The surprising reality about business plans
Why bother writing an annual business plan?
Many successful business owners (and even some private equity managers) don’t know the real answer to that question.
And because they don’t know the real answer, most small companies don’t bother with a business plan at all, much less annually – even though every business book, business school, and business consultant extols the need.
When I asked one of my Vistage CEO Groups this question, they told me:
- So we have goals
- To establish metrics for performance
- To communicate our direction to employees and customers
- To keep you off our back!
I asked a private equity manager the same question – and got many of the same answers.
These are good answers – but they’re not the real answer. Goals, metrics, communication – and yes, keeping me from harassing you – are the results and tools you get from writing an annual plan.
But they’re not the reason to write one in the first place.
The real reason is to create value – to increase the value of your business
You write a business plan every year so that at the end of the year, your business is more valuable than it was at the beginning.
When I said this to my Vistage group – and even to the private equity manager – it was clearly an epiphany for them.
When you accept that the real reason to write a business plan is to create value, it’s easier to understand why you need both one-year and three-year plans – and the project of writing them becomes much more interesting and even exciting.
Start by deciding where you want to be in three years. Then in your Annual Business Plan (ABP), set out the goals you have to achieve this year to get where you want to be in three years.
When you do this, you’ll see your Strengths, Weaknesses, Opportunities, and Threats (SWOT analysis) in a new and very meaningful light. And when you update your plans and actions every year, you establish your system for your ABP.
Begin with the basic metrics for your industry, and ask yourself:
- Where do I want and need to be in three years?
- What are the key things I need to establish in my business in order to increase its value and achieve that three-year target?
- What are the three to five things I need to do this year to be on track for the three-year goal?
- What will I do in the second year, and the third?
And that’s your business plan.
It’s only effective if you treat it as a living document, updating it annually in order to stay focused and moving forward.
And as I said, the first year supports the second – which supports the third. And each year creates more value.
What are the components of value? That’s in the next post, which will be available on Monday (or sign up to receive it by email or RSS via the buttons at top right).
What’s your experience with business plans? Have you written them? Why, or why not?