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Learn more about planning a business launch.
In order to benefit from using a written business plan, you must keep it current. Treat your business plan as a dynamic document that should be kept current as your business evolves. While you might have initially created your business plan for a specific purpose (such as obtaining financing), the plan can serve you well in a number of capacities. It provides the baseline against which to measure your business's performance. It can help you anticipate the impact of changing market and economic conditions.
A written plan can also be important when the unexpected occurs. For example, you might have an unexpected need for short-term financing if a large customer is late in paying or you incur unexpected expenses. An up-to-date plan means that you can go to your lender and demonstrate what happened and how you plan to respond. If a vendor goes out of business or can't deliver what you need when you need it, a current plan can be used to negotiate with a back-up source of supply.
Finally, there is a selfish reason to keep your plan current. You invested a good deal of your time and effort to create the plan initially. If you don't keep the plan current, you can look forward to a similar effort the next time you need a written plan. You preserve your planning investment by making the incremental changes that reflect actual business results, changes in assumptions, and other adjustments to your initial plan. Remember, it's almost always easier to edit an existing document than to create a new one.
We've suggested that your plan should cover a five-year period. When considering plan updates, issues to consider include the frequency and timing of updates and planning for mid-course corrections between updates.
Many people think of "planning" as an annual process. Thousands of companies publish an annual plan each year, outlining their expectations about operating results for the coming 12 months. Obviously, the annual federal income tax cycle is a driver favoring an annual process.
Realistically, though, you're probably planning all the time. Most business owners are always thinking about ways to make their business better. In discussing a "planning interval," what we're really suggesting is periodically setting aside a certain amount of time to create or update a written business plan. Part of this planning commitment includes deciding how often and at what time of the year to set aside that time.
How do you select a reasonable planning interval? Start with the assumption that you'd like to have at least one planning period each year. Many factors that affect your business will be tied to some annual cycle. As noted, income taxes are due yearly. In addition, federal safety rules require posting annual summaries of information.
If you don't engage in some planning at least once a year, you can get some unpleasant surprises when, for example, you prepare your income tax return. Also, many employees will expect annual raises or bonuses. This and other factors make annual planning a reasonable starting point. But your circumstances may require a different planning interval.
Consider a business located on a small chain of lakes. It operates a marina and boat repair facility from spring to fall. As the boating season ends, the business switches to servicing snowmobiles and supporting ice fishers. Even though the results of marina operations are available as of the end of the season, that information is of limited value in planning for the coming winter. The information that is meaningful to the business owner trying to plan for winter relates to the prior winter's operations. Planning for summer operations and for winter operations wouldn't have to occur at the same time, and there would likely be benefits from scheduling two planning sessions.
Another consideration in scheduling a planning period is the availability of the information that lets you know whether your business is on track. If sales and financial information are only summarized once a year (because you have to file a return), it will be hard to hold more than one planning session a year. It's difficult to project what will happen next year if you don't have a clear picture of what's happening this year.
If you work as a consultant on a project basis, it might be necessary to engage in some planning activities as you get near to wrapping up each project. For many consultants who work alone, planning is all about lining up the next job. It should be more than that, however. Take the time to assess how the most recent project compared to your expectations. If you negotiated a flat fee for your work, look at how many hours you spent. Are you being compensated at a reasonable rate? It is necessary to plan for your upcoming jobs based on the most accurate information you have. By comparing the time actually spent with what you projected, you can revise future plans and perhaps make other adjustments to ensure that operations are generating the income you wanted.
You also need to consider whether there are any time-based dependencies that can affect your ability to plan. These dependencies can relate to how you keep your books, the lead times you need to keep inventory current, other deadlines, etc. Trying to plan without adequate information is frustrating and fruitless.
After you've committed to periodically scheduling planning periods, how do you determine when the right time is to engage in the planning process? Most small business owners won't have the luxury of a "strategic planning committee" or some other dedicated group to handle planning on an ongoing basis. In all likelihood, you are the only person in a position to create a business plan. Since the demands of the planning process fall on you, don't schedule your planning period so that it conflicts with other demands placed on you by your business. If the Thanksgiving to Christmas period is your busiest time of year, don't schedule your planning process during that time.
