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5 Fundamental Principles of Good Business Planning

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5 Fundamental Principles of Good Business Planning

By Tim Berry, Guest Blogger
Published: May 21, 2013

I’ve just finished a two-month period in which I’ve read more than 50 business plans as part of my role as judge of several major national business plan competitions and as managing investor of my local angel investment group. And I like reading business plans, so it wasn’t a sacrifice. But it did remind me that every so often, it’s good to go back to the five important fundamental principles of good business planning.

1. Form follows function

You’d think it would be obvious, but the business plan is supposed to be whatever it needs to be to solve the business purpose. For example, only very few business plans ever have to be documents – well formatted and carefully presented – to back up an investment pitch or loan application. While those uses exist, the vast majority of business plans need to be not pretty documents, but rather specific collections of lists, such as objectives, focus, tactics, specific activities, specific responsibilities, deadlines, performance expectations and so forth. They can exist in different formats and live on a computer, or a network, where multiple people can access, use and contribute to them.

The plan itself is what’s supposed to happen, and why, and how much of this and that and when things are supposed to happen. The document, the pitch, the elevator speech, and the summary memo aren’t the plan; they are outputs, or summaries, of the plan.

So why do we write it down? So we can review it every month, see what went right and what went wrong, and make course corrections. You can’t review the results of your plan if you didn’t write it somewhere. But don’t waste time making it pretty. Business plans are perishable, like food. Their shelf life is just a few weeks.

2. The beauty is in the results, not the plan

What makes a good plan? Not the writing, editing or formatting. Not even the ideas, the details, the strategy, the analysis or research. What distinguishes a good plan from a bad plan are the results. I’m quoting some of my books here, but the quotes apply:

  • A plan is worth the decisions it causes.
  • A good plan is nine parts execution for every one part strategy.

3. Accountability = metrics + management

In a business landscape changing rapidly because of new technology, the business planning is more needed than ever before because the traditional means of management and accountability are crumbling. It wasn’t that long ago that we could measure productivity by how warm the chair was, meaning how many hours so-and-so spent in the office. Now, with the world splintering and physical presence not so important, we measure with metrics, numbers – actual performance. And for that, we need planning to establish the expected measurement numbers and then to review the results and see what comes next. Planning is the key to accountability.

4. Planning thrives on change

Why should I plan, people ask? “Things are just going to change,” they say, “there’s no point in planning because things move too rapidly.”

The people who say that are missing the point. Planning is a process that manages change. The plan establishes expectations and the plan review analyzes results and creates revised expectations, in a step-by-step process that is something like steering, lots of small course corrections.

5. Planning is not accounting

The basic numbers included in a business plan – projections of sales, costs, expenses, profits, salaries, assets, liabilities, capital and cash flow – look like the reports we see in bookkeeping and accounting, but they are very different.

Accounting starts today and goes backward in time in ever increasing detail.

Planning, on the other hand, starts today and goes forward in time in ever increasing aggregation. We can’t project the future in detail; it’s a waste of time because the level of uncertainty is too deep. So we project a year in months and then the next two years on an annual basis, and that’s enough.

The good news is that this makes planning easier than a lot of people think. Just make sure, if you work with an accountant on planning, that he or she understands that 1) this is educated guessing; and 2) nobody is going to blame the accountant if it’s wrong.

Conclusion: All five of these basic principles are essential. And each of them makes planning easier, more practical, more important, and better managed.

About the Author:

Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. 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.

Comments:

Right! Business planning really takes time and effort. Employees must also carefully work together in order to come out with the desired results.
Tim as a Certified Financial Planner I have to agree with you the importance in planning is execution of the plan. Also the plan isn't as important as the planning process. It is important for business to realize that the planing process is vital in their journey of success. Going through the process will help to put together an exit strategy I have seen too many business owners trying to sell their business and they could not because they were the business. With out them there is no business. Going through the planning process is vital for any business owner they have to know how they are going to get out of the business. Thank you for the article.
Tim - Excellent tips on business planning. I like and fully agree with you quote - business plan is nine part execution and one part strategy. Too many entrepreneurs get hung up on coming up with great strategy without thinking about how they will make it work. Besides, strategy is dynamic by its nature, which leads to the another point you mentioned about planning thrives on change. Reminds me of a quote I heard - All business plans are useless, but planning is priceless.
I recently saw a documentary about the beginning struggles and business challenges encountered by the now mature companies such as Microsoft and Apple. The thing I found most fascinating was Intel's original business plan. In 1968, it consisted of three short paragraphs on one page with vague verbiage. At the time of this plan, they didn't have a name for the business...
This was a really good article to help me get back on track. I have been in the roofing business for over 30 years but about 5 years ago I decided to start my own company. This information would have helped be a great deal in the start. Thanks again for the great tips.
Someone has rightly said that if your failing to plan then you are planning to fail. End results are the key indicators onto how much one has worked on ones task and how much accountability. Creating a word of mouth magic is the most sought ingredient in online marketing. Iteration is also desired for updating the plans.
Great story, really appreciate it. I have a small coupons website and it was very hard to find a good developer,

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