I’ve learned over the years that people can often be confused about the purpose of a business plan. Some see it as a means to an end — a necessary prerequisite for getting a loan from a banker or to satisfy the obligations for a commercial real estate lease.
The biggest value of a business plan is the planning and thought that goes into its creation. The tweet below from @WilHarris illustrates this nicely.
Great way of framing startup biz planning, too. You’re start-up will never stick to the biz plan, but the act of planning and scenario scoping is invaluable. 📈 https://t.co/PfKki21Fng
— Wil Harris (@WilHarris) January 26, 2020
Wil is talking about early stage start-ups that don’t have a well defined business model and are trying to find product/market fit. Those types of businesses will change significantly between inception and profitability.
However, the same holds true for more traditional businesses with proven business models. The amount of change in the business and deviation from the business plan are reduced but the actual execution of the business will still not match the plan exactly.
Part of the reason for this is that assumptions made during the business planning process may turn out to be just plain wrong. There are a lot of variables to consider when drafting a business plan. Not all of them will be estimated correctly.
Changing conditions and new information will have an impact on the development of a business. If you think of a business plan as a roadmap that you are using to go on a long journey, issues may present themselves that cause you to take an alternate route. A bridge could be washed out or a rock slide could be blocking the highway.
The same thing happens in business. You may get to a certain point with your business and then need to make a change due to new information or changing conditions. Maybe the product you thought would be your big seller isn’t and you need to focus on another product line. Perhaps foot traffic to your store isn’t what you thought it would be and so you need to rely more on sales through your website.
This is all fine and it is to be expected. A business plan should be a living document that is updated to reflect changing conditions and new information. The value is in the planning and the analysis of different possible scenarios and their impact on the business.
Taking the time to evaluate what impact a decision will have on the financial performance of your business can mean the difference between the business thriving or needing to it shut down. The time and money you will spend creating a business plan and keeping it up to date will be well worth the investment.