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How Dismissing Business Planning Can Hurt Your Business

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How Dismissing Business Planning Can Hurt Your Business

By Tim Berry, Guest Blogger
Published: November 27, 2013

If you’re still thinking of a business plan as a formal, static document, then you’re sadly out of date and you’re missing out on real business planning, which is a management process that makes your business better.

That old-fashioned business plan document was not uncommon about a generation ago. It is now. Back in the 1980s, as the personal computer industry took off, the big business plan document was a common part of the typical high-tech startup’s efforts to raise capital as risk investment. Venture capitalists and angel investors expected it. But as the rise of online changed the business landscape, time frames and attention spans shortened, physical locations became more frequently virtual cyber locations, real business planning evolved.

Business planning today is not a document; it’s a process. It’s part of managing a business by steering, with a route and directions set, but course corrections to keep things moving towards goals as situations change. Business planning starts with a short, streamlined “just big enough” business plan that covers only what your specific business case needs to move ahead. Usually that’s some brief reminders of overall strategy, plus specific dates and deadlines for activities, plus projected business numbers aimed at managing cash flow. And it’s an efficient, economical effort because everybody understands that each version of the business plan is good for a few weeks at best and was built to change. A business plan is not ever finished and left alone, because business assumptions change quickly. To be useful requires regular plan review and course corrections.

So what’s the value of business planning?

I start with what is not the value of business planning. The value of planning is not guessing the future correctly. It is not having a static document you have to stick to. It is not having step-by-step instructions laid out a year in advance so you don’t have to think. And, except for those rare cases – one in thousands in which a business plan is used to inform outsiders – it is not describing your business. And it is not text or formatting.

What is the value of business planning? It drives business decisions, reduces uncertainty, manages change and optimizes management. Here are some of the ways it does that:

  1. The business planning explores the interdependencies between different business activities, such as sales, product development, marketing and administration. For example, business planning relates to spending on marketing to the expected sales that result from marketing. Business planning makes the difference between fixed costs and discretionary costs more visible. Business planning focuses on drivers of sales and traffic, and spending to generate sales and traffic.
  2. The business plan sets down dates and deadlines and budgets for activities, which becomes an extremely useful tool for managing execution. It’s the perfect format for watching performance compared to expectations.
  3. Business planning manages change. For example, if sales should suddenly increase, the business plan is an immediate link to related marketing expenses to help you invest more in what’s working. Regular monthly plan vs. actual analysis helps managers identify changing assumptions and develop changing plans to deal with changing assumptions.
  4. Business planning helps you manage to keep long-term objectives in mind while at the same time frequently refreshing short-term activities. It’s looking at the horizon while minding the details at your hands and feet.

The misunderstanding of what business planning has become – the stubborn myth of the formal static document ¬¬– stands between a lot of people in business getting the benefit of good business planning. It’s a process, not a document.

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:

I'm glad you address that business planning is part of a process. I actually view a good business plan as an aggregation of several different processes, which drive toward a specific goal or set of goals. Each process is in flux and should be changing over time, as the business ecosystem changes. I've explored this type of iterative process change in BPM (Business Process Management) methodology discussions I've had recently with some of our partners and clients. What arises from these discussions is that you can't fully map out business processes from start to finish before they start to run in real time. The modifications to the plan or process are often unpredictable until you begin to use them and see how they function in the real world.
Hi Tim Berry, I am totally agreed with your post. Because without business planning you never go long. As in your post you clearly mention business planning is not a document. It is a process. So according to time to time you need to change plan for your future, keeping the things in mind like goals, cost, traffic & sales.
I am thinking to start an android app business. Can u tell me what points should i keep in mind?
I have started many businesses and many of them without any sort of business plan. I literally just went with my gut. Many were successful and many failed.
Wonderful post to remind each one of us the importance of business plan even in current scenario, i believe with every passing generation, the need of business plan may grow further even with the usage of latest technology, It is need to chalk out a proper plan, so that one can dream of staying at the top.
If you have a specific business planning, you have a target, you know what you are working towards and what you want to achieve. A good business plan is very important for Business.
Thanks for sharing such informative article, since most of new business holders finds it difficult to find a real business planning under current circumstance. Hence this article may allow many to understand & deal with business planning problem with ease.
It really good article for business success. The good business plan means the difference between raising funding and not raising funding. And it is also the difference between achieving and not achieving our business goals. So before Starting a business we should remember all points which are given by you. Thanks for sharing.
It helps you manage change by connecting the relationships between tasks, Costs, expenses, sales and people and goals.
Sure, the strong business plan is very important. They help give banks confidence in the viability of the business.

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