A Written Business Plan: Never More Important

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Synopsis

It is hard to over-stress the importance to business owners promoting and ensuring the development of a written planning document that canvases near- and long-term business viability, contingency plans, and business transition. That plan should then be methodically updated and amended for annual approval by their company’s Board of Directors.

If business owners do that they will be virtually certain to significantly increase the likelihood of improved:

  1. corporate governance in their business.
  2. free cash flow and business value growth from what those things otherwise will be.
  3. business transition success.

Why a written business plan, and why formally update and approve it at least once each year?

41808297 - business plan over financial charts

There are many excellent reasons for generating and methodically updating such a business planning document. These include:

  1. Writing things down forces “thinking discipline and focus” on the part of those who participate in the process.
  1. Writing things down also forces “thought clarity”, and results in more comprehensive and more soundly based opinions and conclusions.
  1. Having a written business plan contributes positively to owner, director and management buy-in to formalized direction by those who participate in the process and execution of resultant strategy.
  1. Generating a written business plan introduces accountability far beyond that resulting from undocumented verbal interaction.
  1. A written business plan that includes contingency provisions readies the organization’s owners, directors and management to take affirmative action in the event things do not go as planned or hoped for. This from a position of greater strength than if they are forced to scramble for solutions in circumstances where there has been no contingency pre-planning.
  1. Having a detailed business plan “in the drawer” is becoming increasingly important because of the uncertainty and potential rapid change in the current economic and business environment – irrespective of where geographically a business is physically located.

50165244 - hand writing new content new results with black marker on transparent wipe board.

  1. It is necessary to regularly update, at least annually, a written business plan because any such document is time-sensitive as it is based on :
  • information available at the time the business plan is generated. Subsequent conditions, events and outcomes are impacted by factors and events that become known post-plan. Hence any plan has validity – absent reconfirmation – only at the point in time it is generated, and for that matter typically for only as short-time thereafter. Hence any business plan needs to be continually amended as new information comes available.
  • an understanding that the further into the future expected conditions, relevant events, and outcomes occur – or don’t occur – the degree of the uncertainty of those things increases significantly, and arguably exponentially.

What should be included in a written business plan?

A written business plan should include a detailed short and long-term SWOT – strengths, weaknesses, opportunities and threats – analysis and discussion that includes the following things, and that results in point in time conclusions and agreed strategies.

  1. Factors external to the business and beyond the control of its owners, directors and managers. These factors, which include globalization, central bank policies, government policies and regulations, financial markets, technological advances, increasing wealth disparity, environmental issues, climate change and increasing societal issues combined with population growth that are impacting, or might impact, the business. This where technological advances embraces both those of a capital equipment nature, and those of a “big data” and related business analysis nature.
  1. The industry sectors the business participates in, including industry comparators, and consolidation of competitors, suppliers and customers – and how those industry consolidations might or might not impact the business, including strategies as to how to deal with any such impacts.
  1. The current state of the corporate governance of the business, and agreed strategies to improve corporate governance where deemed appropriate – including engagement of independent directors and advisors.
  1. The current state of planning and reporting systems, and agreed strategies and timing to improve them where necessary.
  1. Multiple issues around employment governance, including employment policies, management depth, and inclusion – or not – of family members in management in family owned businesses.
  1. The current state of business competitive advantages and disadvantages.
  1. The current state of business financial strengths and weaknesses.
  1. The potential impact on timing and quantum of business free cash flow – and hence business value – in the context of expected and potential technological advances.
  1. Ongoing analysis and documentation of potential strategic purchasers, including documentation of specific potential synergies that may be available to each.
  1. Documentation of current and prospective business value.
  1. Review of shareholder agreements currently in place that work to militate against disputes among shareholders, and recommendations to improve those agreements where deemed necessary.
  1. Perspectives on long-term business viability. This where without long-term viability business transition planning becomes largely meaningless or irrelevant at some point.

The most difficult part of generating a written business plan

So what is the most difficult part of generating a written business plan?

The most difficult part of generating a well-structured and documented written business planning document has to be “doing it the first time”. Clearly that is a time consuming process that requires important time of the businesses owners, directors and senior management. That time almost always comes with near-term opportunity costs attached where the time of those people – in particular the owners and senior management – typically is committed to the day/day operations of the business.

9710896 - group of people.

In these circumstances, business owners need to consider engaging a professional advisor skilled in systematically generating business plans to oversee the development and documentation of the first (foundation) business plan. That business plan can then be the platform for subsequent annual updates. Professional fees expended on this process might well prove to be one of the best business investments the owners ever agree to.

Once the “platform plan” has been documented and approved, updates to it should be far less time consuming. Updated written business plans should improve over time from the points of view of plan quality and value to the business, its owners, and its other stakeholders.

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50 Hurdles: Business Transition Simplified

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The book 50 Hurdles: Business Transition Simplified, is available here at a price of Cdn$37 (including sales tax where applicable and free shipping). Read book testimonials here.

If you are an owner of a family business you might consider purchasing a copy for every member of your business family. If you are an advisor to business owners you might consider purchasing a copy for one or more of your clients. Discounts are available for multiple book purchases.

Ian R. Campbell FCPA FCBV

Ian R. Campbell is a Canadian business valuation and transition expert. He is the author of several Business Valuation texts and of 50 Hurdles: Business Transition Simplified. The Canadian Institute of Chartered Business Valuators recognizes his contribution to the Canadian Business Valuation Profession through the annual The Ian R. Campbell Research Initiative.

He curates economic and business news relevant to business transition and valuation filtered from world media sources. He writes, with other contributors, The Business Transition and Valuation Review newsletter for business owners and their advisors.

You can reach him by email at icampbell@ircpost.com, or by telephone at 905 274 0610.

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