5 Reasons You Need A Business Plan…And 5 Reasons You Don’t

There’s a lot of controversy over Business Plans, their effectiveness, and whether or not you need one for your business. Everyone seems to either love them or hate them and that is mainly because people have had success with and without them. You can make a Business Plan work for you and have a lot of success or you can take the journey without one and probably see about the same amount of speed bumps and hardships. Let’s take a look at business plans from both sides and let you decide which path would be best for you.

Without a business plan, you may just be working to work without any real direction or goal for your progress. A business plan allows you to craft a well thought out mission and vision for your company. That way when you’re making any kind of goal or business decision, you can refer back to your business plan and decide if the goal or business decision in question is in line with your company’s mission and vision for the future.

If you’re looking to secure capital from an investor, venture capitalist, or even a bank loan you will need some kind of business plan. Typically banks are just looking for past financial success and a general direction in mind for the business, but an investor or venture capital firm is looking for hard data and a well thought out market strategy before they begin to entertain the idea of investing. For a quick lesson on forging a business plan targeted towards venture capital, check this out: Business Plans for Raising Venture Capital

Sometimes we get so consumed with our day-to-day business that we forget to look towards the future; we forget to grow. When you write a business plan, you are looking past your current business and looking towards how you will get future business. In addition, you’re setting long-term goals to be working towards and defining a vision for your business. That is one of the differences between running a business and building a brand.

Some Entrepreneurs claim that market research is over rated, but understanding your market is necessary to operate any successful business, whether you write it down or not. When you have it in a document, you can use it for your own personal reference or add to it as you enter different markets and gain new or different customers. Some of the most beneficial aspects of your market research will include:

With a competitive analysis you can understand your current competition and get to know what has made them successful up to this point. You will also have a tangible way to see what makes your business different, which allows you to take advantage of the same aspects where your competition found success while also differentiating your business to your customers.

Customer profiles and Market analysis allow you to better understand your different customers and segment them into profiles. This makes it easier when deciding how to advertise and design your marketing copy. It’s much easier to craft an advertisement when you know who is going to look at it and what call to action you want them to take. Understanding the market also allows you to see how much market share you have as compared to your competitors and where you might be able to convert some of your competitor’s customers into your own.

A break-even analysis is useful for your entire business or simply for a new product or service you are looking to provide. It breaks down the costs and profit margins, so you know how many sales you are going to have to make before you break even. If you do these calculations and find that you may not be able to sustain the investment before securing enough sales to break even, it will throw a red flag at you to consider changing a few things around and increasing your profit margins.

These are just a few of the reports you can run in doing your market research, but know that not all research is a waste of time and many businesses fail because they have failed to understand the current market and their role within it.

It certainly takes some dedication to your business plan, but if you look to grow your business and brand in a way that will exude unity and action in line with your vision and mission, consider taking an hour per month to glance over your business plan, comparing it to your current business, and making minor changes here and there. If you maintain some discipline in doing this, the little changes you make can show you a drastic change of direction for your business that may not have been aware to you in the first place. Your business is a living entity; growing and changing with each new experience. If you maintain a record of this by amending your business plan, your business plan becomes a living document much like the US constitution. Not only does it become a constant guide for you to make business decisions, but it tells the story of your business from conception to what it has grown into today, which can be a cool progression to see.

Just like a business plan can give you a direction and guide your business actions, it can work against you and make your actions rigid. If you let it, a business plan can draw a box around your business. A really great opportunity might come along, but you may overlook it because you are too focused on what is written in your business plan. For a business plan to be successful, it should be a general guide, not a rule book.

It takes time to write a well thought out business plan. It takes market research, critical thinking, long-term planning, financial calculations, sales forecasts, all the while making sure all that information is in line with your mission and vision. Some people will coin the term “Paralysis by Analysis”, where you analyze everything in so much detail that it prompts you to analyze more and more making your business stagnant. Sometimes it pays more to just jump into a new opportunity and adapt along the way than it does to spend 6 months building a 30-page business plan while your competition is saturating the market. A good idea might be to jump in first, then write your plan in your free time (with a specific and measurable time frame of course!).

You may be able to plan three years in advance if you’re Nostradamus, but if you’re like every other one of us typical human beings it will be difficult for you to even plan the next year of your business, let alone a few years. There’s no telling what kind of opportunities will pop out of nowhere, when the economy will tank or rev back up, or how a complimentary business partner of yours going bankrupt might effect your business. It’s all fair game in this crazy world and nothing is ever a sure thing. Remember that.

As I just mentioned, nothing ever goes to plan, and this includes your sales forecasts. You can calculate forecasts for 6 months or a year at most, which will give you some goals to work towards, but avoid planning too far in advance. Forecasting any longer than a year is a stretch. Who knows where your business will go or if you will even be targeting the same market and customers a year from now? Short-term forecasts are good for setting goals, but long-term forecasts are simply speculation.

A business plan can be a living and growing document…if you have the discipline. Sometimes our actual business takes precedent and we forget to keep our business plans alive. A business plan can become outdated the second you print it off. My advice is, unless you’re presenting for investment capital, don’t print it off. Be Green! An electronic copy of your business plan is easier to change than a printed version. And if you’re not going to actively add to your business plan and maintain a living document, you may want to consider ditching the business plan idea altogether. Otherwise, it will just be a quick snapshot of your company at one tiny moment in the infinite time of the universe.

 

What works best for your business?