Why It’s (Probably Past) Time to Update Your Business Plan

Barry Moltz, Getting Small Businesses Unstuck, Shafran Moltz Group
 
If all you've ever used your business plan for is to raise money, you're ignoring a critical part of business planning. Find out how an annual review can help grow your business.

“If you don't know where you are going, any road will get you there.”—Lewis Carroll

 

Many small-business owners treat their business plan like a shareholder’s agreement: They know they need one, but as soon they've developed it, they hide it away and never look at it again.

But the purpose of a business plan isn't just to have something to show to bankers or investors. These documents should be reviewed at least once a year in order to measure your company against your stated goals, learn from the results and shift directions when necessary.

Annual Review

Once you've located your business plan, take a look at these eight sections that should be in every plan and need to be reviewed every quarter or at least annually:

Executive Summary. This is where you talk about “what we do and why we do it.” It answers the question, “What pain do we solve, and who do we solve it for?” It's critical that you review this section on an annual basis to determine whether your mission has stayed the same. Is it still relevant to your company, employees and targeted customers? Is it something your employees can still rally around and customers still want to buy? Most companies’ missions evolves over time, which means you'll need to update your executive summary from time to time.

Market and Competition. Markets change rapidly, and new competition seems to sprout up daily from every corner of the Internet. Check what's changed in the market since your last business plan review, and see how new companies are approaching and solving problems for their customers. Overall, what's being done well or poorly to meet the needs of prospective customers in your market niche? Is the market expanding or shrinking, and what changes are happening in adjacent areas that represent new opportunities? Think about how your company’s mission can change to meet those opportunities.

Product or Service. These plans should be reviewed at least quarterly because you need to be aware of which products and services are selling and which need to be abandoned. You should review why your customers are buying (or avoiding) your products, and you should explore other pains in the market where your business can expand (without losing focus).

Management Team. There are very few companies that can grow from startup to a $100 million company with the same leadership team. Most people are only good at certain growth phases of a business—some are better suited for the startup stage, while others are more effective once the company has grown to $5 million or $25 million in sales.

The evolution of the skills of the leadership team is why companies are successful. Every member of the team (including the founder) needs to be evaluated on an annual basis to see if their talents are still the best fit for that particular stage of the company. The planning process for the shifting of responsibilities and hiring new people takes a lot of time and forethought.

Marketing, Sales and Distribution Plan. Contrary to popular belief, products and services don't sell themselves. Check the effectiveness of each of these channels. Which marketing efforts have worked in the past quarter? Insist on tying tactics to results. Remember, if it can’t be tracked, it can’t be evaluated. What sales and distribution methods have had the best results during this same period? What needs to be changed? Are there new strategic alliances that can be formed?

Financials. This is the area most overlooked by business owners because many have a severe lack of understanding of their company's financial statements. While these should ideally be reviewed monthly, analyzing them once a quarter is acceptable (and the bare minimum). Review how this period compared to the same period last year. You should also analyze this year’s results as compared to your annual budget.

Use of Funds. While this category is typically used for determining how an investment or loan will be used, each year you need to decide where your profits are going to be invested. Will you reinvest them for growth or for accumulating cash? What are the major initiatives or “big bets” you'll be making in the coming year? Determine how much you'll invest in each area and what the expected return is.

Exit Strategy. You should have an end game, whether it's to sell the company or provide ongoing financial support for you as the business owner. Annually, determine whether this purpose has changed. For example, maybe you've shifted your company's tactics for growth to show a bigger profit. If there's been a change, most of the plan also needs to change with it.

When was the last time you updated your plan? If it's been more than a year, now's the time to sit down with it and make sure it mirrors your company's actual trajectory.