Business mentor: Key to success is in the plan

Q. Is it really necessary to spend a lot of time developing a big business plan? Some of the texts on business planning prescribe elements that aren't really relevant to what I am doing, and I find things change so quickly for me that what I put down on paper can go out of date very quickly.

A. Colin Bass, director of Business Lab, replies:

It is vital to have a business plan in running a good business.

A plan has two main purposes - to guide you and to use in raising capital, whether it be from a bank or investor.

Raising capital will always require a detailed traditional business plan. But the amount of detail, and the time frame, of a plan to guide you is up for debate.

The Industrial Revolution formalised the requirement for business planning.

The process involved leaders from the different functions within the business and, without the speed of change caused by technology, a long-term view to planning was the accepted way.

Some texts still prescribe plan formats that fit more with this era.

But times have changed. Today, we see a return to the popularity of small business activity. We are witnessing the Innovation Revolution, brought about with the assistance of technology.

Things happen quickly. Coping with change is now a key ingredient for success in business. Spending a lot of time and energy in creating an impressive business plan can inhibit this.

An effective business plan contains detail relevant to the stage of business you are at. It should be reviewed regularly to check progress towards goals.

In this sense, a modern business plan is a master project plan co-ordinating the projects within a business and focused on achieving goals.

A good plan is divided into three areas - strategic overview, action plan and financial analysis.

Elements of your strategic overview at an early stage of business development are:

* Vision: Define the big picture for your business, its essence and purpose.

* Key goals: Identify measurable milestones for your business.

* Ideal customers: Profile your target market.

* Product/service benefits: Explain why your clients want to do business with you.

* Future: Define the organisational structure, including internal roles and external partnerships, that will enable you to deliver your vision.

Detail in your action plan should be in a quarterly timeframe with a review at the end of each so change can be regularly addressed. The action plan will describe the actions needed to solve the challenges and opportunities you face in a given period.

The quality of this section will determine how valuable your plan is in monitoring your progress.

Financial analysis is needed so you can be sure you can afford to take the steps required in building your business.

But excessive effort on forecasting may not be the best use of time. Any forecasting is crystal ball-gazing and can lead to false confidence and disappointment.

Evidence of this is the NZX taking emphasis away from the need for small to medium companies to provide forecasts in investment statements when listing on the new NZAX market.

How long should your plan be? At Business Lab, we have developed a format which is seldom more than 10 pages long.

It gives priority to steering the client in the short-term actions needed to achieve longer term goals. It is easy to follow, and the detail it contains means clients often refer to it on a weekly basis.

But there is no point in creating a plan if you do not work to it.

The old KISS principle - keep it simple, stupid - goes a long way.

The easier a plan is to follow, the better the results, and the easier it will be for people reading it to understand what you are doing.

* For more information, email Colin Bass

* Email us your small business question. Answers are courtesy of Spring - A State of Mind for Business.