Why Business Planning is Necessary

Business planning. It's something many of us avoid at all costs. It sounds tedious and it doesn't seem to be the best use of our time... not when we have sales calls to make or our website to develop. And yet, business planning can mean the difference between loss and profit. Here's how.

Why do we avoid business planning? Certainly there’s the argument that it’s boring: many entrepreneurs are driven people who would prefer action to inaction and selling to thinking about selling! There’s also the argument that it’s not the best use of our time: after all, should we be writing pages and pages of documents or wouldn’t it be better if we were meeting with clients face to face? And of course there’s the argument that we invite failure by thinking about it: that the only truly successful people don’t consider failure an option while business planning is all about failure.

I hear these debates all the time from different entrepreneurs but my experience has shown time and time again that these arguments fall short.

Business planning is only as boring as it is made out to be. Business planning is a great use of your time. And thinking about failure is a great way to motivate yourself to success.

Business planning needs to be done for two reasons: the good times and the bad times.

For the good times: Business planning needs to be done to address the good times – when your business is successful – because success brings its own set of problems and challenges. For example, if your products are flying off of the shelves, you’ll need to start hiring more people, you’ll need to make sure that your website is robust enough to handle the increased pressure, you’ll need to make sure your supply chain is humming along as it should be.

What kind of business planning should you do to anticipate the good times?

  • Create thresholds or “triggers” that indicate the point at which you need to bring on a part time person or a full time person (and, of course, maintain profitability). A trigger might be 100 units sold in one week, for example, or a $20,000 income month.
  • Know the costs associated with moving out of your spare bedroom into a small, medium, or large office setting (or whatever business set-up is appropriate for you). You don’t want to find that business booms, so you move into a small office (which seems to be the next obvious step) only to discover that this new office is too small, too.
  • Create intermediate steps between where you are now and the dream of becoming a global conglomerate (or whatever your long term goal might be). For example, start with some outsourcing, then bring in temps, then determine your office needs, then hire part timers, then hire full timers, etc.

For the bad times: Business planning needs to be done to address the bad times – when the business is not paying the bills. If profitability is non-existent, it could mean closing your doors early, but it doesn’t necessarily have to. You’ll need to decide if you can shore up your income, reduce expenses, or make other changes that can increase profitability. We don’t do this kind of planning because it’s very unpleasant to think grim thoughts.

What kind of business planning should you do to anticipate the bad times?

  • Develop contingency plans for those “just in case” moments when a crisis strikes. Try to anticipate a number of crises (including such grim crises as the loss of a loved one or what happens to your business if a tragic repeat of 9/11 occurred). Knowing what to do if one of these tragedies strikes will help you keep a level head and let you mourn appropriately without a resulting loss in business.
  • Create an emergency fund to pay bills (personal or business) during those times when your income seems to evaporate.
  • Identify expenses that can be temporarily halted, delayed, or eliminated without a loss to your business in case you need to reduce expenses in a hurry.

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