Any road will get you there if you don’t know where you are going. Perhaps an updated business plan will help improve your opportunity for choosing the right options when you hit that fork in the road.
Here are a few reasons to update your plan.
1. Cash Flow sensitivity.
Most business owners seem to focus on profits instead of cash. The reality is that businesses spend cash to operate, not profits. Understanding cash flow is critical. If you only get one report to manage the business make sure it is a cash flow chart.
2. To support growth and secure funding
Most businesses face investment decisions during the course of their lifetime. Often, these opportunities cannot be funded by free cash flows alone, and the business must seek external funding. However all prospective lenders will require access to the company’s recent Income Statements/Profit and Loss Statements, along with an up-to-date business plan. In essence the former helps investors understand the past, whereas the business plan helps give them a window on the future.
3. Operational focus
Successful business leaders know that a well-written business plan can provide day-to-day operational assistance. Organizations that stay focused on their business plan have a higher chance of success; when used as a road map, it can help business leaders stay focused on business growth, mission and goals.
4. To support a strategic exit
Finally, at some point, the owners of the firm may decide it is time to exit. Considering the likely exit strategy in advance can help inform and direct present day decisions. The aim is to liquidate the investment, so the owner/current investors have the option of cashing out when they want.
Common exit strategies include;
• Initial Public Offering of stock (IPO’s)
• Acquisition by competitors
• Mergers
• Family succession
• Management buy-outs
Investment decisions can be taken in the present with one eye on the future via a well-thought-out business plan. Given that valuing firms is notoriously difficult and subjective, a well-written plan will clearly highlight the opportunity for the incoming investors, the value of it and increase the likelihood of a successful exit by the current owner.
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