Importance of Business Plan writing
By Fiona Castela - Castela Consulting
Everyone knows that if you’re starting out in business you need to write a business plan. Right?
Yes, it’s important to have a business plan as a start-up but it’s also important as a business grows to write and update a business plan and NOT leave it sitting in your desk drawer. In truth a business plan not only helps to interest investors or get finance via loans, it should work as an excellent operational tool for the business too.
Here are my top 11 benefits of writing down your Business Plan:
1. Your Business Overview
It connects the dots in your business so you get an excellent overall view. Do your sales outweigh your sales and marketing expenses? Is there a market for your products? are they right for your target market? Are your risks identified and mitigated? Are you covering costs including long-term fixed costs, product development, and working capital needs as well? Take a step back and look at the bigger picture.
Strategy defines your long-term goals and how you're planning to achieve them. In other words, your strategy gives you the path you need toward achieving your SME’s mission. Tactics are much more concrete and are often oriented toward smaller steps and a shorter time frame along the way. Does that show up in your plan?
3. Strategic Alignment
Does your day-to-day work fit with your main business tactics? Do those tactics match your strategy? If so, you have strategic alignment. If not, the business planning will bring up the hidden mismatches, e.g. if you run a gourmet restaurant that has a drive-through window, you’re out of alignment. A very painful (and costly) lesson to learn.
4. Develop Accountability
A good Business Plan allows you to set expectations and track results. It’s a tool for regular review of what’s expected and what is actually happening. Good work shows up and drives SME forwards; disappointments show up too, enabling a swift change of track. A well-run monthly Business Plan review with plan versus actual included becomes an impromptu review of tasks and accomplishments.
5. Manage Cash
Cash flow is king for SME's, good business planning controls the numbers. A high turnover is good but profitability is the best. Sometimes just watching profits is enough. But when credit sales, physical stock, payroll, repaying bank loans or paying finance on assets are involved, cash flow needs regular management and updating. Profitable businesses suffer when slow-paying clients or high stock holdings constipate cash flow. Reviewed monthly, a plan helps you see the problem and adjust to it.
6. Strategic Focus
Start-ups and small business need to focus on their individual identities, their target markets, and ensure their products or services are tailored to match. Research, research, research.
7. Set Priorities
A business owner can’t do everything. Business planning helps you to keep track of the right things, and the most important things. Allocate your time, effort, and resources strategically.
8. Manage Change
With a good planning process you regularly review assumptions, track progress, and catch new developments so you can adjust. Plan vs. actual analysis is a dashboard, and adjusting the plan is steering the business.
Good business planning sets milestones you can work towards. These are key goals you want to achieve, like reaching a defined sales level, hiring a new administrator, or moving location. We’re human. We work better when we have visible goals that we can work towards.
10. Performance Indicators
Use your business plan to clearly show your performance indicators and numbers. Track them monthly in review meetings and identify the numbers that matter. Sales and expenses usually do, but there are also calls, trips, exhibitions, web traffic, conversion rates, returns, and so forth. Use your business planning to define and track your key indicators.
11. Realistic and Regular Reminders
We all want to do everything for our customers, but sometimes we need to push back to maintain quality and strategic focus. It’s hard, during the heat of the everyday, to remember our priorities and focus. The business planning process becomes a regular reminder and operational tool to keep your business on track.