Is It Important To Update Your Business Plan?
Your business plan performed well. Your business got funded, and your business is up and running.
Now what?
Do you need to update your business plan? If so, how often do you have to update it?
Some people say there is no need to update the plan. They argue that it’s time to focus on running the business.
We think differently.
This post will explain why it’s critical that your business plan is kept up to date and how it can be used to drive business success.
Business Planning is a critical success factor
The Journal of Small Business Management found that 71% of fast-growing family businesses had a business plan or a strategic plan. (Source: Upton, N., Teal, E. J., & Felan, J. T. (2001). Strategic and business planning practices of fast growth family firms. Journal of Small Business Management,39(1), 60-72.)
This is HUGE!
71% of fast-growing firms had a business plan, an operational plan or a strategic plan.
So, why does having a business plan seem to be so correlated with fast-growing firms? We think it’s because a business plan helps you manage your business effectively and keeps you focused on your key performance indicators – critical components for your business.
A well-written business plan will outline the Company’s strategic direction and how it competes in the market and outlines important financial metrics (revenue targets and expense projections).
“What gets measured gets managed.” Peter Drucker
This well-known management quote emphasizes the importance of having clear metrics. If the metrics are available and clear, managers are more likely to manage the business more effectively.
A business plan provides those metrics and can be a helpful guide, especially when the day-to-day operations can distract managers from the ultimate goals/outcomes of the business. Having a clear plan reviewed regularly keeps managers, owners and staff on the same page and focused on essential outcomes.
How often should you update the Company’s Business Plan?
Okay, so if an updated business plan is so important, how often should the business plan be updated?
It depends.
Many situations require a closer look at your business plan. Here are a few;
When significant changes to the supply chain occur, for example, your leading supplier decides to raise their prices. This will have a major effect on your expenses and overall profitability. Revisiting your business plan will allow the Company to pivot and consider other options to maintain profitability.
When key management talent leaves the business, some companies start offering services based on the skillsets of management or key employees. If this talent leaves the organization, it’s time to revisit your business plan and consider if this is still the right direction for the Company.
Sales skyrocket. If the Company is on a steep growth curve, this can have a major effect on the business structure, and it’s time to revisit your business plan and map out a clear growth strategy.
A competitor starts to take a larger share of the market. Every business in a competitive industry needs to assess its position in the market constantly. If a competitor is taking a significant share of the market, it’s time to look at your competitive advantage and consider different ways to compete better.
Major changes in the economy or regulation. Changes to regulations or economic downturns can have a negative impact on company revenues. Reviewing the Company’s business plan allows management to identify threats to the business and put measures in place to help mitigate those risks.
Every Year. Regardless of what’s happening in the business, reviewing your business plan annually will be helpful. This is the time to consider your core services, products, and customers and identify areas for improvement or expansion.
Who should update the business plan?
The management team should be involved in updating the business plan. Managers will sometimes take a day off-site to avoid the day-to-day distractions to focus on the business plan.
Involving the entire management team is critical to ensure they are on board with the plan. Plus, having more team members involved in the planning process is helpful because each person brings a different perspective and will make for a more effective plan.
But what if you don’t have a “management team” and it’s just you and a hand full of staff?
It might make sense to engage all staff in the business planning process for smaller companies. This takes the pressure a little bit from the owner/manager. The team can also have critical insights into the business that could be helpful in the planning process.
Pulling it all together?
In this post, we made the case that the business plan should be a living document. It is a useful tool to keep the business on track and everyone steering in the right direction. It can also help the management team anticipate and deal with market and competition risks.
Happy Planning 😊
