How often should I update my business plan?
This is a frequently asked question during business planning courses so you are not alone in choosing this question. However, the answer to this question is not easy or short. There are many reasons for updating your business plan. First, you may wish to add another enterprise to your operation. Second, you may have family member entering or exiting the business. Third, you may want to change your current business structure. Fourth, there may be changes in the economy or in your marketing strategy that makes your current plan obsolete. And fifth, you may need additional funding or restructuring of current funding.
If you are adding another enterprise to your operation, you will need to find the time, resources, and capital to add this enterprise. This may require additional education whether it is formal education or discussion with another producer with the same enterprise. This information should be added to the research section of the plan which will also change the executive summary. The financial section of the plan should also reflect the new enterprise from the expenses to the potential income it will provide. Will this crop or product replace an existing crop or product? The marketing plan will need to include the new product or crop and the anticipated affect on your current product mix and market share.
If you have a family member entering the business, you will need to show you have the income to support that addition. You may be creating a new enterprise that this person will supervise or carry out. If this is the case, the prior scenario applies. You will need to include this person as a management team member or laborer who will be handling chores not being completed in a timely manner or to relieve someone else who is over-tasked. Either way, there will be additional expenses. If someone is exiting the business, you will need to decide who handles the tasks this person is currently doing.
Both of these examples may trigger a discussion about business succession and business structure. If the person is exiting the business, is your succession plan current? Do you have the funds to compensate the person for their portion of the business? If this person is part of a two-person partnership, it will dissolve. These aspects will impact any business and business plan, whatever the structure. If someone is entering the business you may want to bring this person into the current structure or restructure to include the new person. Now may be the time to consider a Limited Liability Company (LLC) or Corporation.
In today’s economy, there are several things that many require changes to the business plan. Your land may not have the value it did when you created the plan impacting the balance sheet, net worth, borrowing capacity, and financial projections. Fuel prices may make a marginal enterprise unprofitable because of increased production costs or traveling a long distance to a market. These impacts will change the profitability projections of any business and business plan.
If you are planning to refinance your business, your lender may require an updated plan. At this time, the update will be mandatory and you have no choice. This may require new research for your existing enterprises and while doing so, you may discover something new that you can incorporate into the new plan. You will be rewriting major portions of the plan for the lender, so allow yourself plenty of time.
Whatever triggers an update, approach the task as you did the first time, with an open mind and a desire to produce the most realistic plan you can. Remember how you created the original plan and the sources you used and follow the same guidelines.