Many individuals start out in business purely out of passion for their product or service. Dealing with many small business owners, it is very clear that many start out in business with a really strong "why", however no clear goal on how they’re going to get there.
Most that fall into this category have done a reasonable enough job of getting their business to a good, but not amazing position without a business plan. So, then the question begs, do you really need a business plan? Is it really worth the investment, the time, and the resources? Is it possible to continue on and skip the whole “planning” process?
From an objective stand point, it seems much easier to wing it… However, the old saying “sticking your head in the sand” rings quite loudly when skipping the planning process occurs. Studies have shown that planning improves business performance (1).
However, here is everything you need to know to make up your own mind:
1. GROW 30 PERCENT FASTER
Keep in mind that creating a business plan isn’t about producing a long-winded document that predicts the future of your business. The process of actually writing the plan is what is truly important. Writing your plan, and reviewing it regularly gives you a much better window into what you need to do to achieve your specific goals and be successful.
In the spirit of simplicity, having a plan allows you to work towards specific goals that you set in your business plan. As the old saying goes, “If you fail to plan, you’re planning to fail”. Having a plan also allows you to make changes to your business as you learn more about your customers.
By all means, don’t take my word for it. Studies show that companies that plan (2) and review their performance and adherence to their plan really DO grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to join the horrendous statistics of businesses that fail.
2. HAVE CONFIDENCE AROUND “BIG SPENDING”
As your business grows, problems that you may face (that are some of the best) will include having to figure out WHEN to hire new employees, when you need to either move into a new location or change locations, and whether you can afford any major purchases.
You’d consider these major spending decisions, and if you’re regularly going over the financial forecasts you set out in your business plan, you’re going to have a much clearer mind when making these big decisions.
2. CATCH CRITICAL CASH FLOW ISSUES EARLY
Understanding and monitoring your business’s cash flow is so important. Your cash flow statement is one of the three key financial statements you’ll put together with your business plan (the other two being your balance sheet, and your income statement P&L).
Ensuring that you are reviewing your cash flow statement on a regular basis as part of your business plan review is going to really help to identify potential cash flow challenges earlier, so you are in a position to take action and avoid a cash crisis where you can’t pay for your bills.
3. IT BUILDS A STRONG FOUNDATION TO BE ABLE TO PRIORITISE & PLAN STRATEGICALLY
With a business plan in place, it enables the ability to clearly map how your sales and revenue goals sit with your budget. Without a clear understanding of these two areas you can find yourself out of business pretty quickly. Being able to draw a clear connection between your investment and the results you are aiming to achieve you will ensure you are setting yourself up for success.
With a plan, it is much easier to get everyone in your team on the same page.
It will ensure you are able to easily explain simply how your action plan will come to life from A – Z. You want everyone on your team to WANT to buy-in right from the start, and without a clear message and action plan it makes it hard to do so. A business plan will enable bigger goals and long-term goals to become clear in the present time. Your plan will also encourage consistent communication and tracking of progress.
When everyone in your organisation understands how their role and specific task impact the larger company, the more invested they’ll be in meeting the goals set out in your business plan. They will know that what they do doesn’t go unnoticed and will be anchored to a bigger goal.
4. MINIMISE YOUR RISK
Let’s be honest, when you’re starting out there’s SO much you just don’t know. From your customers, through to your competition and even right through to your operations.
When you signed up to become your own boss, you also signed up for all of that uncertainty however there is a lot that can be done to reduce your risk. By having a business plan in place, you will quickly identify your weak spots… all of your gaps, flaws and general assumptions you’ve made. Knowledge is power, so knowing your weaknesses allows you to plan ahead and develop contingency plans.
This makes it a lot easier to adjust any of your financial forecasts and make adjustments to your business accordingly. This might be from your marketing right through to your current sales strategies, production or inventory.
5. SET ACHIEVABLE GOALS AND MILESTONES
Within any good business plan are SMART goals and milestones. SMART goals are:
If you create a business plan without milestones or goals with it, it becomes a lot less useful. Setting any goals/milestones for your business or team that aren’t aligned with the strategy articulated within your business plan makes it difficult to align your team with the same priorities.
Use your business plan to set high-level milestones. Then use those milestones to create meaningful goals and allow those to guide your sales and marketing strategies.
6. IT’S ABSOLUTELY ESSENTIAL IF YOU ARE SEEKING A LOAN OR INVESTMENT
If you are looking to ask a bank, a venture capitalist or an angel investor for funding they’re going to want to know that you have a very good handle on your small business trajectory. That being said, you don’t need to go ahead and write a 250-page document. However, you will need something to hand to your banker/investor that clearly demonstrates that there’s a clear market for the problem that your business solves AND includes your key forecasts and financial statements.
Simply put, your plan should make it simple for prospective partners and supporters of all kinds to clearly understand your current business model and all of its financials.
You want your business plan to be as simple as possible so that potential partners or supporters of your business will easily be able to understand your business model and financials. You can improve the experience for these prospective investors by presenting data visually through charts and graphs.
7. HAVING A BUSINESS PLAN IS AN ASSET IF YOU EVER WANT TO SELL YOUR BUSINESS
You may decide after years of being in business that you want to position yourself for acquisition or sell your business. When you have a strong business plan it helps you make a good case for a higher valuation.
Your plan will make it easier for a buyer to understand important details such as your business model, your target market, and your growth potential and ability to scale.
So, how do you get started?
Having a business plan in place goes far beyond basic goal setting or planning. There is no magic recipe, the key is to just get started. Some may hear “Business Plan” and immediately connect that with the idea that it needs to be over 200 pages long or months need to be spent on it.
It’s actually quite possible to create a plan in under an hour, it really doesn't mean that you are going to be stuck behind your computer screen, or worse, writing it out for hours, days or weeks on end. For guidance and education to help you create your business plan efficiently, and for some clarity, book in a complimentary with session me here. I will walk you step-by-step through the planning process and present you with a beautiful business plan that will impress potential investors in under an hour.
I would love to help take some of the pain out of the entire business planning process, help you to track your performance, define tasks you need to take your business to the next level, and even make a competitor analysis easier.
1. Burke, A., Fraser, S., & Greene, F. J. (2010). The multiple effects of business planning on new venture performance. Journal of Management Studies, 47(3), 391-415
2. Brinckmann, J., Grichnik, D., & Kapsa, D. (2010). Should entrepreneurs plan or just storm the castle? A meta-analysis on contextual factors impacting the business planning–performance relationship in small firms. Journal of Business Venturing, 25(1), 24-40. doi: 10.1016