Business Planning: Is Business Planning a Waste of Time?

Business Planning - Is it Critical or a Waste of Time?

There are a few myths about business planning that should be dispelled.

The first is that Business planning is something you do for the bank, not for you.

The second is that, if you do produce a plan for your own use, that is a separate thing than the one for the bank...more than one company owner has explained to me that they keep the "real" numbers well away from their bank manager.

The biggest myth is that business plans are really a waste of time. Because you don't have a crystal ball to predict your sales (the argument goes) the whole thing is a piece of guesswork which serves to persuade your bank manager to lend you money but has no other value.

These ideas are dangerous, irresponsible and partially to blame for the economic mess we find ourselves in at the moment. Business plans are critical to the management and control of organisations and should be used consistently for the business, the bank and anyone else.

The first part of a good business plan relates to strategy. Strategy is that part of decision making which allocates resources. In other words, am I going to use my time, money or staff to do this or do that. Are we going to make chocolates or biscuits? Are we going to provide recruitment services to SME's* or HR Consultancy Solutions to Blue Chip Companies? What are our objectives and how can we use our resources in the cleverest manner possible to achieve that end?

Too few Managing Directors and Business Owners understand that Strategic Planning is their primary role. As a result the future is left "up for grabs" without a clear logic behind the use of staff, money and assets. This part of your plan isn't for your bank manager, it's for you and your business.

After that the next priority is sales (and I can hear the grumbles for here). "We don't know what the sales are going to be next week, let alone next year, so why should we bother doing a sales forecast?"....OK, I get it, but if that's how you feel then you've missed the point.

A Sales forecast is a statement of your assumptions, with some explanation of:

a) WHY they are your assumptions

b) What will happen if your assumptions are wrong.

I know you don't have a crystal ball, but you should still focus on the factors that will affect your sales levels: how many sales staff do you have, what marketing resources are available to them, what are your main customers planning, how will you bring new customers on board, what's the market as a whole doing etc.

Some of these factors are out of your hands, but it is important to assess the impact if things turn out better or worse than you expect. In terms of managing cash it is vital to understand whether you can withstand a shortfall or finance a boom.

It is these factors that good bank managers are trying to understand. In truth they should be important enough for you to understand for yourself.

Too many businesses borrowed money on the basis of flashy business plans that bore little relation to reality. Strangely, many businesses seemed to think that being able to dupe the bank into lending the money was a good thing, instead of considering the obvious flaw....if the numbers they were submitting to the bank were fantasy, then why borrow money that you don't know you can repay ? It makes no sense.

Business Planning is critical, there should be one plan used for running the business and it should be updated regularly as reality catches up with your assumptions. The impact of changing circumstances should be assessed and Senior Management should be vigorous in questioning whether resources are being used and planned in the cleverest manner possible.

The reality is that the long term future of your business, as well your relationship with the bank, depend on it.

*SME's - Small to Medium sized Enterprises

Nick Bonnaud is a Chartered Management Accountant and Business Consultant. He runs Quest, an Accountancy Practice based in Birmingham, UK.

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