The Importance of a Business Plan
It's nigh on impossible to get from point A to point B without a road map. The same is true for small business planning and strategy. For any business, whether it requires a transformation or not, a business plan is vital.Goals need to be set both for revenue and expenses. Revenue goals need to be realistic and should be related to product and customer forecasts. Depending on the sales channels this may be quite difficult to accomplish.
For example, a small business selling direct to consumers cannot possibly forecast by individual customer and, if offering a catalog of thousands of products, cannot possibly forecast by individual product. Compromises in terms of the details have to be made. It's quite acceptable to forecast by product category rather than individual products and to forecast by sales channel rather than individual customers when the type of customer and product dictates so.It's always difficult to forecast and the further out into the future the forecast is established the less accurate it is likely to be. Nobody can forecast with complete accuracy - even in the short term. The important part of forecasting is to recognize it will never be 100% accurate BUT at the same time to keep the plan realistic. A professional business plan should cover a three to four year forward looking period. In the first and second years of the planning period it should be built by month and in the second and third years by quarter or even year.
The business plan serves two purposes. Firstly it creates a budget against which future performance can be measured and secondly forces the planner to think about the strategy required to execute the plan. Anybody can build a small business strategy and plan that projects a glorious future and early retirement. However, it probably won't be possible to execute that plan.
Unless the developer of the plan is willing to invest in thinking carefully and honestly about the strategy required to execute the plan then the chances of successfully executing will be reduced.
It's never too late to consider the forward financial planning for your business. Click on the button below to download our Business Projection Workbook.
Includes Income Statement, Balance Sheet & Cash Flow for a 4-year planning horizon PLUS advanced business valuation calculators.