All too often, entrepreneurs view writing a business plan as a one-time chore. After using their plan to obtain financing for a venture, they toss it in a drawer and forget about it.
As time goes by, business conditions change. Sales or expenses are higher or lower than projected. Your landlord raises rent by 50 percent, and you need to relocate. New competitors enter your market. A key manager or partner quits.
Your static business plan becomes irrelevant. And the business risks losing its way.
Losing your way carries risks. About 20 percent of small businesses fail within their first year, according the U.S. Bureau of Labor Statistics. By the end of their fifth year, roughly 50 percent of small businesses are out of business. Lack of proper planning is one of the most-cited reasons for failure.
With regular updates, a business plan becomes a road map for turning your dreams into a thriving business. It’s like GPS. When you know where you are now, where you want to go and where the obstacles are, getting to your goal becomes much easier.
So how do you transform a static business plan into a living, continually growing plan? Step by step.
Step 1: Save (and print out) out the original plan, which ensures you have a reference point for where you started.
Step 2: Focus on the financials. As you close the books for each month, take out your income statement, balance sheet and cash flow statement. For each of these, create a spreadsheet that shows projected numbers from the plan, actual results and variance between the two.
Step 3: Account for any discrepancy between the original plan and what actually happened. Look at your planned activities, deadlines and projected results. What changed? Was there more or less response to a sales promotion? Did you miss a deadline for rolling out a new product? Did a competitor enter the market or go out of business? Has the overall economy strengthened or slowed down?
Step 4: Make strategic updates. Re-examine the assumptions you made in the initial plan and adjust as needed. Update your market analysis, including industry, target market and competitors. Think about how you can take advantage of new opportunities, overcome challenges and make up lost ground. Determine whether you have enough cash on hand for the coming months and, if not, how you will arrange for additional financing.
When you’re getting started or experiencing rapid growth, you should revisit the plan each month. Established businesses may choose to revisit their plans quarterly. No business should operate without an updated annual plan. That’s like driving in the dark with your headlights out.
Bottom line: Developing a living, continually growing business plan is one of the best investments you can make for your business. The planning process helps you keep your eyes on the horizon, scanning for opportunities, risks and obstacles. It also helps keep you and your team accountable for reaching goals and deadlines. If you haven’t looked at your plan for a while, dust it off and begin planning today.
Greg Ubert is the founder and president of Crimson Cup Coffee & Tea. Since 1991, Crimson Cup has roasted sustainably sourced specialty and craft coffee in small batches. The company also teaches entrepreneurs to run a successful coffee shop through its coffee franchise alternative program, which includes a coffee shop business plan. Crimson Cup coffee is available through a community of more than 350 independent coffee shops, grocers, colleges and universities, restaurants and food service operations, as well as in the company’s own coffee shops in Columbus.