Without a plan you don’t know what your business ought to be doing, action without a plan is not sensible, but having a plan without implementing it is unforgivable.
Many mid-sized businesses don’t devote enough time to planning, the management does not stand back and take a look at where they want to go and how they are going to get there. They are storing up problems for themselves in the future.
This failure is understandable in some cases because the concept of business planning can be quite vague and its benefits are often poorly explained.
At its simplest, a business plan has three main components: taking stock; setting goals; and deciding how to achieve them.
The first stage involves assessing the company’s current position and its standing in various areas such as with customers, staff, brands, finances, and so on. You should carry out an initial appraisal first and then go deeper.
After that you need to get a sense of where you want to go. This needn’t be a financial target. It can things like improving products or customer service, dealing with staff better, creating a better structure in the company. You can start out by deciding very clearly what it is you want to offer customers and that will set the targets for the other areas of the business.
At the third stage you identify the gap between where you are and where you want to go and figure out how to close it. You decide on the actions you need to take to achieve your goals and you convert that information into numbers against which the plan can be measured.
At the end of the process you will have an assessment of where you are, decisions on where you want to go, and a set of actions to get you there. You will also have the key performance indicators to measure progress. This tends to be a much better way to do business.
There are also wider benefits to an organisation. There can be many people involved in a business and one of the advantages of a plan is that it brings them all together to where they are and how they are performing. People want to be connected and see how they fit into a plan, how they are contributing to the success of the business.
It also brings about a greater sense of appreciation of the contributions made by other areas of the business. Sales people can often hold finance departments in quite low esteem but if they better understand what those departments actually do for the business this can change and create a greater sense of teamwork across the organisation.
At a higher level, a plan helps to set ambitions for the business. A good plan will also set targets in areas such as client satisfaction levels, return on investment, minimum levels of staff turnover, and brand perception.
There are many different types of target you can set but it is vital to be realistic in all cases. Indeed, you have to be quite ruthlessly realistic and this may see some tough decisions being made in relation to some areas of a business.
It you are involved in a lifestyle business the plan may not matter all that much but if you have higher ambitions you’ve got to be willing to take people out of their comfort zones and set quite challenging targets.
Indeed, many SMEs get a bit too comfortable in their space and this can make them vulnerable to younger, hungrier and more thrusting competitors. You need to look at what’s required to break away from the pack and set the business on an ambitious growth trajectory. This may mean challenging people within the business to set aside preconceptions and assumptions and reach for new goals which may previously have been regarded as unattainable.
In some cases this may even mean that new people will be required to drive the business to the next level. This will also have to be incorporated into the plan.
You must also guard against being unrealistic, however. Lofty goals are usually good but there is nothing more frustrating for staff than working to plans with clearly unachievable targets.
One of the greatest benefits of a good business plan is how it can make a business ready for investment. Investment is not some abstract thing where money is put into a business for no particular reason. Investments are made to achieve something and to deliver a return. By the end of the planning process you should be able to see what investment is needed in your business to achieve targets and realise ambitions. You should also be able to see what return can be generated by that investment.
That investment can come in a number of guises. At the initial phases of a company’s development it might well come from profits or from the banks in the form or an overdraft or invoice discounting product. This is essentially working capital. As the business grows the more capital is available from these sources but at a certain stage you will have to look elsewhere.
The next type of investment is one that will give a reasonably secure return. This might be an investment in a particular asset such as a business premises.
After that comes investment in the growth of the business itself. That’s more of a risk based investment and you will need to offer higher rates of return for it. Those higher rates mean that you should in the first instance look to the directors and other shareholders and stakeholders to see if they can afford to put in the money. After that you will have to look to venture and equity funds and other external investors.
The key advantage of the plan is that it will show potential investors what their return is likely to be proved that the business is worth investing in. Investors will be able to see how your products or services are able to perform against the competition. Professional investors are quite intuitive but they still need to see a plan to give them tangible evidence on which to base their decision.
Good business planning is essential for the long term success of a business; it ensures that all areas of the business are performing to their potential and that the business itself is working towards clear and measurable goals. It also helps you inspire investor confidence by demonstrating that you know what you’re about.
Joe Carr, Global Leader of SME Advisory Services Mazars.
This article first appeared in the Sunday Business Post 28 June 2015.