Most of the respondents to our recent small business survey claimed to have some form of strategy and business plan in place; at the same time, more than half would be interested in accessing training or support to improve this area of their business.
Clearly, then, small business owners seem to recognise that a good business plan – and an effective process to review and update the plan periodically – can deliver great results in terms of growth, profitability, and even personal fulfilment. Let’s look in a bit more depth at some of the benefits of business planning.
Clarifies objectives and strategy
A business plan should articulate the organisation’s objectives and explain what strategies will be deployed to achieve those aims.
A lack of clarity about a business’s objectives will prove detrimental to any business plan; if the purpose and objectives of the business are unclear, all attempts to marshal resources, direct activities, manage the people and the finances will probably achieve sub-optimal results.
Depending on the complexity of your business, the strategies laid out in the plan may need to address a number of different disciplines. We identify eight in our Guide to Growth for Business Owners and Entrepreneurs.
Provides a path to manage growth
A good business planning process will identify and evaluate different business growth opportunities. Growth may come from product/ service innovation; development of new markets; further penetration of existing markets; or a combination of these factors.
Detailed consideration of the external (environmental) and internal (resource) aspects of each growth opportunity creates more confidence and clarity about which opportunities you should pursue. Pursuing growth opportunities based on gut instinct alone is usually a much riskier strategy.
Improves financing arrangements
A credible business plan backed with robust financial forecasts provides a great platform to access funding from banks, grant funders, venture capital funds and other investors.
By contrast, financial projections which contain errors or which are based on unrealistic or outdated assumptions can significantly impact the credibility of a funding application and damage investors’ confidence.
Getting professional help with the financial projections will usually pay dividends, especially if you have no in-house financial expertise.
Aids effective use of resources
The complex nature of modern business creates challenges for the effective and efficient use of resources. A business plan that provides a clear sense of direction helps owners to prioritise key activities, based on the objectives of the business and the availability of scarce resources. Milestones help management monitor progress and keep activities on track. Detailed plans help management delegate tasks to team members and share responsibility and accountability.
The absence of detailed action plans, by contrast, can exacerbate the “fire-fighting” approach to management. Growth and development is sacrificed to the demands of the day-to-day. Does this sound familiar?
Strengthens the marketing approach
Effective business planning should help owners achieve greater clarity about the markets they wish to target; the needs of customers within those markets; how the business’s products or services meet those needs; and how the business will differentiate its offerings from those of competitors.
The marketing strategy is therefore a core element of any comprehensive business plan; how will you promote and position your offerings to your target market? You can read more about value proposition here. It’s a fascinating subject.
If your current plan is based on an incomplete understanding of the business’s target markets, the characteristics and requirements of prospective customers, or how your products or services will meet their needs; it may be time for a rethink.
Anticipates new/ changing organisational and employee requirements
Once the overall strategy has been determined, it is necessary to assess whether existing organisational and staff resources are appropriate to support delivery.
A good planning process will help business owners anticipate and plan for changes that need to be made, for example the strategy might require the business to recruit new people, retrain existing team members, develop new roles, or take other measures.
In the absence of appropriate planning, what would be the implications of failing to spot necessary changes in time?
Helps improve the financial performance and position
Clear financial plans – in other words, budgets and forecasts – enable business owners to assess the financial impact of the chosen strategy; measure financial risk; establish funding requirements; and manage cashflow. Effective financial management stands as the foundation of every successful business. Without it, no business survives.