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This is part 11 of 11 in the series “Writing a Business Plan: Section 2: Putting your Business Plan to Work.”
When is the best time to update your business plan? Why not update it anytime?
Writing a business plan is one of those skills that gets better with practice, and the first time or two you try it, you might feel a little unsure of yourself and whether what you're doing is worthwhile.
If you start multiple ventures over the course of your career, you'll naturally write multiple business plans, each one better than the last. As your planning skills improve, so will your business skills, making your next company more likely to be successful than the last.
But serial entrepreneurs aren't the only ones who should benefit from regular business planning sessions. Even if you're only starting one company, or never starting a company at all, you should still update your business plan and keep honing your business planning skills.
Related: 6 Reasons to Update Your Business Plan
Updating a plan is usually easier than starting from scratch. Instead of trying to figure out what the fundamental business concepts are, you simply determine whether they change. You can usually reuse financial formulas, spreadsheets, executive biographies, and other more or less permanent content in the plan.
9 Reasons to Update Your Plan
When is the best time to update your plan? Here are nine instances when it's time to tweak your plan.
- A new accounting period begins. If your industry is changing quickly, you might want to update your plan annually, quarterly, or even monthly.
- You need funding. Lenders and other financial institutions need an up-to-date plan to make funding decisions.
- Your customers' needs and wants are changing. Talk to them frequently to find out what they're buying and whether your solutions still meet their needs or if you can offer new solutions.
- Markets change dramatically. Changing customer preferences, trends towards consolidation among customers, and changes in the regulatory environment may necessitate updates to your plans.
- Newer or stronger competitors are counting on your customers to grow their own companies.
- Your company develops a new product, technology, service, or skill. If your business has changed significantly since you created the plan, it's time to update it.
- There has been a change in management and the new management needs to be kept up to date.
- Your company has crossed a certain milestone, such as moving out of a home office, reaching $1 million in sales, or having 100 employees.
- Your previous plans no longer seem to reflect reality. Maybe your last plan was bad. Maybe circumstances have changed faster than you expected. But if your plans seem off the mark, try again.
Related: When is the best time to write a business plan?
Don't rush
Some entrepreneurs may have the tendency to rush into changing their business plan when things aren't going well. The important thing to remember is to take your time.
“Don't feel like it's mandatory to update your plan. You should only refine your plan if your strategy isn't working or things are going better than you originally planned,” says Noah Parsons, chief operating officer at Palo Alto Software. “If things are going as expected, maintaining the status quo may be the best course of action.”
Related: Business Plan Update Checklist
Take the time to question some of the core assumptions of your previous plan and see if they still stand. Were your profit margins higher than you expected? If so, make a plan to make the most of the extra cash you've generated. Are your new retail units not performing as well as you expected? Now is the time to figure out why. Has new product competition started up sooner than you expected? Look at your other products to see if they're more vulnerable than you thought.
In large companies with rigorous planning routines that call for annual, semi-annual, and quarterly plans and plan updates, managers spend at least some of their time working on and thinking about new plans and plan updates. All of the information that flows to senior management in the form of plans helps inform higher-ups. It also helps those on the ground. It's true that everyone is evaluated on their past performance. The best way to ensure that you'll be able to look back on your performance with satisfaction and pride a year from now is to plan frequently, starting now.
Related: The benefits and risks of creating a business plan
Be Conservative
You don't want to fail, but when you rewrite your business plan, you have to acknowledge the possibility of failure. Of course, you want to write a plan that paints a great picture of success, but you need to be careful not to present overly optimistic projections, especially regarding revenue, costs, profit margins, and other factors.
It's tempting to tinker with the numbers until you get the results you want. And making small changes here and there might seem fine. What would change? Let's say you increased your projected market share by 1 percent, reduced your projected costs by 2 percent, and lowered your estimated initial capital needs by a few percentage points.
Related: 12 Reasons Why You Need a Business Plan
In summary, a few similarly small changes can make a big difference in the end result of your plan, turning what may seem like a losing strategy into a predictable winner. But don't be tempted. You could ask some of your best friends and family to invest and put your life's savings into your business. The feelings of distant investors may not matter as much, but misleading them with your plan could expose you to charges of misrepresentation.
An optimistic view of your plan could lead you to seek insufficient start-up capital, underprice your product or service, or expect unrealistic rapid growth, which could cause your business to fail. Curb your enthusiasm. If your plan shows that your business idea is unfounded, then by all means, look for the errors, but don't make the mistake of distorting your plan to fit an unfounded idea.
Related: The Ultimate Guide to Writing a Business Plan
