Do all small businesses and startups need a business plan?
They sure do! But, the question isn’t really whether you need a business plan, as much as what it should look like.
You may have heard horror stories of people putting days and weeks into creating a big fat document. Maybe you’ve even done it yourself. It turns out, that quite often all that work is just a big waste of time. The time would often be much better spent working on the business itself.
What’s the deal – why do I need one?
It really comes down to understanding the purpose. There are two main reasons to create a business plan:
You may be looking for investors and/or lenders
If you are like me when I first got started, you don’t have the money you need and have to get it from someone else. You may have a big vision requiring significant money and plan to pursue professional investors (Venture Capitalist, Angel Investors, etc.). You may be planning to go to your bank and borrow the money. Or, like the majority of small business startups, you may begin with the FFF approach…turning to Friends, Families, and Fools! (I’ll write more about this and financing your business in a later article.)
Regardless of who you approach about helping to fund your business, they are going to want to know some details. Maybe not everyone in the third “F” category above, but everyone else will want to determine how much risk there is in providing you some money. Investors will want to know how they will make money. Lenders are focused on how they will get their money back. In both cases, it will require some work to create a pretty complete document.
I’ll also cover the details on this in another article, but the basic sections you’ll need are:
- Executive Summary A short, concise overview of what your business or idea is all about
- Company Description Some details about how the company will operate and be organized, required departments/roles, staffing requirements, etc.
- Product or Service Description Information about what you will be providing to your customers.
- Market Overview An analysis of the marketplace for your product or service.
- Marketing Plan Specifics about how you are going to make potential customers aware of what you have to offer.
- Financial Projections The numbers…detailed projections regarding the money you expect to spend and to receive
- Appendices Data to support the claims you make throughout the document.
You need a roadmap
This is the big reason all businesses should have a business plan. You need to know where you are headed, and to be able to review the progress you’re making.
As you proceed in your business, you will run into unforeseen obstacles, learn things you didn’t know previously, discover faulty assumptions you made, and come up with a lot of new ideas. If you keep everything in your head, you’ll easily lose sight of your priorities and find yourself spending too much time working on things that have little value. You may also lose focus and end up going in too many directions. Your business plan is what will help you stay on track.
There are a few important things here to keep in mind:
- You should review the document on a regular basis (probably monthly in the beginning) to identify areas where you are not following the plan.
- You should then update it to reflect the new thoughts and ideas you have. Keep it up to date with what you are learning and thinking.
- You should NOT keep your ideas stored only in your head!
So yes…you do need a Business Plan!
Don’t skip this important tool. When creating it, include all the needed information, but do it concisely. Leave out all the unnecessary information and keep it as short as you can. Nobody, including yourself, wants to dig through a bunch of unnecessary text. If it’s not going to be used to raise money, you can limit most of it to just bullets.
Lastly, don’t pay someone to do it for you. You must do the work yourself to get it right. It will be you that has to explain the details and defend your assumptions to others, and you that will review and keep it updated. If you need help, consider contacting SCORE. They are nationwide and offer free, volunteer counselors to help you succeed with your small business.
Regardless of the purpose, review it often and keep it up to date. A business plan will be a big help to you if you use it. Without it, you will likely find yourself wasting a lot of time doing unnecessary things while neglecting what’s really important.
Hi, I’m Denny
I spent most of my career starting and working in my own small businesses, including over 35 years running SOFTRITE Technology. After semi-retiring in 2014, I started to concentrate on mentoring entrepreneurs and those who want to start a business and teaching classes on small businesses for SCORE. more info…