Demand ROI from Business Planning
by Tim Berry, Guest Blogger
- Created: March 26, 2013, 11:21 am
How do you value your business plan? What’s it worth to your business? Here’s how I do it:
- I value the business plan by the decisions it causes.
- I value a business plan by the money it generates.
- I value a business plan by its results.
How do you value anything in business? For accounting purposes, expenses are negative value, and assets – things you buy, things you own, that aren’t expenses – are worth what you paid for them. But what’s the real value?
That’s where the phrase “return on investment” (ROI) comes in. Technically, ROI is the (return-investment)/investment. For example, the ROI of buying stock shares for $250 and selling them for $300 is (300-250)/250, which is 20%.
Please forget the formal financial definition, and consider this instead: every business expense—time, money, resources, reputation, and whatever—is an investment. What you get back is a return.
You don’t always get positive value back from what you do. Business meetings often cost more in wasted time than what they generate in information or business decisions. Many sales and marketing programs cost more than the dollars they generate.
So what about business planning? Here are some factors to consider:
- People often mistake the purpose of business planning as if it were to have a business plan document to help with raising money from banks or investors. That happens, but it’s a small subset of the real business planning that goes on.
- The investment in business planning can be measured (or estimated) as the sum of the management time invested, plus cost of consultants or writers or other outside help.
- The return on most of the best business planning investment is a matter of decisions made, performance improved, increased accountability and other aspects of better management. That’s because proper business planning sets goals, establishes responsibilities, and helps with focus and prioritizing key elements of the business.
- Sometimes the return on investment is insight. The people who develop the plan pull the business apart and see what makes the most difference, and what’s most important. Sometimes they see threats and flaws. Insight can be very valuable.
- When it comes to raising money via banks or investors, making a business plan document is part of the process. The plan doesn’t raise the money, but you can’t raise it without the plan. Effort in making it easy to read and understand often pays off in making the information easier to get to for the people who stand as gatekeepers. But they don’t invest in the plan. They invest in the company and the people that execute the plan.
- Some returns can be estimated as a negative. For example, the lack of planning means expensive surprises, lack of management priorities, lack of accountability, less-than-optimal reactive response to events, problems, and opportunities.
Taking the above into account, here are tips to optimize the return on investment in business planning:
- Do only what you’re going to use. Don’t spend business time on a document unless there’s a specific business purpose.
- Keep the plan streamlined, easy to build, easy to use.
- Understand that the plan is just the first step in planning. It will be obsolete in days or weeks. Set schedules for regular reviews and revisions. Track results. Use plan vs. actual analysis to manage better and optimize business performance.
Ultimately, business planning is about better business—not better documents.
About the Author
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.
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