Why is strategic planning important to a small company?

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thanatassa eNotes educator | Certified Educator

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While most large businesses have realized the need for strategic planning and have established processes for it, small businesses often neglect to think about the long term. This can be a mistake, though, because many crucial decisions require having a strategic plan in place.

Growth projections are a key element of strategic planning. For example, imagine a small farm that has had some success in selling produce crates to local customers. The farm can choose to stay small, accepting only a limited number of customers that can be served by the family and a few part-time laborers or the farm can choose to expand. That might mean cultivating additional land, hiring more permanent staff, and investing in more farm machinery. Having a clear strategic plan will allow the farm to succeed in one of these paths. However, if the farm does not have a strategic plan, it might invest in machinery that is too large and expensive for a small operation but inadequate to a larger one, or grow to a point where it loses the quality control and personal connection with its customers that made it successful without building in the economies of scale needed for a successful larger operation. 

This is an example of a key issue facing small businesses and why they need strategic plans, that of managing growth. The first decision a small business needs to make is whether they want to grow. Not every business wants to become larger but piecemeal, unplanned growth can lead to cash flow and other problems. Next small businesses need to plan for succession as part of a strategic plan. Especially with family firms, the owners' children may not be the best choice to manage the business. Given that accidents or illnesses may happen, a small business needs a strategic plan than includes effective succession planning to avoid descending into chaos if something happens to the founders.

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pohnpei397 eNotes educator | Certified Educator

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Strategic planning is important for all businesses, but it may be more important for small businesses.  This is because their owners and operators may be less clear as to where they are trying to go with their business and how they are trying to get there.

Strategic planning allows everyone in a firm to know what the firm’s goals are and how it intends to achieve those goals.  If a firm has a strategic plan, it is less likely to waste resources and effort on trying to do things that are not beneficial to it.  It is more likely to know exactly what its goals are and to focus firmly on those goals.  Thus, a strategic plan helps a small business know what its goals are and it helps the business pursue those goals efficiently.

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