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Bankruptcy InformationWhy You Need a Business Planning System NOT a Business Plan
by:
David Coffman
Copyright 2005 David Coffman
When causal agency mentions business planning we have been conditioned to think simply about writing a business plan. There are hundreds of books and articles, tons of software, an army of consultants, and a multitude government programs to help you write a business plan. There are virtually no resources to help you set up what today’s business environment actually demands – a continuous, in progress planning system.
A unremarkably accepted theory is that for a business to survive and prosper it must be flexible and nimble. It must be able to turn on a dime as conditions warrant. Having a written five-year plan is not part of this picture. In fact, trying to follow a long-term plan during rampant change is not logical. It is applying linear thinking to a non-linear situation. It simply doesn’t work.
Having a formal, written business plan is so accepted as being crucial to success that there haven’t been many an studies or surveys to test this premise. If business plans were such a howling thing, there would-be be a significant and conclusive difference between businesses that have them and those that don’t. Interviews of 100 founders of companies on 1989s “INC 500” list of quickest
growing private companies in the U.S. found only 28 per centum had “full-blown” business plans. The 1993 AT&T Small Business Study found that 59 per centum of small businesses that grew over the previous two years used a formal business plan. A 1994 survey of the country’s quickest
growing companies found 23 per centum lacked a business plan. “The Relationship between Written Business Plans and the Failure of Small Businesses in the U.S.,” by Dr. Writer
Perry, surveyed 152 failing and 152 non-failed small businesses in 1997. He found that 64 per centum of the non-failed firms had no written business plan. He likewise found that non-failed firms had much extensive written plans than failing firms, 23 per centum compared to 9 percent, respectively.
As you can see the results of studies and surveys are all across the board and don’t prove anything. Clearly, a significant percentage of flourishing businesses don’t have written business plans. None of these studies reveal the nature of the process that created the plan. Was it the result of an annual process with occasional updates or an ongoing, continual process? As Academician Prince consort
Shapero said, “Companies that plan do better than companies that don’t, but they ne'er
follow their plan.”
The focus of necessity
to be on the PROCESS not on the plan. If a continual, in progress planning process is in place, a written business plan is simply not important. Writing a business plan without a planning system in place is a massive effort that is done really infrequently. Many an businesses write three to five year plans and update them annually. The plans are reviewed sporadically
during each year to analyze the plan vs. actual variances. Little, if any, thought is given to strategy between the annual updates. Strategy should be the focus everyday. Setting up a planning system allows and sometimes forces you to focus on strategy.
A planning system consists of two functions. One is a goal setting and attaining process, and the else is a trend looking or environment scanning process. Setting up a planning system takes some steps. The 1st and foremost task is to set aside or do time for planning on a regular, in progress basis. It must become part of your routine, not an occasional event that can be easily postponed. In the evaluation phase, the owner or management team and the institution are analyzed. From the analysis, key or critical areas of the business are identified. These areas are filtered down to focus on the most important ones. Performance measures are determined and systems to gather and process the necessary data are set up, if needed. A base of current performance is used to set goals.
Now the regular, in progress stuff begins. Strategies are formulated, tested, implemented, monitored, and reworked until the goals are achieved. Each planning session is split between working on strategies and trend watching. As goals are achieved, the goal setting and strategy formulation process begins again.
Let’s put the focus back wherever
it belongs on continuous, in progress planning instead of writing business plans. As Karl Albrecht same
in his book Corporate Radar, “The majority is not always right, the conventional wisdom is not always wise, and the accepted ism could well be flawed. The much fashionable an idea, the much it is likely to be exempt from critical evaluation. Breakthrough thinking sometimes calls for contradicting the most wide
control assumptions and beliefs.”
Just simply about the author:
David E. Coffman CPA/ABV, CVA has authored a number of articles, reports, white papers, and books simply about small business valuation and planning topics. He based Business Valuations & Strategies in 1997 to activity only with small businesses in these areas. His “Power to Prosper Small Business Planning System” is accessible at http://www.bus-val-strat.com
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