Have you ever taken a vacation without any planning? Left for the airport without checking on traffic, confirming your departure time, or packing your bags? What about reserving a hotel? Even the most laid-back, spontaneous travelers conduct some degree of planning, or the trip is likely to encounter some serious roadblocks.
When it comes to your business, your approach should be anything but spontaneous. A clear business plan can be the difference between a successful, thriving business or a directionless, failing one. Although you should expect the plan to grow as your business does, drafting an initial business plan helps establish if your business is possible – and worthwhile. Determining the feasibility of your business idea in this phase may spare you lost time and money, as well as free you up to draft your next – feasible – business plan.
Not only can a clear plan avoid the pitfall of a business on a poor trajectory, but it can also guide thriving new businesses to stay on budget, plan carefully for expansion, and demonstrate a better case for getting a business loan. After all, a business plan is one of the documents you’ll need to present to make your case to lenders.
To continue with the vacation analogy, if you haven’t established where your destination will be, it will be difficult to know when you’ve arrived. With a business plan, you can benchmark your successes against the plan, and decide if you need to pivot, set new goals, or focus on changes that can help you achieve existing goals.
Core Business Plan Requirements
Ultimately, a good business plan is about taking control. If it feels overwhelming to answer every question related to your business, take heart. Your business plan may simply ask all the questions, answer a few, and keep you in control of your business’ direction such that you can make good decisions. For a list of questions you should ask before starting a business, check out our article here.
According to the Institute of Chartered Accounts in England and Wales (ICAEW), your plan should include these key items:
- A fact-based executive summary
- History of the business
- Core competencies
- Key products or services
- Goals
- Addressable market
- Management plan
- Business development strategy
- Overall objective
- Accurate sales forecasting
- Risks and the plan to address them
The U.S. Small Business Administration (SBA) provides a step-by-step guide for creating a business plan here.
Reasons Why You Should Update Your Business Plan
While this clear plan is critical to launching a successful business, it is equally important to maintaining one. Florida Tech Instructor and Director of Assessment Tim Muth says:
“You don’t know what’s going to happen next week much less next year or five years from now, so they’re all assumptions. And sometimes with the business plan, people, since it’s an official-looking document, they think it’s like ‘it’s the truth.’ It’s only as good as what actually happens, there might be a competitor pop up you didn’t know about, maybe you don’t open up as fast as you thought, now you have a couple months’ delay, maybe the customers didn’t like what you’ve got or some competitors got something differently.”
Regularly reviewing your business plan and the market, goals, strategy, and cash flow estimates keeps your business on track to maintain momentum in the right direction, and to adjust process, goals, or strategies if something isn’t working or a new opportunity is presented.
However, when certain events occur, it is especially important to revise your business plan, including the following:
1. When your business undergoes internal changes.
Adding a partner or owner, changing or adding locations, or product launches (or removals) should all spur a change to the business plan. These internal changes mean your business plan needs to change to reflect the new change in direction – and to include the new team members in the planning process. Adjustments to suppliers or advancement in technology may also entail a review to best use newfound productivity and efficiency.
2. When you need cash.
The expectation remains for existing businesses: lenders want to see a current plan, not the plan you launched the business with. Updating the description, opportunities, risks, and financial predictions with current information demonstrates control, and means your business looks less risky and more strategic, which encourages lenders to provide loans.
Even if you aren’t asking for a loan, falling short of financial projections should trigger a review of the strategy. You’ll need to understand the current market and customer sentiment, and then decide if you need to change your strategy or approach to meet those demands. Even issues like delayed payments could be an early indicator of issues with customer satisfaction or an issue in your policy.
3. When business is underperforming.
If your business is falling short on benchmarks, return to the business plan and consider reviving it. Blair Koch, CEO of executive peer advisory board The Alternative Board, recommends a quarterly review to assess goals in relation to the business plan. One key reason business may take a hit is disruption from a new or suddenly thriving competitor. Understanding if your marketing approach, customer service, or governing objective should pivot when competition – or technology – disrupts your market equips you to proactively manage your business in a new direction.
4. When business is overperforming.
While unexpected high performance is also a cause for celebration, sudden success requires a revived business plan as well, to ensure the existing structure and staff of the business can sustain the unexpected growth. Remember, this business was launched with careful planning, and getting ahead of the plan means you’re heading into uncharted territory.
Similarly, launching new markets, products, or services can mean new revenue streams, but also require goals and strategies established.
5. When a new month begins.
Even if none of the major triggers have occurred, The Small Business Administration recommends a monthly review. This establishes an active, controlled approach to your business, and allows you to make slight modifications as needed instead of being forced to make sudden, more drastic adjustments in the face of issues.
Muth says thinking ahead is crucial for success:
“What you see today isn’t going to be your career 10 years from now or 20 years from now. It’s going to be a different marketplace, and you’ve got to always keep your antenna up and sort of understand the trends and what’s changing around you so that you keep yourself continually, you continually learn things, you’re updated, you’re not surprised by things when they change. You’re thinking a step or two ahead.”
Don’t treat your business like a surprise vacation – understand, regularly, your destination, strategy to reach it, and the money it will involve. It’s even acceptable to switch destinations at the last minute – just be ready to start mapping your new direction.