If you're like most entrepreneurs, you haven't laid eyes on your business plan in a while. Back then, motivated by the prospect of attracting venture capital or securing bank financing, you gave it plenty of attention, poring over projections and getting the words just right. Now, years later, it's collecting dust in a file drawer, and the details within likely bear little resemblance to the business you're currently running. But with sales strong and no immediate need for cash, does it matter?
Yes, if you want to better your odds for success. The business plan is the company's road map and strategic vision for the future. In its first iteration, it's simply a best guess, but later revisions show the business owner what's working, what isn't and why.
"A business plan marks your course, and it's the constant change between what you thought was going to happen and what actually happened that gives you the vision to maintain a course toward long-term objectives," explains Tim Berry, founder of Palo Alto Software, which designs business plan software for growing companies.
Examine your company's value drivers and how they may have changed since you started. "The purpose is to reflect on your market opportunity and competitive realities, and make corrections and refinements to your business initiatives, what the opportunities are and what you're doing to target them," says Jay Turo, managing partner of small-business consulting firm Growthink. This will help you identify untapped areas of growth that you laid out in your original plan but never followed through on, or it can help you recognize where you've gone astray.
Without a written plan, you may be tempted to expand your company's scope without understanding the effect on the core business. Peter Sobotta founded Mechanicsburg, Pennsylvania-based RecoupIT seven years ago with a focus on buying and selling refurbished technology equipment. He has long thought, however, that the big money might be in refurbishing old equipment himself, then repackaging and selling it. His first business plan, written several years ago with assistance from Growthink, projected that new business would account for 50 percent of the company's revenue in the near future.
When Sobotta and his wife and partner, Vanessa, 35, reviewed the plan about a year later and did a financial analysis, it was clear that the core business would suffer if they branched out, because expansion would be too time-consuming. "It would have been very easy to do it in a half-assed manner, and then when it failed, say 'I didn't have enough money,' or 'I didn't go after the right lease deals,'" says Sobotta, 35, who projects sales of $15 million for 2007. "A plan makes it very visible upfront--if you don't do [X, Y and Z], you're going to fail." A look at the competitive landscape section of RecoupIT's business plan revealed that many former competitors were now bankrupt because of their high overhead and personnel expenses; if RecoupIT went after refurbishing, it, too, would have to increase overhead and add employees-- a move their number crunching suggested would be a bad idea.
If you have time to dig into only one section, says Jim Anderson, a management counselor at the Santa Ana, California, SCORE office, it should be the plan's financial section, particularly cash-flow projections. "Your financials are a dynamic thing," he says, noting that a hard look at the numbers can reveal why your business is experiencing a sudden cash-flow crunch. Anderson recommends updating financials at least once a year, and more often during times of industry flux.
Revising the plan now can help reduce the time it will take to get it ready if and when you need capital in a hurry. Or even better, says Anderson, you can more easily set up a line of credit now, while the business is healthy, for when you really need it down the line.
C.J. Prince is a New York City writer specializing in business and finance.