There tends to be a strong consensus among entrepreneurs and business school professors that having a business plan is a must, especially for first-time business owners. It sounds good and looks good on paper to be able to say you’ve written a plan and have a clear strategy going forward. Formalities aside, there are many reasons every successful entrepreneur should have a good business plan, and as you will see it goes far beyond looking good on paper or simply doing so because “my professor said so”
Though the reasons are numerous and full of complications for the sake of this discussion I’ve narrowed it down to three and have made them as simple as possible in light of what we’re talking about. As anyone who has tried will tell you running a business is no easy task, and having a clear strategy going ahead is far more than mere busy-work typed mindless into a document or scribbled into a notebook. Here are three reasons you should have a good business plan, even if you just know you’re the next Bill Gates and won’t need one.
1. It Is Your Road Map to Success
Many new business owners have spent so much time coming up with their business idea and tailoring it to perfection that they not have thought as far ahead as actually executing the idea and making it as successful as we know it deserves to be. In other words, we have a name, a location, a great product, and we’re ready to launch but somehow find ourselves shrugging our shoulders saying,
“Well, I started a business, now what?”
Your business plan will be your guide during every step of the process as bringing your business to life. There will be many twists, turns, and expected events but your business plan will keep you on track you’ll always know what to do next. It may require some tailoring over time but your business plan will also ideally be a living, breathing document that will allow you to plan for future events as well to make the most of what you have. It will also measure the heartbeat of your business by showing you where your goals were to be and where you are now. Without a business plan, you might as well be going on a road trip without a map or a GPS. You may find you’ll be burning a lot more gas, stopping to ask directions more often, and you may never find your destination at all, but hey it’s all about the journey, right? No. In business, it’s about accomplishing goals, and doing so will be much easier with a clear plan going forward.
2. It Will Allow You to Avoid the Embarrassing and The Unexpected
Not having a clear answer to a question a business owner should have an answer to can not only be embarrassing but it’s bad for business. It makes you look unprofessional, weak, and a very undesirable business partner. It can cost you clients, money, and valuable time. Many of these questions are questions you will have a clear answer to only if you have a business plan.
You won’t find yourself surprised for instance when you find out your business requires liability insurance or when the insurance agent asks you how much money your business plans to generate in a year. Whether you earn a client, look good at a public event, or nail a professional presentation all depends on you being in the know. A business plan allows you to be prepared to answer any questions you should know when speaking to buyers, suppliers, and even potential investors in your company.
A solid business plan allows you to look good when asked tough questions and operate efficiently under pressure, without it you’d better bring your best tapdancing shoes.
3. You’ll Need it To Obtain Financing
If you’re starting a business and have chosen a “pay as you go” approach you may be doing it wrong. This is fine if you don’t expect to do much business or see this as more of a hobby, but if you’re serious about being successful in business you will need to know how much money you need to achieve optimal growth in the beginning stages of your company. This is your baby and it’s going to need plenty of nourishment in the form of capital.
Whether you’re looking to become a public traded company, or to simply snag a few investors you’ll need a good business plan to reel them in. You’ll still need one just as bad if you’ll be doing all your financing through a business loan.
No one, banker, investor, loan shark, is going to have much incentive to put their money on the line for a business you haven’t put much time, effort, or planning into. No one is going to put money into your business if you haven’t even produced something as basic as a functioning business plan. What reason do they have to believe you have prepared for risks, or have formed a good marketing strategy, or for that matter even a plan to bring the product to your customer, if you have nothing to show this is the case? Without a solid strategy going forward a business will fail and most bankers and investors know this and without a business plan to support the “why” or the “how” of your alleged business success they simply won’t take the risk.