A business plan is the result of thinking, researching, strategizing, coordinating and reaching conclusions about how to pursue a specific opportunity. It often exists only in the head of the planner, but is better when written down.
Whether elaborate or simple, a written business plan is a collection of facts, ideas, assumptions and projections about the future.
How can a written plan help you? Here are three ways:
- Document the due diligence on a new business or the future of an existing one.
- Evaluate your opportunities and challenges and compare them with your strengths and weaknesses.
- It can be helpful in getting a loan and is usually essential when courting investors.
But since a written business plan is static while a business operates in motion, how does it help? It establishes a baseline from which you execute the most important management fundamental of all – planning. A plan is like a parked car; planning is taking that car on a trip.
Planning is checking your business motion against fixed assumptions and projections you made in your plan and then measuring performance, or lack thereof. Planning allows you to see how smart you were when the plan was written or where your due diligence and assumption skills need work. It also highlights any external changes you must deal with.
For existing businesses, written plans often become collateral damage in an economic downturn. But you can’t allow planning to meet the same fate. Indeed, when things slow down there is even greater need to check your position than when things are rocking and rolling.
In a recession, planning should be conducted daily, not monthly. Here is a critical two-step planning activity that will help you operate more successfully anytime, but especially in a recession.
– Build a 12-month cash flow spreadsheet, in a program like Excel, and track the monthly relationship between your cash collections from sales and cash disbursements for expenses. This will help you know when, or if, you will run out of cash.
– Look at the “Ending cash” line for your cash picture plotted out for the next 12 months. A negative number in any month means you’ll need to add cash receipts from sales, reduce expenses, add cash from another source, like a bank loan, or a combination of the three.
If you want to increase your success chances in 2009, manage with this planning tool. And here’s a bonus: your banker will love it.
Write this on a rock… A written business plan is important, but planning is essential – especially in 2009.