As one of our most popular articles, we’ve updated this for 2017.
Political surprises, fluctuating financial markets and changes to business tax have made the last year tough for some businesses. Here’s how to update your business plan, to keep your company in good shape for the year ahead.
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Why it’s important to have an up-to-date business plan
Your business plan is a crucial document and should be a fundamental element of your business management strategy – not just when you are starting up but at every stage of your growth. Yet a worryingly large proportion of small businesses do not think to write one, or to revisit the one they wrote initially.
Surveys have shown that many small business owners presume their firm is too small to warrant it, but in reality a business plan is a vital tool for any organisation, regardless of size.
The business plan review process
If you drew up a business plan that expired at the end of last year, you don’t need to start from scratch. Instead, you can use your existing plan to help you draw up a successful document for the coming year.
1. Compare cashflow and sales forecasts with actual results
One of the most common problems with business plans is a lack of realistic thinking. All too often, the cashflow and sales forecasts you have predicted will be significantly too optimistic.
Before writing your new plan, compare your previous forecasts with your actual results. If the two are broadly similar, and you expect to see no major changes in your business model over the term covered in your new plan, you may wish to replicate your previous calculations when writing your new forecasts.
However, if there is a significant difference between the predictions in your previous plan and your actual results, you should rethink the methods you used to make your forecasts. You should consider using last year’s results as the basis for the coming year’s predictions – as long as you factor in any major changes expected over that period.
2. Update your business plan based on your circumstances
It is likely that your business circumstances have changed significantly in the last year or two. Your new business plan should reflect these changes – and not just in cashflow or sales forecasts.
For example, is it necessary to now change your marketing in order to appeal to new customer priorities? Does the collapse of competitors provide any opportunities for expansion? If so, how will you fund this?
3. Keep looking ahead
The last year has brought some challenges, with the business rate revaluation hitting some SMEs particularly hard, and uncertainty over the UK’s exit from the EU and how it will affect trade.
It’s important to make sure your business plan includes plans for a variety of circumstances. You should consider making at least three separate forecasts: a best case, a worst case, and a median. It is generally thought that you should have a contingency fund large enough to offset a 15 per cent reduction in turnover.
Similarly, if you think that the coming year is likely to bring opportunities for growth or expansion, you should have access to a similar amount of cash in order to take advantage of them. You may wish to consider factoring or invoice discounting as a way of achieving this.
4. Benchmark your results
Where possible, you should ensure that you benchmark your results against those of your competitors. If your competitors are public companies, and therefore obliged to publish their results, this will be relatively easy.
When drawing up your new business plan, you should examine how your competitors coped during the last couple of years. Did the strategies outlined in your previous plan ensure that you outstripped your rivals, or were other firms more successful? If your competitors fared better, you should ask yourself why – and then consider adopting some of their tactics for your own plan.
Building a plan for success
Your business plan is a foundation upon which your overall strategy is built. It will help illustrate whether or not you have enough cash, and will provide a framework for growth. It is essential that this document is given proper care and attention.
The coming year could present significant challenges for some businesses. By learning from the successes and mistakes of previous years, you can help ensure that you’re in the best possible position to thrive throughout 2017 and beyond.
Do you have any top business plan tips? Share them in the comments!