10 Signs That Your Business Plan May Need an Overhaul
Giving your business plan a good once-over one time a year may not be often enough, especially when the economy is tight or markets are changing fast. If your business environment is experiencing choppy conditions, your plan should be the first place you turn. Here are ten red flags to watch for as you monitor your business situation.
Costs rise, revenues fall
The clearest sign of business trouble is that costs are going up and revenues are going down, yet many business owners ignore the warning. Why? Because these situations don’t usually go wrong overnight.
Study your financials, especially keeping an eye on
Gross profit trends to see whether your costs of goods sold are slowly climbing out of control
Operating profits to see whether your overhead and expenses are getting out of line or margins are changing.
Profitability to see how much of your original sales revenue is making its way to your bottom line
Number of bids or inquiries to monitor continuing interest in your product or service
Other relevant measures, such as the ratio of contracts awarded to bids submitted
Sales figures head south
If your sales aren’t meeting your expectations, move quickly to diagnose the problem. Take a look at your sales figures and view them like a customer poll. Be on the lookout for a disconnect between the features you offer and the benefits your customers seek, a problem with quality control, a breakdown in customer service, or a marketing message that’s not on target.
After you diagnose the problem, revise the appropriate parts of your business plan — product design, operations, marketing strategy — to support your revised forecasts.
You don’t meet financial projections
If your financial projections are off, your business plan needs attention — right now. Plenty of issues can knock even the most conservative financial projections out of whack. Follow this plan:
Start by reviewing the assumptions behind your original projections.
Make a detailed list of every internal and external force that may be responsible for the variances.
Fix what you can and plan around what you can’t, but don’t ignore what the black-and-white financial statements tell you.
Don’t wait until the crash to shore your projections up. Develop a revised set of financial statements based on the new reality and then revise your strategy and action plan accordingly.
Employee morale sags
Employee morale isn’t easy to measure, but it’s absolutely critical to your company’s success. If you sense that employee morale and motivation are on the skids, don’t sit on your hands.
Talk to key people around you to uncover what’s wrong. When employee morale is at stake, you can’t wait for the annual business-plan review; you have to address the problems immediately.
Key projects fall behind schedule
The minute you sense that important projects are falling behind schedule, sit down with all involved employees to assess the situation. Identify the source of the problem, including aspects of your current business plan that may not be playing out as expected. Brainstorm solutions for getting back on schedule. If resetting timelines won’t derail opportunities, amend your business plan, revise your action plan, and notify all involved.
New competitors appear
If new competition rocks your business, remember that competition isn’t always a bad thing. It usually increases interest in your business sector, and it almost always forces you to focus on what you do best and how to do it as efficiently as possible.
If a big, predatory fish swims into your little pond, revise the situation analysis in your business plan — immediately. Start with your Strengths, Weaknesses, Opportunities and Threats analysis to uncover areas where your capabilities lag behind or surge ahead of the capabilities of your competitors. Shore up the former and polish up the latter in order to overcome and even capitalize upon the changes in your business environment.
Technology shakes up your world
A shift in technology can make existing products obsolete and create markets for new products or services almost overnight. Think smartphones. Think e-books. Think hybrid engines.
When a new technology appears on your business horizon, reassess your business plan — fast. Ask yourself how the new technology may change the desires and demands of the markets you serve and how it may affect the way that you do business.
Important customers defect
From time to time, good customers will switch allegiances to a new supplier. However, if you notice a trend in customer defections, something may be wrong.
The defection of important customers is an alarm signal that you can’t afford to ignore. Make sure you do the following:
Look for deficiencies in your product or service offering.
Ask departing customers why they left.
Talk to your salespeople and frontline staff for their insights.
Check out online reviews of your products or services if relevant.
Get ready to retool your business plan.
Business strategy does a 180
Slight course adjustments in your strategy are a normal part of doing business, but if your company does a 180-degree shift, something’s wrong. Very few companies successfully remake themselves in a new image.
Instead of swinging wildly from one direction to another, sit down with your management team — business plan in hand — to figure out why your original strategic direction isn’t working or isn’t being followed. Take the time you need to do a complete diagnostic and then plan a rational course change that will address the problems you identify.
Growth is out of your control
Fast growth can mean trouble if you’re not prepared. When business is booming, customer service can suffer, or manufacturing may not be able to keep up with demand. Some companies even find that their basic organizational structures no longer fit their new dimensions. If your business experiences similar growing pains, look at your business plan to identify the parts that need to change in order to accommodate your increasing size.