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2014-01-02

How dismissing business planning can hurt your business

By Tim Berry Guest Blogger, SBA.gov

If you're still thinking of a business plan as a formal, static document, then you're sadly out of date and you're missing out on real business planning, which is a management process that makes your business better.
That old-fashioned business plan document was not uncommon about a generation ago. It is now. Back in the 1980s, as the personal computer industry took off, the big business plan document was a common part of the typical high-tech startup's efforts to raise capital as risk investment. Venture capitalists and angel investors expected it. But as the rise of online changed the business landscape, time frames and attention spans shortened, physical locations became more frequently virtual cyber locations, real business planning evolved.
Business planning today is not a document; it's a process. It's part of managing a business by steering, with a route and directions set, but course corrections to keep things moving towards goals as situations change. Business planning starts with a short, streamlined "just big enough" business plan that covers only what your specific business case needs to move ahead. Usually that's some brief reminders of overall strategy, plus specific dates and deadlines for activities, plus projected business numbers aimed at managing cash flow. And it's an efficient, economical effort because everybody understands that each version of the business plan is good for a few weeks at best and was built to change. A business plan is not ever finished and left alone, because business assumptions change quickly. To be useful requires regular plan review and course corrections.
So what's the value of business planning?
I start with what is not the value of business planning. The value of planning is not guessing the future correctly. It is not having a static document you have to stick to. It is not having step-by-step instructions laid out a year in advance so you don't have to think. And, except for those rare cases - one in thousands in which a business plan is used to inform outsiders - it is not describing your business. And it is not text or formatting.
What is the value of business planning? It drives business decisions, reduces uncertainty, manages change and optimizes management. Here are some of the ways it does that:
The business planning explores the interdependencies between different business activities, such as sales, product development, marketing and administration. For example, business planning relates to spending on marketing to the expected sales that result from marketing. Business planning makes the difference between fixed costs and discretionary costs more visible.
Business planning focuses on drivers of sales and traffic, and spending to generate sales and traffic.
The business plan sets down dates and deadlines and budgets for activities, which becomes an extremely useful tool for managing execution. It's the perfect format for watching performance compared to expectations.
Business planning manages change. For example, if sales should suddenly increase, the business plan is an immediate link to related marketing expenses to help you invest more in what's working. Regular monthly plan vs. actual analysis helps managers identify changing assumptions and develop changing plans to deal with changing assumptions.
Business planning helps you manage to keep long-term objectives in mind while at the same time frequently refreshing short-term activities. It's looking at the horizon while minding the details at your hands and feet.
The misunderstanding of what business planning has become - the stubborn myth of the formal static document stands between a lot of people in business getting the benefit of good business planning. It's a process, not a document.
About the Author
Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, doing social media business planning at smbplans.com, and blogging at timberry.bplans.com. Stanford MBA. Married 42 years, father of five. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.