Four tips for putting your business plan to work for your small business

Small business owners who think the only reason to write a business plan is to secure funding—to borrow money or recruit investors—should think again. Using the plan as a management tool can give you and your leadership team an early warning when something is going wrong, a heads up when a special opportunity arises, and help employees stay engaged. Here are four ways to use your business plan to improve your bottom line.

1. Shine a light on key assumptions

Every plan rests on assumptions; spelling out those on which your small business depends makes it easier to spot changes that could create new opportunities or risks. Does your growth depend on continued expansion of your target market? Are you counting on raw material prices remaining stable? Will a new law mandating use of your product pass in January? Reviewing key assumptions regularly will help you to stay alert to environmental changes that could affect your performance—either help or hurt—that might not otherwise be apparent for several months.

2. Make thoughtful revenue and cost projections

Many small businesses project that next year will be like the last. Often, that’s a reasonable guess; but if you are doing something new—adding a new product, opening a new location, revamping a production line, or adding a salesperson—it’s essential to predict likely changes. If you don’t, how will you know how well the new effort is working?

3. Learn by comparing actual results to plan

When you review your results, take a look back at the projections you made to see what worked and what didn’t. Investigate any major differences to understand what’s going on under the surface. It can be helpful to force yourself to ask three “why” questions when you come upon something unexpected, then ask what it means for your business. Does your team have conversations like this?

  • Customer X bought 25% fewer widgets than we expected this month. Why?
  • They brought in a new purchasing manager. Why?
  • They are trying to manage their supply chain more carefully. Why?
  • They want to save money be reducing their inventory levels. What does this mean to us?
  • Conclusion and action: We think that sales to Customer X will be down for several months and then rebound once they get control of their inventory. Let’s assume that for now, but keep a close eye on the situation.

Many small business owners cringe at this process because it can reveal problems. But it is worth remembering that it can reveal opportunities too. For example:

  • Sales of Product X jumped by 40% over what we expected last quarter. Why?
  • Increases are coming from our customers in Nebraska. Why?
  • Our biggest competitor in Nebraska stopped selling Product X. Why?
  • The company was sold and they discontinued the product. What does this mean to us?
  • Conclusion and action: Unless a new competitor moves in, the Nebraska increase should be permanent. Let’s be sure we contact potential new customers there within the month.

4. Inspire and inform employees

Communicate the plan to employees so they know where you are headed. Find a way to share it—be candid and straightforward—without going in to unnecessary detail. After all, your employees are on the front line; they may recognize shifts even before you do. Glossing over bad news erodes trust as does failing to clearly communicate possible positive developments. When employees see the big picture, they understand better how they fit in and can take initiative when problems or opportunities arise. Also, most will appreciate being kept “in the loop.” It demonstrates your trust and confidence in them and is likely to be reciprocated.

If you want to try these ideas but don’t think you have the business plan to support them, don’t give up! Start with the plan you have and improve as you go. Two sensible starting points are creating a list of assumptions and practicing the three “why” questions approach.

Does this make sense for your business? Your thoughts would be greatly appreciated.

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Karen Utgoff, principal of Karen Lauter Utgoff Consulting, is a market-oriented business strategist based in Amherst, MA. Learn more at http://www.utgoff.com.

© Karen Lauter Utgoff Consulting 2013. All rights reserved.

1 comment

  1. Patrick Quinlan says:

    For my businesses, the goal has been to create and maintain 3 active documents: an engineering report, marketing plan, and business plan. the business plan is more high-level, and quotes from the other two documents. That way, we can keep company trade secrets and sensitive business assets back, and have a more public business plan that would not require an NDA.

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