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, on common 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.
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?)
Need a mission and vision statements as well.