Business Plans: What is the point?
- Written by Warren Harmer
Business plans are not a new concept, most of us have seen them and have a fair (if theoretical) idea of their value. Despite a lot of interest from business owners who seem enthusiastic, what I have seen over the last 15 years is a long way from that enthusiasm. My estimate is that less than five percent ever had a business plan.
Gurus and experts love to spruik all sorts of doomsday outcomes from not having a business plan, but business plan / business failure are not the only two, mutually exclusive outcomes. This ridiculous line actually undermines the value of business planning as those who would benefit simply tune out, as they don’t think they’re about to fail. In reality, there is a continuum of outcomes for businesses with and without plans; most small businesses don’t do any kind of planning and haven’t failed.
If avoiding failure is not the pinnacle of business planning, what is the point? To me the whole point is about improving the outcome from what would otherwise be done without any kind of planning. Sometimes that means saving the business from oblivion, but not often. Usually, it means making more money, a clearer direction, better engagement, and doing less dumb things.
Businesses are very high risk, yet “seeing what happens†is the most common approach. Getting out of operational mode for a short time to decide where you want your business to go gives clarity and certainty for the whole team when they are in-the-trenches every day. Analysing the business also uncovers a lot of problems that business owners may or may not know about: low margins, poor marketing, failing strategy. It’s like looking in the mirror that forces the owner to address reality.
A common misconception about business plans is that it’s all about the business plan and the total focus is on creating a polished document. But the real value of a business plan is the process that goes into creating it – the document creates a record of the analysis and the decisions made. We spend 2 to 4 weeks analysing the business, researching the market, creating projections and targets, reviewing the strategy, understanding pricing and margins, understanding the business owner, marketing and human resources. We take the business apart and put it back together again.
Outcomes we have seen at The Business Plan Company include a plumbing company that cut out half of their non-profitable business, a pest company that learnt to deal with seasonality, a kitchen company that stopped wasting many thousands on advertising and a consulting company that eliminated bad debts. Even for business owners who have been in business a long time, we challenge the way they think about their business.
Most small businesses don’t do business planning; it’s not useful, it’s too hard, too expensive, they don’t need it or even don’t understand it. From what we have seen, a short, sharp, action-oriented business plan can unleash enormous value in a business. If an effective business plan generates more than $2,000 extra profit than not having a plan, why wouldn't you invest that to get the professional help to create one? From the businesses that we have worked with, they generate that value with their eyes closed.
Dr. Warren Harmer
Chief Business Planner
1300 171 534
