An introduction to creating better-informed business plans
Reactive growth, where leaders are forced to wing it when demand increases, will only take you so far. Setting long-term goals and creating informed business plans on how you’re going to achieve them is a crucial part of sustainable growth.
Among the reasons why businesses don’t plan are lack of time and expertise, inadequate knowledge of the planning process and reluctance to share strategic ideas with employees and others.
The quality of a business plan and the process involved in its creation are critical to success. Particularly, getting input from a wide range of sources and devoting enough time and resources to the process.
This guide explains the key factors that influence what goes into your business plan, common mistakes and quick wins for creating better-informed business plans. The next step will be to use our action plan to direct your change and improvement.
What factors influence what goes into your business plans?
The process starts by identifying what your business plan needs to include, working out what support you need to create it and thinking about your company culture.
Decide what sections to include in your business plan
The content of a company’s business plan or plans will depend on each company’s priorities, ambitions and targets. A company that’s planning capital investments will have to define the return on investment (ROI) and funding sources. A company planning to expand into a new market overseas should research the potential for expansion and include a summary of the findings to justify the strategy.
Get the right support
Many business owners and leaders are too busy to devote the time and energy to producing high-quality business plans. They may also lack access to someone with the right skillset to produce the quality of business plan they need, particularly the market research and financial modelling to back it up.
Make sure you identify any skill gaps and consider what help you’ll need from your team and external advisers when you’re starting the process.
Get feedback from different parts of the business
The culture of a company and how it operates play a big role in strategy. A business plan devised by one or two people at the top of a company or an external specialist is likely to be less effective than one that takes a more collaborative approach.
John Lucas champions collaborative thinking at robotics firm Tharsus
“Plans are run by a group who understand their own piece of it, everyone else’s piece of the plan and they collaborate and challenge and continually strive to make those plans better.”
John Lucas, CEO of Tharsus
The cold hard facts
No, not everyone. It depends on what type of business plan you are talking about. Economist Carl Schram argues that those business plans devised largely to attract external funding before the business launches are of little value and in fact are unnecessary. Such business plans are a staple of business schools.
Common mistakes in developing business plans
Your plans are too long-winded
Business plans are often too long, meaning it takes too long to read and decipher as well as being difficult to change. Although more established companies may benefit from more detailed business planning, it’s important to be concise.
Failure to challenge underlying assumptions
A business plan is only as good as the assumptions underlying it. Make sure your plan is evidence-based and do any performance analysis or market research that can help add weight to your assumptions.
It’s a great plan, but only on paper
A business plan can be too rigid and inflexible. This is particularly the case when things are changing rapidly. Revisit the plan on a regular basis, perhaps in quarterly meetings, and be prepared to change direction if it isn’t panning out.
Lance Forman believes that business plans need room to be flexible
“None of us know what’s around the corner. It doesn’t mean you shouldn’t have an idea of where you want to get to, but being too rigid is a mistake.”
Lance Forman, owner of H. Forman & Son
The cold hard facts
A 2010 study published in the Journal of Management Studies found companies that plan grow 30 per cent faster than those that don’t.
Quick wins for better informing your business plans
Involve your employees in the planning process
Staff working on the frontline are well-placed to see changes in the market. An effective internal communications strategy that encourages employees to provide feedback and suggest ideas should be part and parcel of a company’s planning process.
Staff should understand why the company’s goals exist and what assumptions were used to arrive at those targets.
Holding regular meetings to brief staff on opportunities and let them have their say can be valuable in engaging them in the planning process.
Breaking down the overall plan into the impact on individual departments and team members creates a link for staff between achieving their own targets and the success of the company.
Involve customers
Good business planning has customers at its heart. So, talk to your customers about what they want from your company as well as about your plans and ambitions. They can provide unique insight into the business, and provide you with early indicators of any problems, issues, trends or opportunities.
Consult widely
Tapping into knowledge from advisors, including non-executive directors, experts and peers, means you can test your assumptions and get new ideas. Research from industry bodies and publications can add weight to your business plan too.
Conduct formal research
Doing market research can be helpful, for example, to quantify the potential sales of a newly-launched product. When entering a new market, finding out about your main competitors can be invaluable.
When trying to look ahead, consider the use of tools such as forecasting software.
Build different scenarios into your plans
Consider worst case and best case scenarios in your planning, and share details about the impacts. Modelling the impact of a particular investment or strategy can be helpful too. Where exact figures are not likely to be reliable, use a range of values or possibilities instead.
Keep your plans updated
The best business plans are iterative. They are a tool to refine and adapt your strategy as you go, continuing to understand your market as it changes and refining your business to the ever-changing needs of your customers.
Regularly track the performance of the business against the plan. If the figures vary, question why and consider whether the plan needs to be revised. Formalise this process by holding regular business plan review meetings.
Focusing on a few important KPIs can pinpoint discrepancies between a plan and what is actually happening on the ground.
Question your underlying planning assumptions
Writing and updating a business plan should never be a mechanical exercise, where you feed in the latest sales figures.
Instead, it should be an opportunity to question whether the assumptions underlying the plan are correct. Perhaps your costs have risen suddenly, which will have a knock-on effect on your bottom line.
Triggers that a plan may need updating might be the start of a new financial period, a strong competitor entering the market or a seismic shock to the company such as your best salesperson leaving. Another trigger might be a change in legislation that affects your market.
Sticking rigidly to a business plan meant Tarryn Gorre almost missed a valuable opportunity
“Keep an open mind to the possibility that slavishly following a plan may be doing more harm than good. We were spending so much time looking at pubs and making sure fish and chips were safe for people to eat that we missed one of the most valuable verticals – healthcare.”
Tarryn Gorre, CEO and co-founder of Kafoodle
The cold hard facts
One in four small businesses don’t have any strategy to support their business growth and only 47 per cent of the UK’s small businesses have a formal business plan in place, according to research by Barclays.
Now you’ve learnt about some of the factors that lead to better-informed business plans, use our action plan to direct your improvement efforts.