A business plan is the result of thinking, researching, strategizing, coordinating and reaching conclusions about how to pursue a specifically stated business opportunity. It exists in one or both of two places: on paper (including electronic “paper”) and/or in the head of the planner. Whether elaborate or simple, a business plan is a collection of ideas, facts, assumptions and projections about the future.
Why is a business plan necessary? Here are five good reasons:
1. It’s important to conduct due diligence on your proposed new business or future direction of an existing one.
2. It’s essential to take stock of the potential opportunity and compare that with your ability to pursue it effectively.
3. It’s necessary to evaluate your ability to overcome any obstacles discovered during the plan development.
4. A written business plan can be helpful in getting a loan from a bank and is usually essential when courting investors.
5. Anything in writing is always more valuable than relying on memory.
But a business operates like a movie, not a photo album. And since a business plan is more like a snapshot than a video, how does it help? It’s a good question that’s often asked, and the answer is it establishes a baseline from which you execute the most important management fundamental of all, planning. A plan is static; planning is motion, just like your business. A plan is a parked car; planning is conducting a safe cross-country trip through heavy traffic.
Planning is checking your moving business activity against fixed assumptions and projects you made in your plan and then measuring performance, or lack thereof. Planning allows you to see how smart you were when the plan was written, or where your due diligence and assumption skills need work. It also highlights any external changes that you must deal with.
For existing businesses, written plans often become collateral damage in an economic downturn. But you can’t allow planning to meet the same fate. Indeed, when things slow down there is even more need to check your position than when things are rocking and rolling. In a recession, planning should be conducted daily, not monthly. And if you’ve been a business owner in other recessions, you know that it’s sometimes necessary to do hourly planning.
Recently, on my small business radio program, I discussed this with the world’s business planning expert, Tim Berry. Tim is the founder of Palo Alto Software (www.paloalto.com)and an original member of my Brain Trust. Don’t miss this opportunity to hear from the master about why now, more than ever, planning is one of your keys to survival. And don’t forget to leave a comment or question.