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Do you really need a business plan?

Do you really need a business plan?

Eve and Alex John’s business has grown very quickly. In the past 12 months their product, Bent Over Silicone Nozzels, has gone from being sold in 15 hardware stores in Victoria to being distributed in 22 separate countries.

Not only did they achieve this without a business plan, Eve John says not having a business plan was a key factor in the rapid growth.

“A business plan would have slowed us down,” she says. “It just seemed a little bit too rigid.”

Most business advisers and business coaches recommend drawing up a business plan, but many SME owners opt to go without.

Put simply, a business plan is a formal statement of goals for a business, the reasons they are believed attainable, and the steps for reaching those goals. Financial forecasts are usually included, as is background information about the organization or team attempting to reach those goals and the market they operate in.

Proponents say a plan can help business owners focus their energy and keep their company on track.

But Eve John said that sticking to business plan would have blinded them to opportunities, such as when the chance to have their nozzles for applying silicone and other plumbing sealants sold overseas arose, in a different way to that which they’d been expecting.

“It just didn’t seem right to limit ourselves, and we basically didn’t know what we were doing so it just ended up that we never initially wrote up a plan,” she said, adding that she and her husband set goals for the business nonetheless.

John, who used to teach business skills at TAFE, has seen a lot of people limit themselves to their business plan. “They limit themselves and if a new opportunity comes in they say ‘oh, no, I’ve got to limit myself to my business plan’,” she says.

However, Andrew Graham, national head of business solutions, RSM Bird Cameron, says that for new businesses, the analysis in of the target market, their competitors and their customers is a valuable exercise, but many fail to do this.

“Implications of this approach for longer term growth include capital being more difficult to obtain due to a lack of a well-documented plan for the lender and missing breakthrough strategies if the time is not invested in examining the market thoroughly and searching for real differentiation,” Graham says.

“While dedicating time and energy to a business plan can be tedious and challenging, the effort is well spent. Business owners should be prepared to review, change and adjust the business plan to ensure the business goals continue to be attainable.”

Business plans also don’t need to be many pages long to be effective, says Graham. “The real skill is not in writing pages of detail, but in developing the ability to get the real story across succinctly,” he says. “A one-page outline of the business vision, values, objectives and how you will use your competitive advantage to achieve them will ensure you have the best tool to communicate the business plan.”

James Eling, the owner of Marketing4Restaurants, says business planning brings clarity to his business. He draws up five year, one year and 90 days goals for his company which then reveal the missing pieces in his strategy that are needed to meet those goals.

“It raises a whole heap of questions and those questions form part of your short-term goals,” he says.

In his business plan, Eling also includes analysis of his industry, the customers and competitors. That work revealed, for instance, that distribution channels was the biggest hurdle the business faced, allowing him to focus more effort there.

Eling says he also knows the costs of not having a business plan. Extreme Networks, an IT business founded by he and his wife was named a BRW Fast 100 company in 2004 and doubled its revenue in 2007, but soon after gave up on business plans. “At that point we thought we were really good at running an IT company and we just lost focus and were going backwards,” James says. “Probably our biggest regret in the 15 years that the company’s been running were those five years that were completely wasted.”

Jacob Aldridge is an international Shirlaws business coach, and has one simple piece of advice about business plans. “The greatest business plan, kept in the bottom drawer, is useless in business,” he says. “Bullet points on the back of a beer coaster, which are implemented, can be worth millions.”

What your business plan should include

Business plans don’t have to be long, but most experts say they should contain at least include the following information:

• A description of your business

• Your business goals

• An analysis of your target customers

• An analysis of your competitors

• Your strategy

• Your business’ financial statements and projections.

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