Video: 5 Fundamental Principles of Business Planning

I’ve been doing business planning professionally since the 1980s. It’s change a lot. These days I very much advocate the lean business plan for managing all businesses, for all business owners, regardless of whether or not you need the full formal traditional business plan used for seeking investment or business loans.  Through the decades, what I recommend for real business planning has changed a lot; but these five fundamental principles of business planning remain constant, from then straight through until today.

This Friday video is an excerpt from the online course I’ve developed for Learning.ly, hosted by The Economist Group. The course itself focuses on lean business planning, not traditional business planning.

For the Lean Business Planning online course on Learning.ly

Five Principles of Business Planning

Do Only What You’ll Use

Lean business means avoiding waste, doing only what has value. Therefore the right form for your business plan is the form that best serves your business purpose. Furthermore, for the vast majority of business owners, the business purpose of planning is getting what you want from the business – setting strategy and tactics, executing, reviewing results, and revising as needed. And that purpose is best served with lean planning that starts with a lean plan and continues with a planning process involving regular review and revision. You keep it lean because that’s easier, better, and really all you’re going to use.

It’s a Continuous Process, not Just a Plan

With lean planning, your business plan is always a fresh, current version. You never finish a business plan, heave a sigh of relief, and congratulate yourself that you’ll never have to do that again. You don’t use it once and throw it away. You don’t store it in a drawer to gather dust.The PRRR cycle in lean business planning

However, this kind of regularly updated planning is clearly better for business than a more static elaborate business plan. With lean planning, the plan is smaller and streamlined so you can update it easily and often, at least once a month. Your lean plan is much more useful than a static plan because it is always current, always being tracked and reviewed, frequently revised, and is a valuable tool for managing. You run your business according to priorities. Your tactics match your strategy. Your specific business activities match your tactics. And accountability is part of the process. People on the team are aware of the performance metrics, milestones, and progress or lack of it. Things get done.

Furthermore, even back in the old days of the elaborate business plan, it was always true that a good business plan was never done. I’ve been pointing that out since the 1980s, in published books, magazine articles, and blog posts. That’s not new with lean business planning. It’s just more important, and more obvious, than ever before.

It Assumes Constant Change

One of the strongest and most pervasive myths about planning is dead wrong: planning doesn’t reduce flexibility. It builds flexibility. Lean business planning manages change. It is not threatened by change.

People say, “Why would I do a business plan? That just locks me in. It’s a straitjacket.”

And I say: wrong. Never do something just because it’s in the plan. There is no merit whatsoever in sticking to a plan just for the plan’s sake. You never plan to run yourself into a brick wall over and over.

Instead, understand that the plan relates long term to short term, sales to costs and expenses and cash flow, marketing to sales, and lots of other interdependencies in the business. When things change — and they always do — the plan helps you keep track of what affects what else, so you can adjust accordingly.

It Empowers Accountability

It is easier to be friends with your coworkers than to manage them well. Every small-business owner suffers the problem of management and accountability.

Lean business planning sets clear expectations and then follows up on results. It compares results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating them, after the fact, to those responsible.

It’s Planning, Not Accounting

One of the most common errors in business planning is confusing planning with accounting. This is true for lean planning too. Your projections, although they look like accounting statements, are just projections. They are always going to be off one way or another, and their purpose isn’t guessing the future exactly right, but rather setting down expectations and connecting the links between spending and revenue. Then when you do your monthly reviews, having made the original projection makes adjustments easier.

They are two different dimensions.

Accounting goes from today backwards in time in ever-increasing detail. Planning, on the other hand, goes forward into the future in ever-increasing summary and aggregation.

On Lean Business Planning

All five of these principles apply to all business planning, not just lean business planning. However, it’s important to note that lean business planning emphasizes all five. It’s a reflection of the best in business planning.