Some of the most profitable companies I know have what would definitely be considered inadequate business plans. Over the last few years I’ve worked with some that have never written a business plan or constructed a cashflow forecast. For one or two this hasn’t stopped them being hugely profitable and growing strongly, for now. Conversely I’ve worked with MDs whose fixation with plans and budgets has been so intense and detailed that they haven’t had the time to run their company resulting in little return and stagnation.
So what’s level of business planning should you do?
I belong to the school of thinking, shared by late-Beatle George Harrison, that ‘if you don’t know where you’re going any road will take you there’. Not a journey I’d want to be on. Equally, I believe that less is more. Minimum effort for maximum return.
So some vision of where you’d like your business to end up, or milestone stages along the way, is a prerequisite to any meaningful effort to move it forward. The very act of developing a business plan forces so many good practice behaviours that will help you see and manage the best way forward. And a financial forecast is a necessity, because cash is King and if you can’t predict it reasonably accurately you could well be making decisions you’ll regret.
Many of the executives I’ve spoken to over the years say they don’t plan properly because it takes too much time and it’s out of date before it’s done. Therein lies the solution. You need a business plan to drive your business, not a War and Peace tome that will only ever gather dust. Effective business plans should be precise but brief, setting out the goals and forecasts of the business for the next year or so. The budget should reflect the expected reality, not a pipedream. Then it acts as a living document as it is referred to throughout the year when comparing what’s actually happened with what was planned.
A simple template that makes sure you cover all the bases is all that’s needed. Most of the banks provide resources to help with planning and budgeting and increasingly bank managers are willing to give proactive advice in this area. I know, it sounds too good to be true! However, I met with Clydesdale Bank recently and their SME offer is definitely worth a look. Strathmore offers all clients a streamlined business planning toolkit.
A good business plan helps you manage the business proactively and can highlight both potential problems and opportunities. The larger a business gets to greater the need for a bit more formality and discipline, but done properly it shouldn’t be a burden or impose bureaucracy.
So, light touch but realistic plans and forecasts help to ease the challenges of running a business, make life that bit easier and tend to result in better outcomes.