Is it time for plan B?
The best and most useful kind of business planning is not just a use-once business plan, but rather a continuous process.
The first business plan is just the first step. For the rest of your business’s life, you review the plan once a month. Compare actual results to what you had planned, determine what steps to take to optimize, and revise the plan.
You’ll find that continuous business planning helps in many ways:
- It helps maintain focus
- You’ll be able to align the team with priorities
- You can address changes in the marketplace as they happen
- It helps you tune strategy and tactics to what’s working and what’s not working
It starts with knowing what happened
Review means comparing what actually happened to what you expected. Business plans are always wrong, so there will always be a difference between the plan and the actual results.
For the actual business numbers, such as sales, expenses, and such, accountants call the difference between the estimates in the plan and the actual results variance. Variance analysis looks at these differences to determine where the numbers are different, and in what direction.
You can do variance analysis on the numbers with a spreadsheet, or with accounting software. LivePlan can link to your accounting software and deliver automatic dashboard comparisons between actual results and the plan, and between actual results and previous results.
The illustration here shows an example:
What’s important here is not the accounting or the calculations, but rather the resulting management. You look for indications of problems or unexpected positives, so you can react.
In the illustration above, revenue is lower than planned and expenses are higher. Operating income is less than planned. Cash and cash flow are improving, which is good news. However, that may be because this company is stretching out its payments, averaging about six months, which is seven times more than in their plan. So accounts payable is 25 percent higher than planned. That’s good because it’s helping with financing and keeping money in the bank, but may also be bad because it could be spoiling reputation and relations with vendors.
The point is the management, not the hard numbers. What should be done, given these results, to make the company better?
The monthly review meeting
The monthly review meeting is absolutely essential to real business planning—Lean Planning. The real value of business planning is the decisions it causes, and the management that results; and for that, you need not just a plan but a regular monthly review to track results and revise as necessary.
And the toughest part of the review meeting is this crucial question: Do we stick to the plan, or do we change it?
That comes up often because in the real world things never go exactly as planned. Business plans are supposed to set goals, tracking, milestones, and expectations.
The review meeting is when you ask:
- What happened? What went right and what went wrong?
- If I change the plan, then is my plan (forecast) versus actual result valid?
- Doesn’t it take consistent execution to make strategy work?
These are valid questions, and there are no easy answers. You won’t find some set of best practices to make this easy. You’ll end up deciding on a case-by-case basis.
Hear more about changing business plans with Peter and Jonathan on the seventh episode of The Bcast, Bplans official podcast:
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The arguments for staying the course with your plan
I consider this an awkward, difficult fact about business strategy:
It’s better to have a mediocre strategy consistently applied over three or more years, than a series of brilliant strategies, each applied for six months or so.
Too often, management teams get bored with strategy before it’s had a chance to be effective. I was consulting with Apple Computers during the 1980s when the Macintosh platform became the foundation for what we now call “desktop publishing.” We take it for granted today, but back in 1985 when the first laser printers came out, it was like magic. Suddenly, a single person in a home office could produce documents that looked professional.
What I saw in Apple at that time was smart young managers getting bored with desktop publishing long before the market even understood what it was. They started looking at multimedia instead. They were attracted to new technologies and innovation. As a result, they lost the concentration on desktop publishing and lost a lot of market potential as Windows vendors moved in with competitive products.
That argues for staying the course. Strategy takes time.
The arguments for revising the plan
On the other hand, this is also true:
There is no virtue in sticking to the plan for its own stake. Nobody wants the futility of trying to implement a flawed plan.
Generally accepted best practices have changed over the three decades I’ve been focusing on business planning.
Back in the 80s, business timeframes stretched longer and many business leaders recommended sticking to the plan. But times have changed. You’ve probably dealt with the problem of people doing something “because that’s the plan” when in fact it just isn’t working. I certainly have. That kind of thinking is one reason why some web companies survived the first dotcom boom and others didn’t. It also explains why some business experts question the value of the business plan.
This is sloppy thinking, in my opinion—confusing the value of the planning with the mistake of implementing a plan without change or review, just because it’s the plan.
How to decide: Stay the course, or revise the plan?
This consistency versus revision dilemma is one of the best and most obvious reasons for having people—owners and managers—run the business planning, rather than algorithms or artificial intelligence. It takes people to deal with this critical judgment.
One good way to deal with it is by focusing on the assumptions. Identify the key assumptions and whether or not they’ve changed. When assumptions have changed, there is no virtue whatsoever in sticking to the plan you built on top of them.
Use your common sense. Were you wrong about the whole thing, or just about timing? Has something else happened, like market problems, disruptive technology, or new competition, that has changed your basic assumptions?
Do not revise your plan glibly. Remember that some of the best strategies take longer to implement. Remember also that you’re living with it every day; it is naturally going to seem old and boring to you long before the target audience gets it. But do revise your plan if it is out of date, inaccurate, or based on false assumptions.
That’s why you have the plan in the first place: to manage your business better.
This article was originally published in 2015. It was revised in 2018.