Research published in 2017, carried out over six years by academics from the University of Edinburgh Business School and RWTH Aachen University, found that new businesses with formal business plans were 16% more likely to survive.
Despite this and other proof of the value of business plans, a 2014 survey by business software provider Exact suggested that a third of UK SMEs didn’t have a formal business plan, with 68% of these believing they didn’t need one, 23% “too busy” to prepare one and 8% not having “anyone to help them produce one”, while 5% simply “weren’t comfortable with numbers”.
Business plan benefits
Chartered accountant Victoria Kiess is a corporate finance senior manager at Moore Stephens, which provides advisory and tax and services to businesses large and small. “Small-business owners are often so focused on day-to-day operational matters that business planning just isn’t a priority,” she says. “Some don’t fully appreciate the potential benefits of business planning and don’t create a business plan unless they need finance or funding.”
Kiess says another common scenario is someone creating a business plan when starting their business, but never updating it so it remains a useful business tool. This can hold them back, she warns. “Updating your business plan means you have to remind yourself of your key objectives, so you can assess your performance and progress. If your business isn’t progressing as planned, you know you have to rethink your strategy. And any funders or investors will expect to see an up-to-date business plan, of course.”
Updating your business plan
Most aspects of a business plan can change, says Kiess. “It could be your market or your share of it, new products or services you’ve introduced, key employees may have joined, you might have new competitors or you could have new investment. Most things can change.
“The financial data is one of the most important aspects of a business plan, so it’s important to keep this as up to date,” says Kiess. “For example, profit and loss balance sheet and cash flow information can be updated with actual figures, and forecasts reviewed. Your business plan should include actual P&L account summaries to show your trading history, to help back up your assumptions.”
Kiess recommends reviewing your business plan at least every quarter. You and other key people within your business should be involved, with support from your accountant where required. Alterations should be made as a result of major changes that have happened within your business, its market or the wider economy, advises Kiess.
“Particular focus should also be given to the plan’s current objectives and time frames, to ensure that your strategy is still appropriate,” Kiess stresses. “Historical financial information should be updated and your financial forecasts reviewed, to make sure they’re still reasonable.”
Kiess also recommends that someone who is not directly involved in your business (“your accountant or other trusted business advisor”) reviews your updated business plan, so that they can provide unbiased feedback.
“Your accountant will be able to help you to create or update your business plan. They’re likely to have seen many business plans, so they’ll also be able to comment on general content and presentation and – crucially – whether your numbers add up, that your objectives are realistic and your strategy is sensible.”
As Kiess explains, regularly updating your business plan means not having to rush to do it ahead of important meetings, for example, when you require funding or investment. “Give yourself enough time to research the information you need, so your business plan is fully up to date and robust, with all key questions unanswered,” she advises.
When asked for her key business plan tips, Kiess replies: “Make sure your numbers add up and can be justified. Keep your forecasts and assumptions realistic. Be honest about your weaknesses and threats – it shows awareness. Your plan should be comprehensive, yet concise. Your executive summary should cover all of the main points of your plan in an engaging way. Make sure there are no silly mistakes, whether that’s spelling or grammar. And keep your plan as simple as possible, because if it’s too complicated – people won’t read it.”