It’s well known that a business plan is critical when trying to establish a new business, no matter what type.
However, do you really remember your plan years later? Is it still relevant? Has it been in a drawer ever since the day you met with the bank?
The business plan needs to be a focused, strategic document that keeps focused on what needs to be achieved. It keeps your business steered in the direction it must go. It’s not a static document, either. Times, circumstances and plans change.
According to the government’s business.gov.au web site, a “business plan is essential for your business – it’s your blueprint for the future. It sets the direction for your business and keeps you on track once you’re up and running. It’s also a requirement when you’re seeking finance.”
There are two key concepts here. First, just as you most likely presented your business plan to a bank when launching your operation, so too will you need to present it should you seek finance again in the future. Keeping the business plan current will take one burden off your mind when going through that process.
Secondly, the term ‘business plan’ could also be used interchangeably with ‘business strategy’. At any stage in the life of your company, your business plan should be your blueprint and guide to just why your company exists and where it is heading.
Your business plan will include, as a minimum, the reason why you have gone into business, your objectives, how you fit into the industry you are in, and how you are marketing your business.
There is also a need to mark down how your business is structured, how it is managed, how your business is financed, and your future projections.
When talking about objectives, consider the end goals without reference to specific fine-grained tasks. Your objectives may be to become the premier supplier of widgets to vehicle manufacturers across the world and to obtain a sufficient income to provide for yourself and your family in retirement.
Put it in practice
How you will actually achieve those goals in practice will come down to many complex factors relating to pricing, tenders and contracts, distribution and supply, how your business is structured, where revenue is recorded and so on.
“If you don’t know where you want to go, how do you know you are on the right track to get there?” asks Jeff Williams, formerly the chief financial officer at ResCo Services.
These individual strategies and tactics will change over time. When you find yourself considering a major decision, having an up-to-date business plan allows you to always be mindful of your ultimate goals. It gives you a basis to evaluate options and decisions.
“One key to becoming an outstanding manager is to always be asking what can I be doing right now which takes me closer to my goal?” says Brian Tracey, management consultant and a regular on the speaking circuits.
This isn’t to say your goals themselves cannot change over time. Perhaps your business plan only needs minor tweaks to stay current, but it’s also possible your plan needs to be entirely redrafted due to changes in circumstances or plans for family, personal, work, health, financial or any other reason. If you don’t review your business plan, the one thing you can be sure of is it cannot be safely claimed to be current.
“A business plan should be reviewed as regularly as six months to a year, and that’s while things are stable,” states Joe Bartolo, consultant to JJD Financial.
“You should most certainly update your business plan whenever any major change occurs, offering situations like significant new competition, new technologies, or heightened mergers and acquisitions in the marketplace.”
According to Bartolo, budgets go hand-in-hand with business plans. The plan is where you want to go, but the budget puts hard numbers to paper detailing how much you expect to make and how much you will spend to achieve that income. The budget is a guide to how you are performing against your long and short-term goals as espoused in the business plan.
“Another sign that your business plan needs a spot-check and tune-up is when major changes occur inside the company – a change of ownership is the most common reason, but significant drops in sales is another sign.”
Now, depending on the amount of updates, and the complexity of these, you can broadly categorise business plan updates into two buckets.
On the one side there are straightforward detail and factual updates. These are almost always no-brainers. For instance the company name, who owns it, with what percentage, and what the address is. On the other side there are conceptual updates. This is where things get harder to define and to measure, but by the same token, this is what really gets to the heart of your business. Get this right and you will have clarity and focus.
Conceptual updates might be occasioned by the activities Bartolo mentions – new products in the market which either compete with you or can be exploited by you, relevant changes to legislation and many other factors. These require deep analysis. It’s possible these elements may even necessitate the construction of a whole new business plan.
Unfortunately, there is no magic guide as to how you determine what is important to your business. This is because changes like this are specific to your business and management must decide which events and changes are really going to be important.
Even so, you can simplify the task by exercising some discipline. First, be certain to name your business plan, and subsequent revisions, in a clear and logical fashion.
Second, create a support file which contains all the relevant numerical data that you are basing claims and decisions on. In the same fashion, be sure to save historical versions of this file so that you can refer back to them.
This support file is important because it will substantiate claims you make in your business plan and help avoid inconsistencies. As an example, in your business plan you might make reference to the potential size of your market. As time marches on, you update this figure. Yet, you have referred to it several times in your business plan and neglect to update them all.
While this sounds complex, the problem is it looks bad when a potential investor reads your business plan and discovers it contains contradictory details. It diminishes the strength of your document, and it may cause you issues while you attempt to recall which number is correct.
Instead, by having a support file where you record your calculations that you can refer back to immediately, then, even if your document contains an inconsistency, this will be easily rectified because you have the working-out at hand.
Additionally, you can make the support file work for you. As you update the numbers in this, or determine new results based on ‘what if’ calculations, you will know immediately which sections of your plan must be updated to keep it relevant, and on target to provide a roadmap for your business.
CASE STUDY – Port Hunter Fire and Fabrications
Glen Messenger co-founded Newcastle-based engineering workshop Port Hunter Fire and Fabrications with business partner Terry Bender.
How did you come to start your business?
We were both working for companies performing ongoing maintenance and shutdown repair work at the Port Waratah Coal Services coal terminal facility. We realised there was an opportunity for us to tender directly. We were doing the work anyway, just for someone else. We won the contract and went from there. That one contract has been the bread-and-butter of our business.
How detailed was your original business plan?
It was short. We just knew that if we won the contract we could run a workforce with a reasonable margin.
How has the business evolved since then?
We began picking up additional work but needed an off-site workshop of our own so we picked that up along with an office. Now I run the workshop. Also, after doing this for a few years we began looking into exiting the business too. That’s why we had to update our business plan.
What did you do to update it?
It needed to be solid. Our accountant helped us out a lot here. We needed the business plan to really focus on what we were doing, why we were unique and what our numbers are at the end of the day. Previously, our business plan pretty much just said we were going to service a contract. Now it explains the duration and value of that contract, the efforts we are putting in to maintain an excellent service and safety record to protect that contract when it comes up for renewal, the value of our assets, and the possibility of growing the workshop to pick up more work. It also contains the best strategic location we could move to, the individual strengths of the two owners, and the inherent risks that could cause it to all fall over.