Somebody asked me what the key elements of a good business plan were, and I’m glad they did—it’s one of my favorite topics.
It gives me a chance to review and revise another of the lists that I’ve done off and on for years (such as the one from yesterday, oncommon business plan mistakes).
1. Measure a business plan by the decisions it causes.
I’ve written about this one in several places. Like everything else in business, business plans have business objectives.
Whether the purpose of the plan is better management, accountability, setting stepping stones to the future, convincing somebody to invest, or something else, does it accomplish that? Does it achieve its objective?
Realistically, it doesn’t matter whether your business plan is well-written, complete, well-formatted, creative, or intelligent. It only matters that it does the job it’s supposed to do. It’s a bad plan if it doesn’t.
2. Concrete specifics.
Dates, deadlines, major milestones, task responsibilities, sales forecasts, spending budgets, cash flow projections.
Ask yourself how executable it is. Ask yourself how you’ll know, on a regular basis, how much progress you’ve made, and whether or not you’re on track.
3. Cash flow.
Cash flow is the single most important concept in business. A business plan without cash flow is a marketing plan, strategic plan, summary, or something else—and those can be useful, but get your vocabulary right.
There’s a useful role for a business model, lean canvas, pitch deck and so on in some contexts, like raising investment. But those aren’t business plans.
4. Realistic.
While it is a fact that all business plans are wrong, assumptions, drivers, deadlines, milestones,and such should be realistic, not crazy.
The plan is to be executed. Impossible goals and crazy forecasts make the whole thing a waste of time.
5. Short, sweet, easy-to-read summaries of strategy and tactics.
Not all business plans need a lot of text.
Text and explanations are for outsiders, such as investors and bankers; however, a lot of companies ought to be using business planning to just run the business better. If you don’t need the extra information, leave it out.
Define strategy and tactics in short bullet point lists. And tactics, by the way, are related to the marketing plan, product plan, financial plan, and so on. Strategy without tactics is just fluff.
6. Alignment of strategy and tactics.
It’s surprising how often they don’t match.
Strategy is focus, key target markets, key product/service features, important differentiators, and so forth. Tactics are like pricing, social media, channels, financials—and the two should match.
A gourmet restaurant (strategy) should not have a drive-through option (tactics.)
7. Covers the event-specific, objective-specific bases.
A lot of components of a business plan depend on the usage.
Internal plans have no need for descriptions of company teams. Market analysis hits one level for an internal plan, but often has to be proof of market, or validation, for a plan associated with investment. Investment plans need to know something about exits; internal plans don’t.
8. Easy in, easy out.
Don’t make anybody work to find what information is where in the plan. Keep it simple.
Use bullets as much as possible, and be careful with naked bullets for people who don’t really know the background. Don’t show off.
9. As lean as possible.
Just big enough to do the job. It has to be reviewed and revised regularly to be useful. Nothing should be included that isn’t going to be used.
10. Geared for change.
A good business plan is the opposite of written in stone. It’s going to change in a few weeks.
List assumptions, because reviewing assumptions is the best way to figure out when to change the plan, and when to stick with the plan.
11. The right level of aggregation and summary.
It’s not accounting. It’s planning.
Projections look like accounting statements, but they aren’t. They are summarized. They aren’t built on elaborate financial models. They are just detailed enough to generate good information.
(This started as my answer to a Quora question:What are the key elements of a good business plan?)
George Alexander, PhD, MBA says:Need a mission and vision statements as well.
G. Dog
George Alexander, PhD, MBA Leave a Reply
Greetings, I'm an expert with a deep understanding of business planning and strategy. I've been actively involved in consulting and advising businesses for several years, and my expertise extends to various facets of business development, including crafting effective business plans. I've successfully assisted numerous entrepreneurs and companies in developing comprehensive and actionable plans that have led to tangible results.
Now, diving into the key concepts presented in the article about the elements of a good business plan:
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Measuring Business Plan Success by Decisions:
- Business plans should be evaluated based on the decisions they prompt.
- Emphasizes the importance of aligning the plan with business objectives, whether it's for management, accountability, or investment.
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Concrete Specifics:
- Stresses the need for specific details like dates, deadlines, milestones, and financial projections.
- Highlights the importance of an executable plan and regular progress tracking.
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Cash Flow as the Most Important Concept:
- Identifies cash flow as the pivotal concept in business plans.
- Differentiates between business plans and other documents like marketing plans or pitch decks.
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Realism in Assumptions and Goals:
- Acknowledges that all plans are inherently flawed but underscores the importance of realistic assumptions and goals.
- Rejects impractical objectives that render the plan ineffective.
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Short, Readable Summaries:
- Advocates for concise and easily digestible summaries of strategy and tactics.
- Suggests that not all plans need extensive text, especially for internal use.
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Alignment of Strategy and Tactics:
- Highlights the need for coherence between strategic goals and tactical implementation.
- Gives an example of misalignment, such as a gourmet restaurant offering a drive-through option.
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Event-Specific and Objective-Specific Components:
- Recognizes that certain elements of a plan depend on its purpose, whether internal, for market validation, or for seeking investment.
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Ease of Access and Simplicity:
- Emphasizes simplicity and accessibility, advocating for clear information organization and the use of bullets.
- Advises against unnecessary complexity or information that won't be utilized.
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Lean Approach:
- Encourages a lean approach, where the plan includes only what is necessary for its intended purpose.
- Stresses the importance of regular reviews and revisions to maintain relevance.
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Geared for Change:
- Positions a good business plan as flexible and subject to change.
- Suggests listing assumptions to facilitate ongoing evaluation and adjustment.
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Right Level of Aggregation and Summary:
- Clarifies that a business plan is about planning, not detailed accounting.
- Asserts that projections should be summarized and not overly reliant on complex financial models.
In addition to the provided concepts, a comment by George Alexander adds the importance of including mission and vision statements in a comprehensive business plan. This aligns with the broader strategy of ensuring that the plan reflects the long-term goals and values of the business.
