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What Does Business Planning Really Mean?

Business planning is one of those phrases that sounds straightforward until you actually ask what it means.

For some people, business planning means producing a business plan: a document containing forecasts, targets, market analysis and a few optimistic graphs.

For me, that is only a small part of it.

Real business planning is about understanding where a business is today, deciding where you want it to go, and then working out what needs to happen to get there.

More importantly, it is about making decisions.

A plan that sits in a drawer is not a plan. It is a document.

A useful business plan is something you return to, challenge, change and use to make better decisions.

Business Planning Is About Direction

Every business has limited resources.

There is only so much money, time, management attention and talent available. That means businesses cannot do everything, even when there are plenty of things they could do.

Good planning starts with deciding what really matters.

That means answering some fairly fundamental questions:

Those questions sound obvious, but they are surprisingly easy to avoid.

Businesses often become busy without necessarily becoming more successful.

People are working hard, customers are being looked after, emails are being answered and projects are being delivered. Yet six or twelve months later, the business may not have moved very far forward.

Planning is what turns activity into direction.

A Business Plan Is Not the Same as Business Planning

This distinction is important.

A business plan is an output.

Business planning is a process.

You can write a beautifully presented business plan containing everything a bank, investor or consultant might want to see and still have very little idea about how the business is actually going to develop.

Equally, a small business might have no formal 50-page document at all but have an extremely clear understanding of its customers, its numbers, its priorities and what it needs to do next.

In my experience, the second business is often better positioned.

The real value comes from the thinking behind the plan.

Start With Reality, Not Ambition

One of the biggest mistakes in business planning is starting with where you want to be rather than understanding where you are.

Before deciding what the future should look like, you need an honest assessment of the present.

That means looking at things such as:

Customers

Products and Services

People

Do you have the skills and capacity required to achieve your objectives?

Sometimes the biggest constraint on growth is not demand. It is the ability of the business to deliver.

Financial Performance

Revenue is important, but revenue alone tells you very little.

You need to understand margins, cash flow, costs, working capital and the financial consequences of the decisions you are considering.

A business can be growing rapidly and still run into serious financial problems.

Planning Means Making Choices

This is where business planning becomes genuinely useful.

There is a temptation to put everything into a plan.

The problem is that a list of everything you would like to achieve is not a strategy.

A strategy involves choices.

You have to decide what deserves attention now and what can wait.

That is often harder than identifying opportunities.

Growth Is Not Always the Answer

Business conversations can sometimes become obsessed with growth.

But bigger is not automatically better.

A business might be more successful by becoming more efficient, more profitable and easier to manage rather than simply becoming larger.

For some owners, the objective may be rapid growth.

For others, it might be creating a stable and profitable business that provides a good income and eventually becomes a valuable asset.

There is no universally correct answer.

The important thing is knowing what you are actually trying to achieve.

Planning Needs Numbers

Opinions are important in business, but numbers provide discipline.

A plan should ultimately translate into measurable outcomes.

For example:

The exact measures will depend on the business.

The important point is that you need to know what success looks like in measurable terms.

If you cannot measure progress, it becomes very difficult to know whether the plan is working.

Forecasting Is About Understanding the Future

Financial forecasting is another area that is often misunderstood.

A forecast is not a prediction of exactly what will happen.

Nobody knows exactly what will happen.

The value of forecasting is that it allows you to explore different possibilities.

These scenarios help you understand the business before events force you to react to them.

That is one of the most useful aspects of planning.

Good Planning Includes What Could Go Wrong

Optimistic planning is easy.

Good planning also considers the downside.

Every business has risks.

Some are obvious. Others are not.

Consider:

The purpose is not to become pessimistic.

It is to avoid being surprised by things that could reasonably have been anticipated.

Planning Is Particularly Important When Technology Is Involved

Technology can make a business more efficient, but technology investment is not automatically a business strategy.

I have seen businesses become excited about what a new technology can do without first asking what business problem they are actually trying to solve.

The question should rarely be:

“What technology should we buy?”

It should be:

“What are we trying to achieve, and will technology help us achieve it?”

That distinction can save a considerable amount of money and effort.

Technology should support the business plan rather than become the plan.

Your Website Should Have a Job to Do

The same principle applies to websites.

A website is not successful simply because it looks good.

It needs a purpose.

Depending on the business, that might be to:

Before investing in a website, I would always want to understand what role it is supposed to play in the wider business.

Otherwise, it is very easy to spend money improving something without improving the business.

Planning Should Connect Strategy With Action

One of the weaknesses of many business plans is the gap between strategy and execution.

The plan says what the business wants to achieve.

A useful plan should eventually become a series of actions.

For example:

Objective

Increase the number of profitable new customers.

Actions

Measures

That is much more useful than simply writing “increase sales” in a business plan.

Planning Is a Continuous Process

Markets change.

Customers change.

Competitors change.

Technology changes.

People change.

Your own business changes.

That means a plan written twelve months ago should not be treated as something that must be followed regardless of circumstances.

The plan should change when the circumstances change.

This does not mean constantly abandoning your strategy because something new has appeared.

It means regularly asking whether the assumptions behind the strategy are still valid.

The Best Plans Are Often Simple

Business planning does not have to be complicated.

In fact, excessive complexity can make a plan less useful.

If you cannot explain the business strategy clearly and simply, there is a reasonable chance that the strategy itself needs more work.

A good plan should make it clear:

Everything else is supporting detail.

In conclusion here’s what business planning really means

Ultimately, business planning means thinking ahead.

It means taking time away from the day-to-day running of the business to consider what you are building and why.

It means making choices rather than simply reacting to whatever happens next.

It means understanding the numbers, the customers, the people, the technology and the risks.

And it means turning all of that thinking into action.

The best business plans are not necessarily the longest or most sophisticated.

They are the ones that help the people running the business make better decisions.

That is what business planning really means.

Not producing a document.

Not predicting the future.

Not filling in a template.

It is about understanding where you are, deciding where you want to go, and creating a practical route to get there.