Why Your Business Plan Needs to Be Updated

No change in your company should go forward without a revision to your business plan

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Small businesses are forever evolving to meet the needs of their customer base and remain competitive. Determining the right approach to adapt and grow can be the difference between success and failure.

One helpful tool to help address these changes is a business plan. A business plan is a blueprint that identifies obstacles and opportunities that businesses face. The plan includes carefully researched financial projections, budgets and cost analyses, plus marketing and operational strategies.

Contractors should update their business plan when considering:

  • Introducing new products or services
  • Opening a new branch
  • Bringing in new management
  • Changing ownership
  • Expanding a service area
  • Modifying the company’s vision
  • Securing a different type of financing

Dave Kaster, principal at Fidelis, has written over a thousand business plans for clients at his business advisory practice in Green Bay, Wisconsin. He’s also helped clients rewrite their business plans to flesh out new ideas and goals for the future.

“I think the biggest reason people want to change their business plan is if it doesn’t reflect reality,” Kaster says.

The business plan of a startup becomes outdated as the company hires employees, adds assets and expands services. The plan no longer serves its purpose as a business model and guide. Some situations require a thorough overhaul of a business plan, while other circumstances require just small changes.

“If you’re just switching one loan for another to reset the cash flow, it’s just one change to the financial part,” Kaster says.

This process can take place at a single meeting with a banker.

A change of ownership may or may not require a change in the business plan, depending on the individual coming on board.

“If you’re bringing in a new owner and he has worked for you for 15 years and wants to keep everything the same, then that doesn’t change the business plan much,” Kaster says.

Bringing in an outsider is a different story.

“A business plan will have to change because you have different philosophies,” he says.

Finances first

When updating a business plan, the first task is to create a financial plan.

“You have to figure that out first because it gives you the range and parameters of everything else,” Kaster says.

A financial plan will define your budget, cash flow, sales numbers to meet, etc. You can develop a financial plan with your banker, accountant or financial planner.

“But don’t stop there," Kaster says. "Once you figure out where your financial plan is going or how your finances are going to change, then you need to change your business systems to reflect the reality of that.”

For example, a contractor who purchases additional equipment to introduce a new service will need to determine how to achieve a return on the investment. This is where financial projections are helpful. If projections signify the equipment is profitable when used at least 10 hours a week, then business operations need to incorporate these additional 10 hours.

“That 10 hours a week reflects both on labor and sales. You have to change the employee mix and change your marketing process to get those 10 hours,” Kaster says.

The domino effect might prompt additional changes, like extending into a new geographical area, complying with a new set of regulations or securing new certifications. An updated business plan can spell out these scenarios and serve as a useful guide.

He advises business owners to use a two-step process to prepare and evaluate financial data in their business plan. First, look at your historical finances.

“Find out exactly, on a percentage basis, what you spent on every part of your budget, how much every new customer is worth to you and how much every new customer costs you,” Kaster says.

By looking at averages and thresholds, owners can get a clear picture of the company’s financial health.

Future growth

Second, business owners should make projections. As a starting point, you should calculate your fixed costs, like insurance, loan payments and utilities. These fixed costs aren’t dependent on the amount of business transacted, unlike variable costs that fluctuate with the volume of work performed.

“You have to decide when those variable costs are going to change or when the fixed costs are forced to change,” Kaster says.

While this involves some guesswork, some direction can be provided by industry research and collaboration with financial advisers.

Once the financials are updated, it’s time to look ahead five to 10 years and envision how the business should look down the road. This gives you a goal to strive for. Big changes for the company, like opening a new branch or introducing a new product or service, should be carefully researched before jumping in headfirst. It’s important to find out what customers need and want through market research.

“Research online or hire someone to find current trends in the industry. Find out which businesses are doing things successfully — that’s who you want to model,” Kaster says.

Contractors can identify a need for a new product or service through online surveys and comments, feedback from customers, and reviews on the company website. If certain requests or complaints continue to surface, that’s a clear sign to introduce a product or service to address those issues.

When planning for a new product, service or service area, Kaster advises business owners to be aware of the domino effect. One change in the business leads to others. As a company grows, its operations need to grow along with it.

With fewer workers, an owner can get by using QuickBooks, handwritten checks, paper records and calling employees on their personal cellphones. When the workforce expands, it’s best to invest in an accounting program, communications system and other technology upgrades. All of these changes can be spelled out in an updated business plan.

Marketing is another area to revamp in a revised business plan.

“Generic marketing is OK, but once you’re over $2.5 million in sales, you better have a professional marketing program and formalized marketing for the business,” Kaster says.

Marketing plans should include a description of the following:

  • Target market: Focus marketing on people most likely to buy a product.
  • Market analysis: Determine the size of the market to ascertain if it can sustain business.
  • Market segmentation: Group customers to understand how they’ll respond to marketing messages.
  • Competition: Evaluate competitors’ strengths and weaknesses.

Kaster says no business plan is complete without an exit plan. Oftentimes a business is passed to a relative or employee, but what happens if this individual is no longer interested or capable of taking charge? An updated business plan should incorporate a new exit plan.

“I can guarantee that if you don’t plan for how to get out, then someone else is going to force you out in some shape or form,” he says.   

Follow the vision

One more piece of advice: Follow the plan.

“If the business plan means nothing to the day-to-day running of your business, do you really want to research and change it if you’re not going to use it?” Kaster says.

A business plan is only effective if it’s adopted and adhered to over time.

“I’ve seen so many businesses that spend a lot of money, hire a consultant and get a fantastic business plan, and then it just sits on the shelf and gathers dust,” he says.

Lastly, updates to any business plan should align with a company’s vision statement.

“If you have access to a new market, new product and new financing, then you have to test that up against your vision. If your vision changes, too, then you have to change your business plan. That is your single most important reason to exist — your vision statement.”



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