When to Update Your Business Plan Nine signs it may be time to pivot from your original business strategy
By Eric Butow
Key Takeaways
- Why updating your business plan is good business
- When to make changes to your business plan
- When to stay the course
Opinions expressed by Entrepreneur contributors are their own.
This is part 11 / 11 of Write Your Business Plan: Section 2: Putting Your Business Plan to Work series.
When's the best time to update your business plan? How about always.
Writing a business plan is one of those skills that improve with practice. The first one or two times you create a plan, you may feel a little unsure of yourself and even less certain that what you're doing has value.
If you go on to start several ventures during your career, you'll naturally write several business plans, and each one will be better than the last. It's likely also that with better planning skills will come improved business skills, boosting the odds that each successive company you start will do better than the previous one.
But there's no reason that only serial entrepreneurs should benefit from regular business planning sessions. If you start just one company or never start a company at all, you should be constantly honing your business planning skills by updating your business plan.
Related: 6 Reasons to Update Your Business Plan
Updating a plan usually is easier than starting from scratch. Instead of trying to figure out what your basic business concept is, you only have to decide whether it's changing. You'll usually be able to reuse the financial formulas, spreadsheets, management biographies, and other more or less evergreen contents of your plan.
Nine Reasons You Should Update Your Plan
When's the best time to update a plan? Here are nine instances you might want to give it a tweak.
- A new financial period is about to begin. You may update your plan annually, quarterly, or even monthly if your industry changes quickly.
- You need financing. Lenders and other financiers need an updated plan to make financing decisions.
- Your customers' needs and desires have changed. Talk to your customers often to find out what they're buying, if your solutions still meet their needs, and if you can provide new solutions.
- Significant markets change. Shifting client tastes, consolidation trends among customers, and altered regulatory climates can trigger a need for plan updates.
- New or stronger competitors are looking to your customers for their growth.
- Your firm develops a new product, technology, service, or skill. If your business has changed a lot since you wrote your plan, it's time for an update.
- You have had a change in management. New managers should get fresh information.
- Your company has crossed a threshold, such as moving out of your home office, reaching $1 million in sales, or employing 100 people.
- Your old plan doesn't seem to reflect reality anymore. Maybe you did a poor job last time. Maybe things have just changed faster than you expected. But if your plan seems irrelevant, redo it.
Related: When Is the Best Time to Write Your Business Plan?
Don't Rush
Some entrepreneurs may be more prone to rushing into making changes to their business plan when things aren't working out. One important thing to remember: Take your time.
"Don't feel like it's a requirement to update your plan. You should only refine your plan if your strategy either isn't working or things are going much better than you had originally planned, says Noah Parsons COO of Palo Alto Software. "If you're meeting your expectations, staying the course might be the best bet."
Related: Business Plan Updating Checklist
Take the time to challenge some of the core assumptions of your prior plan to see if they still hold up. Have profit margins been higher than you expected? Then, plan to make the most of any extra cash you generate. Is your new retail store unit not performing as well as you expected? Now's the time to figure out why. Has competition for your new product arisen sooner than you guessed? Look at other products to see if they are more vulnerable than you think.
In large corporations with strict planning routines requiring annual, semiannual, and quarterly plans and plan updates, managers spend at least part of their time working on or considering a new plan or plan update. All that information flowing up to senior managers in the form of plans helps keep the brass informed. It helps those in the trenches, too. It's a fact that everybody is judged by past performance. The best way to ensure that a year from now you'll be looking back on your performance with satisfaction and pride is to plan now and often.
Related: The Benefits and Risks of Writing a Business Plan
Be Conservative
While you don't want to fail, there is a point when rewriting a business plan that you have to admit the possibility of failure. It's only natural to create a plan that will describe a roaring success. But you have to be careful not to present an overly optimistic view, especially of such elements as sales, costs, and profit margins.
It's tempting to noodle around with the numbers until you produce the desired result. And if you make only minor changes here and there, it may seem all right. What difference does it make? Say you increase your projected market share by 1 percent here, reduce expected costs by 2 percent, and lower your estimated required startup capital by a few percentage points.
Related: 12 Reasons You Need a Business Plan
Some similarly small changes, in sum, can make a big difference in the bottom line of your plan and turn what otherwise looks like a loser into a projected winner. But don't be seduced. You may ask for investments from friends and family you care about and put your life savings into the enterprise. The feelings of arm's-length investors may not be so important, but if you mislead them in your plan, you may open yourself up to accusations of misrepresentation.
Looking at things in your plan through rose-colored glasses may even doom your business to failure if it causes you to seek insufficient startup capital, underprice your product or service, or expect unrealistically rapid growth. Temper your enthusiasm. If your plan indicates that the business idea isn't sound, by all means, look for errors. But don't make the mistake of skewing your plan to fit an idea that isn't sound.