Unfortunately, it's easy to feel that you're always busy, and planning is something that is done after the job of running the business has been completed. This frequently serves as an excuse to forgo planning altogether. If you feel overwhelmed by your business, it's easy to let planning slide. However, the fact that you feel overwhelmed is a clear warning that you need to plan. The planning process itself is just one more ball that the business owner has to juggle. In order to do so effectively and efficiently, several issues should be considered:
First and foremost, you have to commit to making the time available. Hopefully, you've considered the benefits of having a written plan and are convinced that time spent on the planning process is justified. You're probably thinking about your business all the time, so the process of creating or updating a written plan doesn't start from scratch each time anyway.
How do you estimate the amount of time to set aside? There is no easy way to answer that. It will depend on how easily you can obtain required information, how involved your business is, and a thousand other factors. We suggest that you review the documents that make up a business plan as a starting point. Consider what is required to complete each separate part of the plan. When armed with knowledge regarding what the finished product will look like, it should be easier to gauge how much time to allocate.
In many cases, you probably won't be able to shut yourself off from the rest of the world and quietly map out your plans. Instead, you'll work on your business plan in addition to your other responsibilities. When you work on a project for an hour here and an evening there, it takes more time. Plan for that. Also plan for the fact that it will take longer to produce the first plan than any of the subsequent ones.
To make the planning process meaningful, you need access to the operating results from the preceding period. Do you know what sold well and what didn't? If you're a consultant, have you noticed any change in your ability to obtain work? Even if you're just starting a new business, you'll need to make estimates regarding the expenses and income that you anticipate.
Make sure that you have an adequate opportunity to follow through on what you plan. For example, if you need to place orders a certain amount of time in advance to ensure timely delivery, your plan should take that into account. It is of no help to determine that you need to increase your inventory to meet sales if you find out too late to order the inventory you need. Seasonal businesses in particular have to watch out for this. The planning process has to be completed by the time the orders are due.
Finally, consider the need to comply with regulatory requirements to which your business is subject. Figuring and paying taxes immediately springs to mind as a regulatory deadline you'll have to meet. The information you need to prepare your return is likely to be much the same information you need to adequately plan your ongoing operations. To the extent that you can combine the processes, you can realize substantial time savings.
Similarly, your lender might require periodic reports on your financial condition in order to continue extending your line of credit. Whenever you can get double duty out of a planning-related activity, you reduce the overall time spent.
What do you do between scheduled planning windows? Obviously, you can use your business plan to track actual performance against projected performance.
A closely-related activity is revisiting the data between each revision. This is how you refine the plan over time to make it a better tool for managing your business. When you created your plan, short-term operational results were spelled out with great specificity. Weekly targets for sales or income were established, but for the periods that were further out, the projections become less precise, frequently appearing in summary format.
With a little foresight, the longer-term projections can be refined based on actual results so that the plan's precision increases with time. When the first quarter's operational results are in hand, look at the second and third quarters and try to gauge whether your projections were relatively accurate. Moving into the second quarter, you can "unbundle" the data and break it out into the level of specificity previously reserved for the first quarter. Because you can assess the deviation between actual performance and projected performance, the data for the second quarter should be more reliable than the data for the first quarter. Over time, your ability to accurately project future results will continue to increase.
By breaking out the second quarter data, you can continue tracking performance at the same level of detail as in the first quarter. Now the second quarter is the near term and you have data that is as good or better than what you had for the first quarter. Through extrapolation, you can refine the plan to provide the level of detail that you need, when you need it.
What does this get you that "mere" performance tracking doesn't? It sets you up to respond to the tracked information by revising the estimates you made when you started. Tracking your actual performance against the plan alerts you when reality doesn't match your projections.
If there are flawed assumptions or projections in the plan, it's better to correct the plan than to adjust operations in an effort to meet targets that were improperly set initially. Refining the plan is one way to correct that discrepancy by revising the projections to make them more accurate. As your projections become increasingly accurate over time, your business plan becomes an even more valuable tool for running your business.
Many large businesses routinely schedule a mid-year or quarterly review of their business plan to ensure that there is an opportunity to make mid-course corrections when things aren't going as planned.
