Once you've created a workable business plan, it can serve you well as the tool of choice for tracking your business's progress.
Two questions at the top of almost every business owner's mind are: "How do I know if my business is on track? Is there a simple mechanism that lets me know if I'm doing okay?" It probably is no surprise that, until recently, even some very large companies used a "cigar box" approach to tracking business results. That is, every dollar that comes in to the business goes into the cigar box. All the expenses are paid from the cigar box. As long as the box isn't empty and there's adequate money left over for the business owner, everything is just fine.
But there are better ways to stay on top of how your business is doing. A business plan can provide the foundation for a tracking system that lets you evaluate your business's progress. This tracking function gives you, as the business owner, real-time feedback regarding operations. Deviations between actual and planned results provide clues that you can use to tweak or fine-tune certain elements of the plan. For example, if your plan projects that the business will be the successful bidder on five jobs in the first quarter of the year, and on April 1 you've only gotten two jobs, you can take steps to adjust. But you need to know that there is a need to adjust. That's why a good business plan has definitive targets associated with a timetable for achievement. It's a lot easier to know how you're doing if you started out with solid expectations about how your business will go.
Most business plans quantify, in one way or another, the sales levels that must be reached for the business to be profitable. Your plan might call for annual sales of $1,000,000, or quarterly sales of 1,200 units, or provide some other objective measure of success. If you wait until the end of the year to see if the target has been reached, you won't have any opportunity to react to anything that alters your plans. The only way to know for certain whether those goals are being met is to track, throughout the year, actual performance against predicted performance.
You might also choose to make some operational
changes to take advantage of opportunities that may arise. Without
meaningful data and milestones against which to measure that data's
significance, such mid-course alterations are difficult to make. For example, if
sales consistently outperform your projections, you might amend the plan to set
more aggressive goals. On the other hand, you might want to take certain steps
to take advantage of the additional cash flow, such as retiring debt early,
investing in new business development, etc. But you might also adopt a wait and
see attitude if, for example, you believe that the total sales volume won't
exceed the plan's estimates and that the higher level of sales you are
experiencing merely reflects a seasonal timing differential.