8 Reasons to Update Your Business Plan Right Now
Writing your business plan isn't a one-time event. Here's why it's critical to update it from time to time.
In their book Write Your Business Plan, the staff of Entrepreneur Media offer an in-depth understanding of what's essential to any business plan, what's appropriate for your venture, and what it takes to ensure success. In this edited excerpt, the authors offer eight reasons why updating your business plan is crucial to the success of your business.
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 as well 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 get the benefit of regular business-planning sessions. If you start just one company, you should be constantly honing your business-planning skills by updating your business plan.
Updating a business plan is normally 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.
Here are eight reasons to think about updating your plan. If one applies to you, it's time for an update.
1. A new financial period is about to begin. You may choose to update your plan annually, quarterly or even monthly if your business is in an industry that changes quickly.
2. You need financing. Lenders and other financiers need an updated plan to make financing decisions.
3. Significant markets change. Shifting client tastes, consolidation trends among customers and altered regulatory climates can trigger a need for plan updates.
4. New or stronger competitors are looking to your customers for their growth.
5. 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.
6. You have had a change in management. New managers should get fresh information.
7. Your company has crossed a threshold, such as moving out of your home office, reaching $1 million in sales or employing 100 people.
8. Your old plan doesn't seem to reflect reality anymore. Maybe you did a poor job the last time you created your plan. Maybe things have just changed faster than you expected. But if your plan seems irrelevant, redo it.
It's important, however, that a plan update not simply be a mechanical task, limited to plugging in the most recent sales figures. Instead, 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 start planning how to make the most of any extra cash you generate. Is your new retail store unit not performing as well as expected? Then now's the time to figure out why. Has competition for your new product arisen sooner than you guessed? Take a look at your other products with an eye to seeing if they're also 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 thinking about 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. And 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.