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Five Critical Questions Your Business Plan Should Answer

Answering these questions periodically can help keep long-term goals in mind while you adjust your immediate steps and actions.

If I may adapt a line from John F. Kennedy's famous 1961 presidential inauguration speech to make a point about business plans: Ask not what you can do for your business plan. Ask instead what your business plan can do for you.

Questions about pricing, hiring and other factors can crop up as a business grows. A detailed and often-revised business plan should help you answer them. Getting these answers can help you keep your long-term goals in mind when steering your company toward short-term milestones.

Here are five key questions and how your business plan should help you answer them:

1. Is my price right?
There are two essential components of pricing that should be included in your business planning:

  • Consider whether your price is in line with your message. If you say you offer a high-quality custom product or service, you can't post a low price without contradicting your own marketing message. You should set your prices according to the relative value you offer, or risk confusing your potential market.
  • Your business plan should include your revenues and costs on a per-unit basis, your overall direct costs and overhead. These factors can help you establish the constraints related to making enough profit. You have to cover costs, which can include expenses beyond the direct costs of buying what you sell, such as rent and payroll.

Related: Three Ways to Raise Prices Without Losing Customers

2. Can I afford to hire?
Especially when you're running a new company, you might not be able to help thinking that hiring additional employees might help you with the mounting list of tasks that have to get done. What would happen if you hired an extra salesperson? Could an extra administrator solve some of your problems?

Go back to your business plan and determine what happens to projections if you add the extra salary and benefits. Guess whether the improvement in people power will add to your revenue, or cut costs.

Or perhaps you should consider hiring a contract worker. Of course, hiring someone is almost always cheaper -- but only if there is a long-term need that justifies adding the fixed costs. If it's a short-term need then the cost won't affect your overheard forever.

Either way, working those numbers won't eliminate the uncertainty but it can make it easier to understand the variables.

Related: How Entrepreneurs Can Lure Top Talent from Big Business

3. Am I implementing my strategy?
Test your strategic alignment: Do your milestones, spending for marketing activities and new product or service development, and related expenses show the same priorities that are reflected in your strategy? In my business planning coaching I've repeatedly run into client situations in which people say one thing in their strategy but do something different thing in their actions and spending.

For example, you say you're going to emphasize your extensive computer expertise in your strategy, but you pay your service staff below market rates. Or you say you're going to emphasize one side of your product line, but your advertising spending emphasizes the other.

4. Can I afford to relocate?
Sometimes new business owners need to relocate to help cut costs, or want to take better advantage of a prime sales area. If you need to switch your location, get back to your basic numbers and break the problem into its business plan parts.

Estimate how much more your monthly rent will be at the new location. Also estimate your moving costs, costs for fixing up the new location and costs of the business lost while you're absorbed in the move.

Then adjust your sales forecast to either add in the additional business you'd be able to do there or the costs you'd be able to cut. If you don't see enough long-term improvement, then perhaps you shouldn't move.

5. Am I stunting my own growth?
Go back to your business plan and give your assumptions a fresh look. Consider your target market and strategy, and add in your business offering and distinctive differences. Does your business offering match your market? Are you sending the right messages to the right kinds of people?

Related: Three Things to Keep in Mind When Scaling a Business Quickly

Think about things you could easily add on to sell more per customer. Is there some low-hanging fruit you're missing? Maybe your restaurant customers, for example, want mugs, t-shirts or desserts. Maybe your computer services clients want automatic back-up services, or system upgrades.

Now look at marketing. Is your message changing enough to match changes in the market? Is your marketing mix adjusting to technology and media and social changes? What if you spent more money and time on marketing? Could you increase sales?

Your business plan isn't a static document -- it's your best tool for steering your business. Answering these questions periodically can help keep long-term goals in mind while you adjust your immediate steps and actions.
 

The author is an Entrepreneur contributor. The opinions expressed are those of the writer.

Tim Berry is the president of Palo Alto Software Inc., based in Eugene, Ore., which produces business planning software. He is also the author of 3 Weeks to Startup and The Plan-As-You-Go Business Plan, published by Entrepreneur Press.
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