On the other hand, you might be in terrific shape and not know what you’re doing right. Is it a great employee, well-organized warehouse, an ideal field-to-administration ratio? An incisive business plan will help pinpoint causes regardless of the scenario, and light the way to creative solutions.

It can increase customer satisfaction, reduce the cost of doing business, help avoid costly mistakes, make you more effective against the competition, and improve service from vendors — all of which adds up, quite literally, to money in the bank.

What's a business plan?

Simply put, it’s a blueprint for running your business. Physically, a business plan is a document, typically 40 to 80 pages in length (depending upon the complexity of the operation and the plan’s degree of detail), with an effective shelf life of about one year.

Its basic function is simple and direct: By telling each of a company’s department heads what their goals should be at strategic points throughout the year, the plan identifies key factors that influence the outcome of business efforts.

If, for example, the head of sales knows what each salesperson should be producing on a monthly basis, s/he can speak specifically to any shortfalls, rather than just wondering generally why “sales are off.”

A business plan also addresses the bigger picture. If the director of finance expects quarterly gross margins of 44%, and discovers that, after the first quarter, the results are 10 points short, the situation can be better analyzed and addressed immediately and effectively.

For the plan to work, of course, it has to be communicated and followed by all participants on a regular, timely basis. If properly used the plan, tailored to the particulars and personalities of your company, serves as an early warning system — one that enables you to correct problems before they become critical, and to take advantage of unforeseen opportunities before they slip away.

United we stand

Your plan’s projections can only be determined by your organization’s key players.

This represents another significant benefit. Not only does a good business plan focus all of a company’s talent on a clearly defined outcome, it also gives each member ownership of that outcome, a stake in making sure that it is successfully achieved.

The discussions created by a business plan can help unite the different elements of your company by increasing communications, thereby eliminating bottlenecks in the organization, and focusing everyone on common, mutually agreed-upon goals.

When formulating a plan, you will discover that its most critical aspects are the assumptions behind it (such as the ways in which you expect your business to grow). Making projections (about sales, overhead, staff, turnover, and the like) enables you to both clarify what, precisely, the business of your company is, and to resolve any differences between assumptions and outcomes as your situation unfolds.

Proactive business owners will know not just when they’ve failed to achieve the plan, but why. This intelligence can be applied to making the sort of mid-course corrections that both fix apparent problems and take advantage of positive trends.

What's your mission?

As noted, part of refining these assumptions involves defining what it is that you want your business to do. This process — creating a mission statement — will, in all likelihood, be the first task you undertake. It will also be the last.

Developing a business plan involves determining a company’s capabilities. As these become clearer, executives often find that new areas with potential reveal themselves, opening up unforeseen possibilities for profit and growth.

By the time you’re ready to prepare the plan’s executive summary, the original mission may well have been productively expanded.

The crafting of the mission statement will depend upon the plan’s target audience. While one-year business plans are intended typically for internal use alone, longer term, three-year plans are designed for external consumption.

Outsiders may include bankers and investors. Plans directed at this audience usually remain less detailed, focusing less on a company’s day-to-day operations and more on its financial projections.

Considering the effort and energy involved in creating a business plan — and the benefits to be derived from a successful one — you will want a finished product that is carefully tailored to your needs and situation.