For all the entrepreneurs reading this article, one of the first pieces of advice you probably received (although I’m sure you already knew it) was to write a Business Plan.  After all, a strong Business Plan is critical to the success of every business…or is it?

Business Plans come in various formats, with many organizations, professional writers and software programs to assist in the development of the plan.   So why should I spend the time and resources in creating a Business Plan?  It’s a tool that is critical to the success of every small and emerging business.

FRIEND

1.       It is your Bible!  Business Plans are your roadmap to success.  A carefully developed Plan with reasonable and conservative assumptions will provide direction and focus.  Particularly for new business owners who are not sure what direction they want to take their business, the Plan becomes crucial.  It is a tool that should become a roadmap to stay on course with the  business objectives and model.

2.       It helps you to formulate your business model.  While writing a strong Business Plan is important, the thought process that goes into developing the Plan is critical.  Whether creating  it yourself or using outside assistance, there are many questions that need to be asked and answered even prior to putting it in writing.  This is where the business model gets formulated and refined.  The fact that there is a “Plan” indicates the business owner has taken the time to not only think through the various components and factors influencing the business, but has spent meaningful time and resources in researching and understanding the marketplace.

3.       Financial institutions and Investors require one.  At some point in the business cycle, there will be a need (or desire) for added capital.  Whether it comes in the form of debt or equity (new partners/investors), a Business Plan outlines your business model and other key factors that may influence the success of your business (i.e.-competition, market size, products/services, management team, etc).   The Plan allows the reader to get a better understanding of your company and the surrounding marketplace.

4.       It’s a compass if you go off track.  A key ingredient of the Plan is the financial projections.  Obviously, you probably would not have started the business if not for the opportunity to make a reasonable return on your investment and earn a living from your business.  Therefore, it is  important to use these projections to monitor the growth and profitability of your business.  If you find yourself going off target, you need to identify the reasons and make some corrections.  Since most initial projections do not play out according to the Plan, it’s important to understand that this is not a static tool but one that needs to be continuously monitored and modified as the business matures.

FOE

1.       Once the Plan is written, I won’t need it anymore.  Many business owners take the time and money to develop a detailed Business Plan but once things start getting busy, it is completely forgotten.  It becomes hidden in the bottom desk drawer to collect dust bunnies.  Once again, this document needs to be the roadmap for the business owner.  Like any other map, it needs to be monitored frequently to be sure the business stays on course.  If changes in the business require a different direction, then the Plan needs to be modified accordingly.

2.       The more optimistic the financial projections, the better chance I will have to attract financial institutions or investors.  The reality is that most institutions and/or investors have seen so many Business Plans that they will automatically discount unrealistic projections and redo them based upon their own due diligence.  If your projections seem too good to be true, then the only one that is being fooled is you.  When developing them (particularly cash flow projections), be ultra conservative and then prepare a second one assuming your worst case scenario.  Always be prepared for the worst case so you will have a plan in place to proactively address the situation and not have to constantly be reactive to certain conditions.

3.       I know I need a Business Plan so let me slap one together as fast as possible.  The danger in this thinking is that you have not done the proper due diligence in developing your business model.  You are taking a blind dive off of a cliff and hoping you don’t hit any rocks and have the ability to swim to shore.  Successful professionals in all walks of life minimize risk through research, preparation and training whether they are business owners, actors or athletes.  Use the Business Plan to minimize your business risks.  There will be enough other daily challenges for you.

If you have special concerns or would like to discuss your Business Plan, please feel free to contact me.