Plan no guarantee of success

THE process of developing a business plan seems likely to be more important to small business performance than the plan itself.

Having a written business plan appears unlikely to be essential to success, at least in small firms, but formal business plans can be useful communication tools.

Plans help entrepreneurs ‘sell’ their ideas to external professional networks, such as accountants and bankers. They may also assist in enhancing supplier relationships.

Despite formal business plans being viewed by most banks and enterprise development agencies as vital to success, it is more common to find small business owners without a formal plan.

It is likely that successful performance can be achieved through informal planning where the entrepreneur is a competent ‘intuitive’ planner.

These were some of the key findings of my Curtin Business School study outlined in the paper Do Formal Business Plans Really Matter? – A Survey of Small Business Owners in Australia.

The study is part of a long-term examination of the factors which influence small buisness growth.

Five hundred small firms across Australia were approached and 88 owner-managers took part.

The final sample was drawn from a cross-section of industries, with manufacturing (24.5 per cent) and retailing (23 per cent) the biggest. About half (48 per cent) had fewer than 10 employees with only 10 per cent reporting more than 50 employees.

Average gross sales revenues over the four years measured by the survey ranged from $31,500 to $27.8 million. The majority of respondents had been owner-managers within their firms for at least six to 10 years.

Levels of formal education among the respondents were relatively low, with only 10 per cent having proceeded beyond senior high school. About half the group indicated that they possessed a formal business plan.

The study offered no clear evidence of a causal relationship between small business performance and formal business plans.

The findings supported earlier research which indicated that the larger the firm became, the more likely it was to undertake formal business planning processes.

The research is highly explora-tory and does not attempt to be prescriptive in its findings. More research is needed into the nature of the planning process, perhaps using case studies to examine these findings in greater depth.

The study suggests the relationship between adoption of formal business plans and small business performance is complex and requires consideration of more than financial performance measures.

The owner-managers of many highly successful small firms have no formal written plan but this does not mean that they don’t plan.

What these people use a formal plan for is to communicate with others such as managers, bankers and accountants.

The issue remains as to whether the plan is responsible for business growth or the growth is responsible for the plan.

n Dr Tim Mazzarol is a senior lecturer with the School of Management, Curtin University of Technology

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