You do not have to look far to find a plethora of business plan templates. Many of these business plans will be displayed as word documents with a content page that goes on forever. As you read down the contents page you are picturing all the pages you have to write to complete your business plan. Writing your business plan has just turned into War and Peace – it is overwhelming.
Then, you see an advert for a cloud-based business plan, perfect you think. It looks simple, they tell you it’s simple and they have hundreds of business plan templates you can choose from. You sign up straight away optimistic this will quickly give you a business plan to transform your business. Sadly, as you get started, working your way through the pages filling out the ready-made forms you realise this is just as long at the business plan templates in Word!
These traditional methods, whether delivered on word or cloud-based, allowing you to pull together a large business plan fairly quickly by following their template. However, this is a big mistake for three reasons I will explain.
1. A Traditional Business Plan and Financial Forecasts?
Whether you are using an excel template of a cloud-based business plan system to work out your financials, they provide you with the same output. The good news is that with the formulas already built-in they provide you with accurate outputs.
However, there are three faults with these business planning templates:
Garbage in Garbage Out
Garbage in Garbage out (GIGO) is the idea that flawed, or nonsense (garbage) input data produces nonsense output. Whilst these systems might be able to accurately give an output, you are in charge of the input. How do you know what numbers to put in? Will your sales grow in the months ahead, and if they do, by how much, 5%, 10%, more? Where will the growth come from; existing customers, new customers, new markets, etc? How do you really know?
“It is better to be roughly right than precisely wrong.”
John Maynard Keynes
They look at a Limited Number of Value Drivers
These traditional approaches fail because they only focus on a few value drivers, typically related to sales, cost and if you are lucky assets. However, they miss many other important value drivers related to items like; brand, IP, improved sales process, adoption of new technology, Government funding, improved pricing, reduced asset maintenance, reduced cost of sale, reduced cost of production, and many more. How much money do you want to leave on the table?
Some Things are too Difficult to Measure
These systems completely avoid things that are difficult to measure. They may be intangible or unquantifiable and many simply do not know how to measure these things. However, many can have the greatest impact on your growth in the years ahead. One of our clients put a value of £4.29M on a new management team over a four year plan. This was higher than any other value driver in the business plan, and they got within 10% of that number by the end of their four year business plan. Where would they be if they had not identified that value driver?
2. A Traditional Business Plan Wastes Valuable Resources
As you jump into your traditional business plan, whether that be on word template or a cloud-based system, you are already worried about your limited resources. This is where most start, with a budget.
There are three reasons a traditional business planning template will deplete your resources:
Forward Planning Results in an Explosion of Detail
As you look forward at the years ahead and ask what needs to be done, you start compiling a large list of things to do – an explosion of detail. We are all very good at this! That large list is going to take a lot of money, effort and time to deliver. More often than not, the money is required upfront to get your business plan moving.
At this point, you are already looking at your business plan as a paper exercise. There is no way you are going to be able to implement what you have written in your business plan. Whatsmore, the numbers (revenues) will now be irrelevant if you can not fund your new plan. A waste of time and money writing it in the first place.
Your Team have No Ownership or Buy-In
It is likely your plan will be written by one person, the managing director, or one of the senior management team. No one else has any ownership of the plan. What do they care, they are too busy doing what they have always done to keep things going.
When you roll out the new business plan at a team meeting they all smile and nod in agreement. At this point your work is done, they are on board, or are they? All too often they give the response you want and go back to business as usual.
As you start to invest in your new business plan no one is focused on change, as a result, your investment is wasted and things continue as they always have.
You are Heading in The Wrong Direction
Your whole plan from start to finish has been a race. You just want it done so you can get back to more important things! Goal setting is no exception. You quickly pick your goals from the list provided by your template business plan. Done.
They sound great, some inspirational. Your team seem excited by them which gives you a boost to charge on and complete the whole business plan. On reflection, you wonder what the goals really mean and if they are even relevant to your company.
Later, you realise that the goals are not relevant to your business and are not meeting the needs of your stakeholders. Sadly, it is too late, those valuable resources have been poured into your new business plan, taking you in the wrong direction and down dead ends. You are left wondering I should you continue or write off sunk costs?
3. A Traditional Business Plan Can Not Deal with the Unforeseen
The traditional business plan is very rigid and because of this many are out of date the day they are written. We live in a constantly changing world and your business plan has to be able to adjust to the threats and opportunities every day.
There are 3 reasons traditional business plans are unable to deal with the unforeseen:
There is No Agility to the Plan
Whether your team are working to your plan or doing what they have always done, they will find things difficult in an ever-changing world. What had been possible when the plan was written is no longer possible because of a change in legislation, a change in the supply chain, or a new competitor for example.
Your team continue to do the same thing and expect different results. They have no structure to support agile work that can take advantage of the changes. Competitive advantage is lost and margins are eroded.
When things go wrong, all your team look to managers for answers, who in turn look up the chain of command. As answers, people realise they should have been doing these things ages ago if indeed you find answers?
The Plan Lives in a Drawer
So where did you keep your last plan? For so many it is hidden in a drawer, gathering dust on a shelf or worse, lost. When things change and go wrong your plan is nowhere to be found. Sadly, even if your business plan is found, it holds no answers to the changing landscape you face.
If you have an active plan, that people are looking at, how does it support agile thinking and working? People are lost in pages and pages of actions with little connection between actions and no connection to the strategic direction of the company.
The traditional plan is written for a utopian world, where everything goes according to the plan. Sadly, very few live in this utopian world, and the plan has no answers, encourages no one to think in a strategic way and just wastes more time.
There is a Poor Connection Between the Business Plan and Finances
Trying to change and pivot at speed is tough for any company, especially when you are unable to effectively connect your plan and finances. Traditional business planning confuses strategic goals with financial targets. The two are not the same.
The numbers traditional planning churns out are vulnerable to the unforeseen. We have seen our fair share of these recently, from Brexit to global pandemics. It is because these numbers are the end goal rather than a result of the change that they fall down.
When strategic goals are not set in stone, it is all too easy for excuses to be made and slippage to occur. What a missed opportunity during these massive unforeseen events we face more and more. You can already look back on the companies, there are a few, that have taken advantage of the unforeseen in recent times.
A Traditional Business Plan and Securing Investment
Finally, and it is worth mentioning, the biggest reason, sadly, that most people write a business plan, is to secure funding/investment. There is no intention to even look at the plan again, let alone implement it once funding has been secured.
For many organisations, banks, government agencies and the likes, they accept this paper exercise to release funding. Yes, there is a bit of scrutiny of your numbers, they have to be seen to be doing their job. However, as long as they can see their money is secure, typically against your assets or maybe even a personal guarantee from a director(!) you get the money.
Times are changing, risks are greater, and as a director, you need to have confidence in your business plan and the related financial forecast. Regardless of how easily you get the investment, you must have a way to repay it. Failure could mean you lose your business, your house or worse.
How to Write a Business Plan
When writing your business plan ensure that you:
- Have identified your true goals that will provide your stakeholders with what they really want.
- Use the planning backward method to focus you on the activities that will make a real difference.
- Engage your team in the planning process, and enable them to react fast to changes in the business environment.
- Use a method that provides financial projections that gain consensus and leave no stone unturned.
For more on how to write a business plan that avoids all the pitfalls of traditional planning please refer Concord, or contact us on 0800 488 0249 to arrange a meeting where we would be happy to answer your questions.