For a small business, such a review is vital. The plan is designed to reflect your expectations regarding the success of the business. How long can you stay off track and still succeed? When can you be satisfied that you are close enough to the plan to continue on, and when should you worry and consider additional options? Periodic reviews help answer those questions and provide an opportunity to revise and update the plan document itself. Such reviews also permit you to spot trends, irregularities, and other business characteristics that you can exploit. These trends may not have much impact on the plan, but they might point to operational issues that need to be addressed:
It's not beneficial to complete a business plan and then file it away for a year. Instead, you want to use it to push the planning horizon further out in time. Are you on track to meet your projections? If not, is corrective action warranted? Keeping your business plan close at hand, and revising it regularly, will turn it into an vitally useful management tool for your business.
Despite your best efforts, sometimes a business just doesn't take off the way you expected. The unfortunate fact is that a large percentage of new small businesses fail. Interestingly, most small business owners don't bother to create a written business plan unless they are absolutely required to (as is usually the case if you need outside investors or bank financing). Without the benefits that a written plan can provide, it's just that much harder to cope when your business isn't meeting your goals.
Since you have a written plan, let's see how it can help you when things go wrong. The starting point will be to review the contingency plans you created at the time you drafted the business plan. Your contingency plans identify and evaluate those factors likely to have an impact on your business. Unless something new and unexpected has arisen, it's very likely that you already have at least potentially identified the problem. Just as you used the planning process as a way to organize and develop your business plan, you can now use the plan as the foundation for a process to assess the adverse results and to determine how best to respond.
When things don't go well for a business, there's a reason. However, it isn't always easy to figure out the reason (or combination of reasons). It could be that your business plan contains some faulty assumptions or conclusions. It could be that your business is having operational difficulties of some type. In either event, you have to isolate the cause of the problem before you can correct it. Some problems will be internal to your business, while others will result from external factors beyond your direct control.
The first thing to consider is whether the problems you're experiencing are a result of internal factors, external factors, or a combination of both. External factors can be very widespread, such as a downturn in the entire local economy, or they can be specific to your business, such as a vendor's failure to deliver on time. Internal factors relate to the specific processes and activities that you use in running your business. An employee may not be performing as you'd like, or operating cost estimates might have been too low.
In all probability, there won't be just a single root cause for your business's problems. As you look for the source of your problems, don't be surprised if you have to address several issues. The key concern is to identify all the reasons why your business isn't going the way you'd like. Then you can consider what to do about them.
Once you've identified the factors that you believe are causing your business to deviate from the course you charted in your business plan, the next step is to consider your options. In some cases, you'll be able to directly address the problem. For example, if a vendor is consistently late in delivering needed materials, you can look for an alternative supplier.
Unfortunately, you won't always be able to respond directly to the source of a problem affecting your business. For example, consider a small business located in a shopping mall. Assume that the business plan relied on the existence of an anchor store to create a sufficient amount of traffic to support the business. If that store leaves, a fundamental assumption on which the plan relied becomes invalid. There is no direct response that the business owner can make. It doesn't matter than the assumption was reasonable when it was made. The business plan needs to be reexamined in light of the changed external circumstances.
If you can't respond directly, as in the preceding example, be sure to get as much information as you can before determining your options. Will there be a new anchor store coming into the mall soon? If not, perhaps the business should be moved to a new location. Or, if it appears that a new anchor store will be opening soon, perhaps it would be worth it to wait it out. By adjusting the financial projections to reflect the reduced revenue for that period, the owner can determine whether the business can survive such a temporary downturn.
Consider a small business that launches a new product with an expensive advertising campaign. If the product doesn't sell well, what should the owner do? One option involves advertising. Maybe the ads aren't quite right and new ads should be created. Or, maybe the ads have not reached as large an audience as expected and the advertising campaign should be stepped up. Another option involves the product itself. There may be some characteristic or feature of the product that can be changed to make it more popular. Another option involves marketing. Perhaps the price should be lowered or the packaging changed.
It is at this point that you will realize the full advantage of having a written business plan available as a modeling tool to help you assess your options.
Business Entity Compliance from CT Corporation — Partner with the Industry Leader
Contact your CT service representative now!