In celebration of National Small Business Week May 4-8, we’ll be bringing you some of our favorite tips for starting or building your own business. #DreamSmallBiz
Over the last few days, we’ve talked about the importance of planning different aspects of your small business — exit strategy planning, succession planning, security and recovery planning. Today we’ll be talking about “The Big One.” Your business plan.
Oddly enough, pretty much every small business owner knows that “every business should have a business plan,” but according to the January 2015 Wells Fargo/Gallup Small Business Index Survey, only 33% of small business owners actually have a formal business plan written down. Not surprisingly, those businesses with a formal plan report higher optimism about their business and are more likely to succeed over the long term.
Are you thinking about getting a bank loan to finance your business startup or expansion? The first thing they will want to see is your business plan. Ditto if you want to bring on partners, investors, or anyone else who will have a vested interest in the financial success of the business.
Even if you’re trying to get “free money” like grants, contests and competitions, your business plan is often a required part of the entry process. And if you qualify for some of the community assistance programs for businesses located in underserved areas, they will want to see your business plan before they shell out that money to you instead of your competitor.
Even if you’re not looking for financing, having a business plan will help you make the big decisions that can make or break your business. Like a road map, it will help you maintain a clear vision of where the business is currently, where it’s headed, and how to keep it on course toward the ultimate outcome you desire.
It will also alleviate a lot of the stress caused by general uncertainty about the stability or feasibility of your business, and it will make your business feel more “real” to you, your partners, your family, and your employees.
Perhaps you are still not convinced that all the time and effort required to prepare a plan is essential? If so, then read on for our…
Top 12 Reasons You Must Have a Business Plan:
1. No matter how good a communicator you are, you will never be able to convey your vision for the business as successfully as a well prepared business plan. It provides a clear understanding as to what you want to achieve. It allows you to express your ideas in a clearer manner.
2. Too many times, business owners try to sell their idea verbally and at the end of the conversation, the other party is none the wiser than he was at the start. I think you can guess the outcome of many of those conversations! Having a business plan is actually a shortcut to getting people to take you and your business seriously.
3. A business plan will help convince both you and potential financiers of the project’s feasibility and viability. There’s nothing like having all the facts in front of you to clarify the key issues.
4. There’s no getting away from the fact that a business owner who plans ahead comes across as being more ambitious and more focused. A well prepared business plan demonstrates that you have vision, you know what you want, and you know how to make it happen.
5. With numerous ideas floating around in your mind, the pitfalls or stumbling blocks to success are never clearly visible. A mind buzzing and full of ideas will rarely achieve clarity. A business plan forces you to put your ideas down in writing and in an orderly manner.
The result of this could be that you go in a completely different direction than you’d initially considered, or even abandon your idea all together. Not a pleasant thought, but which would you prefer? The loss of all your time, effort and money? Or the opportunity to re-think your idea and maybe come up with a better one?
6. Your business plan is an ideal tool to monitor progress against the objectives you have set yourself. By regularly checking progress against your plan, you will be able to spot if you are moving away from your original vision, and you will immediately know what has to be put right.
7. Imagine if you didn’t have this check in place. If left uncorrected for too long, an unnoticed change in direction or a slippage in achieving your objectives could be fatal to your business. On the other hand, it may turn out that a shift from your original vision could be a better alternative. Recognizing this change allows you to adjust your course in a planned, structured, and controlled manner.
8. Every action you take has a consequence, and a business plan helps make these consequences much clearer. Being aware of the possible effects of your choice allows you to plan ahead, leaving you better able to cope with whatever the world of self employment can throw at you. This is one thing that “mental planning” would not achieve.
9. Putting your thoughts on paper may make you realize that you need to do more research on the demand for your product or service, or shift your market focus. It could also highlight that more investigation on your competitors’ products or services is necessary. Additional research could help avoid a costly mistake, or even uncover a hidden advantage that you had not seen before!
10. A business plan will guide you as to how much money is really needed to make an idea work. In your mind, you may have a rough figure of the financial requirements, but until you do a cash flow forecast, you may not realize that you’ll need a line of credit in addition to financing the required equipment, in order to carry the business long enough to turn a profit. Without a business plan, you may get the equipment financed and then have to close your doors because you can’t afford to keep the lights on.
11. A business plan will help you get funding. One of the main reasons banks turn down loan requests is a lack of information to assist in making an informed decision. If the loan underwriter doesn’t have enough knowledge about your business, then he won’t feel comfortable putting the bank’s money behind the idea. He has to understand your business before he can say yes. Some time in the future, he may have to justify to his superiors why he lent you the money, so he needs as much information as possible to back up his decision. A business plan will make him feel much more at ease, and therefore more able to say yes.
12. By the time you have finished writing your business plan, you will have a total understanding of your business; its strengths and weaknesses, the environment it operates in, what could potentially go wrong, and what you can do to ensure your success. Doing your planning on the back of an envelope is not going to achieve this.
You should realize by now that it’s essential to have a business plan; it could mean the difference between success and the most dreaded “F” word: Failure. It’s all about understanding the importance of planning ahead, and then doing it!
Spend some time putting your thoughts on paper in a structured and logical manner. It will pay dividends, both in getting outside financiers to take you seriously, and in securing the future profitability of your business.
By now, you’re probably feeling pretty overwhelmed with all the work that needs to be done just to keep your business afloat, not to mention all the planning and strategizing that needs to be done on top of that. In our next post, we’ll talk about how to deal with the overwhelm all small business owners face on a daily basis.
Learn more about Small Business Week at https://www.sba.gov/nsbw