Why a Business Plan is a Vital Management Tool

Traditionally, business planning has been carried out for periods of one year or more. But in the past, the commercial environment was not changing as quickly and a 12 or 24 month plan was appropriate. Today the situation is different. The plan must reflect the changing commercial, financial and industrial environment. Changes are taking place at an ever-increasing rate. This means that businesses today have to be much more nimble and responsive to the changes in the marketplace and the needs of the customers. Furthermore, changes in technology can mean that today’s equipment is obsolete tomorrow. We recommend that businesses write their plan in 90 day cycles. This is a reflection of the current environment. Annual plans are normally written and filed. They are dusted off and rewritten for the next financial year. We suggest that a business plan is a dynamic document that is an integral part of the enterprise not a vague hope for the future. A good plan is not only a Encode management tool and a sales tool but a plan for the direction of the organisation. It is a valuable management tool for development, expansion and on-going operation of your company. It is also essential when you are promoting your organization to investors and lenders.

Writing down the direction of the company through the plan for the next 90 days allows the leader to explain to his or her team the reasons for decisions about the future. This means that the whole organisation can be aligned in the same direction. The failure to do this will create a situation similar to a tug-of-war team with five or more ropes. Everybody will be pulling in different directions and not focusing on the main goal.

Some questions that need to be explored are similar for all types of businesses. How big should our inventory be? What sort of products should we have in stock? How much money should we invest in inventory? What is the demand likely to be? Is that demand seasonal? Will this affect our stock? What is our target market? What is the growth likely to be for our target market? Do we have sufficient resources for the period of the plan? If not, how can we cope? And so on.

If you don’t have a business plan, then you cannot change it when the unforeseen happens. This means that re-prioritizing is almost impossible when faced with a crisis. One of the first things to do before writing a plan is to request objectives from various key people within the organisation. Explain that you are about to write a 90 day business plan and ask them for three or more suggestions to improve each area of operation. These areas can include products, services, marketing, selling, administration, and finance. Not only is the input from these people valuable but also it can increase their commitment to the plan.

You might want to set a number of objectives such as

the desired rate of growth

 the desired rate of profitability

 the desired position in a marketplace

 the desired public image

 new markets

 new products

 new services

 new staff

 improved skills for existing staff

 improved gross profit

 reduced expenses of leading to greater net profit

 increased market share

 increased territory

 strategic alliances

Remember that all the objectives you set should be achievable within the time frame. Having set these objectives, the next task is to work out how you are going to achieve them. The “how” is your business plan. The business plan should describe what is going to be done, who is going to do it, how they are going to achieve it, how is it going to be measured and the time frame. In making your financial forecasts, you may include:

projected revenue

 projected taxes

 projected operating expenses

 projected capital expenditure

 projected economic conditions

 projected cash flow

 projected gross profit

This is only an outline but by the time you have done this a couple of times you will have modified your approach to suit your company and made sure that this 90 day business plan is a valuable tool. When everyone in the organisation is working in the same direction, the cohesion and profitability will increase.