Most business plans are written for a specific moment: a loan application, an investor meeting, a visa endorsement. Once that moment passes, the plan goes into a folder and stays there. That is a waste, because the plan is at its most useful after the business starts trading, when there is something real to compare it with.
The short answer is that different parts of a plan need updating at different speeds. Here is a rhythm that works for most small businesses.
Every month: the numbers
The financial forecast is the part of the plan that goes out of date fastest, and the part where keeping it current pays back most.
Once a month, after the month’s figures are in:
- Compare actual with forecast for sales, the main costs, and the cash balance. You are looking for differences large enough to matter, not every pound.
- Ask why for each significant difference. Sales slower than planned? Costs higher? Customers paying later?
- Roll the cash flow forward by a month, so it always looks twelve months ahead, and change the assumptions that turned out to be wrong.
This takes an hour or so once the habit is set, and it gives you the most valuable early warning a small business can have. It is also exactly what a lender will ask for if you ever need to borrow again, so it saves time later.
Every quarter: the assumptions
Every three months, step back from the monthly figures and look at the assumptions underneath them.
- Is the price still right, given what competitors charge and what your costs have done?
- Is the customer who is actually buying the one you planned for?
- Are the marketing channels producing customers at the cost you expected?
- Is the break-even point where you thought it was?
A VAT quarter is a natural moment to do this if you are registered, since you are looking at the figures anyway.
Every year: the whole plan
Once a year, usually when the annual accounts are prepared, revisit the plan as a whole. Update the market and competitor sections, which may have changed more than you noticed. Reset the targets for the coming year. Build a fresh forecast from the actual results rather than rolling the old one on, and check the strategy still makes sense given what you now know about your customers.
This is also a good time to look at the structure of the business: whether it should be a limited company, whether you should register for VAT voluntarily, whether the way you pay yourself is still right. There is more on the first of those in choosing the right legal structure for your UK business.
Straight away: when something big changes
Some events mean the plan needs updating now, not at the next scheduled review:
- You are applying for funding, whether a loan, an overdraft, investment or a grant
- A major customer arrives or leaves, particularly one that accounts for a large share of sales
- You are taking on a big fixed cost: new premises, a lease renewal, a senior hire, a vehicle fleet
- Your costs change sharply, as they did for many businesses when energy prices rose
- The rules change, such as a tax rate, a licensing requirement, or the regulation of your sector
- Actual results diverge from the forecast for three months running
In each case, the question is the same: does the plan still work, and if not, what changes?
Keep the old versions
When you update the plan, save the previous version rather than overwriting it. Comparing what you expected a year ago with what happened is one of the best ways to get better at forecasting, and it shows a lender or investor how reliable your projections have been.
Making it easy enough to keep doing
The reason most plans are never updated is that updating them is a chore. A forecast built in a spreadsheet can take hours to roll forward, and a single broken formula can make it quietly wrong.
SquarePlan’s software keeps the plan and projections live, so you change an assumption and the cash flow, profit and loss and tax figures update with it. If you would rather someone else did the monthly comparison, our business management support takes your monthly figures and sends back a short report on profit, cash and whether you are on track, from £50 a month.