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Why You
Need a Business Planning System NOT a
Business Plan
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by:
David Coffman
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Copyright 2005 David Coffman
When someone mentions business planning we have been conditioned to
think about writing a business plan. There are hundreds of books and
articles, tons of software, an army of consultants, and a multitude
government programs to help you write a business plan. There are
virtually no resources to help you set up what today’s business
environment really demands – a continuous, ongoing planning system.
A commonly accepted theory is that for a business to survive and
prosper it must be flexible and nimble. It must be able to turn on a
dime as conditions warrant. Having a written five-year plan is not part
of this picture. In fact, trying to follow a long-term plan during
rampant change is not logical. It is applying linear thinking to a
non-linear situation. It just doesn’t work.
Having a formal, written business plan is so accepted as being crucial
to success that there haven’t been many studies or surveys to test this
premise. If business plans were such a wonderful thing, there would be
a significant and conclusive difference between businesses that have
them and those that don’t. Interviews of 100 founders of companies on
1989s “INC 500” list of fastest growing private companies in the U.S.
found only 28 percent had “full-blown” business plans. The 1993
AT&T Small Business Study found that 59 percent of small
businesses that grew over the previous two years used a formal business
plan. A 1994 survey of the country’s fastest growing companies found 23
percent lacked a business plan. “The Relationship between Written
Business Plans and the Failure of Small Businesses in the U.S.,” by Dr.
Stephen Perry, surveyed 152 failed and 152 non-failed small businesses
in 1997. He found that 64 percent of the non-failed firms had no
written business plan. He also found that non-failed firms had more
extensive written plans than failed firms, 23 percent compared to 9
percent, respectively.
As you can see the results of studies and surveys are all across the
board and don’t prove anything. Clearly, a significant percentage of
successful businesses don’t have written business plans. None of these
studies reveal the nature of the process that created the plan. Was it
the result of an annual process with occasional updates or an ongoing,
continual process? As Professor Albert Shapero said, “Companies that
plan do better than companies that don’t, but they never follow their
plan.”
The focus needs to be on the PROCESS not on the plan. If a continual,
ongoing planning process is in place, a written business plan is just
not important. Writing a business plan without a planning system in
place is a massive effort that is done very infrequently. Many
businesses write three to five year plans and update them annually. The
plans are reviewed periodically during each year to analyze the plan
vs. actual variances. Little, if any, thought is given to strategy
between the annual updates. Strategy should be the focus everyday.
Setting up a planning system allows and sometimes forces you to focus
on strategy.
A planning system consists of two functions. One is a goal setting and
attaining process, and the other is a trend watching or environment
scanning process. Setting up a planning system takes several steps. The
first and foremost task is to set aside or make time for planning on a
regular, ongoing basis. It must become part of your routine, not an
occasional event that can be easily postponed. In the evaluation phase,
the owner or management team and the company are analyzed. From the
analysis, key or critical areas of the business are identified. These
areas are filtered down to focus on the most important ones.
Performance measures are determined and systems to gather and process
the necessary data are set up, if needed. A base of current performance
is used to set goals.
Now the regular, ongoing stuff begins. Strategies are formulated,
tested, implemented, monitored, and reworked until the goals are
achieved. Each planning session is split between working on strategies
and trend watching. As goals are achieved, the goal setting and
strategy formulation process begins again.
Let’s put the focus back where it belongs on continuous, ongoing
planning instead of writing business plans. As Karl Albrecht said in
his book Corporate Radar, “The majority is not always right, the
conventional wisdom is not always wise, and the accepted doctrine could
well be flawed. The more fashionable an idea, the more it is likely to
be exempt from critical evaluation. Breakthrough thinking sometimes
calls for contradicting the most widely held assumptions and beliefs.”
About the author:
David E. Coffman CPA/ABV, CVA has authored a number of articles,
reports, white papers, and books about small business valuation and
planning topics. He founded Business Valuations & Strategies in
1997 to work exclusively with small businesses in these areas. His
“Power to Prosper Small Business Planning System” is available at http://www.bus-val-strat.com
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