present and creating next-year’s budget and forward projections.
Valuable tools should always be kept shiny and sharp – and you will find your business plan a valuable tool in your armoury. Happy hunting.