Why You Need a Business Plan (And the Best Style for You)
This is the first in a four-part series by Hal Shelton, SCORE small business mentor and author of Writing a Successful Business Plan. Topics include why you need a business plan (and the best style for you), four sections every business plan must have (and why they’re important), when is the best time to revamp your business plan, and creating a business plan for a nonprofit.
Running a business without a plan is like running down the street with a blindfold on. Abusiness plan removes the blindfold, creates a map, and prepares you for the certain bumps in the road.
In this post, you will discover what a business plan is, why you need one, and what style is best for your situation.
What Is a Business Plan?
A business plan contains five key elements:
- Business goals
- The reasons why these goals are attainable
- A plan for reaching those goals
- Data backing the uniqueness of the products and services to be sold
- Supporting information about the organization and team attempting to reach those goals
But it is much more than a document: It is a process to test ideas to determine if they are feasible and financially attractive. During the process, you develop a consistent set of messages, based on facts and analysis, which can be used in discussions with customers, funders, board members, advisers, vendors and employees.
While you may think the only goal of business plans is to seek funding, ultimately, a business plan is written for yourself — to help you set goals, decide whether to start or grow a business, and develop a compelling message of why you will be successful.
As a small business owner, you are probably working 60 to 100 hours a week and still not getting everything done. If you are working this hard, make sure it is worth the effort. Again, this is where a business plan comes in. For example, if you forecast earning $20,000 a year, is this good news? It is good that the number is positive; however, if you live in a large city, have family financial obligations, are paying off bills and saving for retirement, and plan to make this your full-time activity, it is unlikely you will be satisfied with $20,000. Wouldn’t it be good to know this before you invest too much?
What’s Your Style? Finding What Type of Plan Is Right for You
Business plan styles range from informal, back-of-the-envelope sketches to 30-page plans with illustrations and exhibits. Which style you choose depends on a number of factors including are you seeking funding, are you starting a new business or growing an established business, is the business complex and needs much explaining, etc. Common to all styles is a clear message.
Plans for Existing Businesses
Start with a short plan, emphasizing mission and goals, to ensure the venture/project is headed in the right direction for the next year. If you are planning to grow your business, focus on markets, products, and services, in addition to having sufficient resources. If you are solving an operating issue, focus on that particular matter, such as staffing, cash flow, operations, vendors, etc.
For example, a business that is focusing on increasing sales may determine after talking with its customers, looking at its competition, and conducting research, that it needs to enhance the awareness of its products and services in the marketplace and, in particular, the online marketplace. In my book (www.secretsofbusinessplans.com), I share an all-graphic, brief business plan that is ideal in this situation.
If you’re seeking funding from your current bank, use a medium-sized plan in the 7 to 15-page range. Talk with your small business loan officer and see what they require from someone the bank already knows.
Most business plans start with an executive summary and end with the financial statements. In between are sections that describe the business idea operationally. You have the flexibility to arrange this discussion in a manner that best describes your company. However, if the format is too different from what your audience is used to, they may find it difficult to read your plan. Make it organized, clear, and purposeful.
It helps to know your audience and what information they need to act favorably. For example, a customer wants to know you will provide quality products/services and will be around to provide maintenance or upgrades. A vendor wants to know that you will pay invoices on time and be a repeat buyer. A banker wants to know how much money is requested, what it will be used for, how long the funding is needed for, and reasonable projections that you will have the resources to repay the loan in full. Hence, while you may focus on sales, the banker will focus on cash flow.
Usually you will not be in the room when your business plan is read, so it needs to speak for itself and reflect positively on you and your business.
Be able to explain the following clearly and succinctly:
- What customer problem you are solving, and why your solution is better than current alternatives; sometimes called the value proposition
- What tasks are necessary for the business to succeed
- Most important, why you will be successful
• A business plan is primarily written for yourself. However, it should not be about you — it should be about the market and your customers.
• A business plan is both a document and a process.
• Business plans need to be tailored to your situation and kept current.
• Design your business plan in a manner that best explains your business idea.
• Know your audience and what information they need to act favorably.
• The message is more important that the style.
- Note the reasons you are considering writing a business plan.
- Describe your audience, what you would like them to do after reading your plan, and what information they need to favorably take that action. The audience could be you, a banker, an angel investor, a key vendor, a potential employee, a contracting official, a key customer, etc.
Next month, we will look at four sections every business plan must have (and why they’re important).
Hal Shelton’s business planning skills were developed as a certified SCORE small business mentor, corporate executive, nonprofit board member, early-stage company investor, and author of The Secrets to Writing a Successful Business Plan: A Pro Shares a Step-by-step Guide to Creating a Plan That Gets Results. Suggestions for additional topics are welcome; email Constant Contact or Hal directly from his website:www.secretsofbusinessplans.com.