Entrepreneurs are typically dreamers. The fact that an individual can see past the risk of a venture and focus on the possible positive outcome is what makes them a great business owner! It may also make them want to get started RIGHT NOW, instead of taking the time to put ideas to paper.
Many will argue that even when you write a business plan many people only read the executive summary – and I am not here to argue with those people. What I am here to say, is that although those people are only reading the executive summary, it is very easy to tell if you only put in a one pager worth of work. It is also not only about the person reading it. What you get from the information in a business plan (whether you write it personally or hire someone to do so) is valuable in itself for selling you business idea. At a bare minimum I am a strong believer that every business should have a lean canvas and a financial forecast for their first two years of operations.
Here are my top five reasons as to why you may want to take a step back and flush out your business plan – whether you are starting a business or 15 years into one! A business plan will change over time – but will still be a good benchmark to see where you stand.
1. Growth and Funding
The number one reason, by a landslide, that people write business plans is for funding. Realistically, I know that this is because they sit down with a potential investor and are told that they need a business plan to be considered. So, that is a pretty easy sell. In order to get funding from a bank, funding agency, or venture capital they will typically all require a comprehensive business plan as a start up. As an established business with credit history things will likely get a bit easier in terms of borrowing, but for now you need a plan. (Really, as a start up – you likely do not want to be at a bank anyway, but that is a discussion for another day)
2. To test the logistical feasibility of your ideas
As an ideas person, it is really easy to get lost in an idea without considering all of the angles. Sometimes you are starting a business and you do not need funding (a service business out of your home for example). When you write a business plan you are looking at not only the business idea, but also:
· You are looking at who is around to sell to (your target market) and how big that market is.
· You are looking at the competition in your area.
· You are looking at economically what is happening in your area.
· You are looking at the people you need to hire and if they exist in your geographic area (if not how are you going to find them).
All of these things play into the bigger picture. Your business may be an amazing idea and the market large, but perhaps there are already twenty people doing the exact same thing. This is when you need to start the conversation of how you are going to do it differently and what you are offering that those other 20 are not. Perhaps you need to develop an online business as opposed to a business focusing on services in your area – this drastically changes many aspects of the business!
3. To test the financial feasibility of your ideas
Every entrepreneurs favorite topic is the bottom line, right? *insert sarcastic eye roll from every dreamer in the world* When you come up with a business idea, you can imagine having sales and knowing that you can sell a product to the market for more than it costs you. This is the formula for success, right? What about insurance, taxes, advertising, website costs, maintenance on equipment, office supplies? After all those are paid will there be enough for you to make a full time living, or is this a part-time venture? How long can you afford to put into the business before you need to get paid? What about upfront costs, and the first few months while sales are ramping up? What is the life-cycle of your equipment and how will you fund their replacement? These are difficult discussions – but certainly should take place! A business plan gives you the leverage to plan this out and mitigate the risk to financial burden.
4. In order to ensure you have a metric to fall back on during chaos
I have seen business plans referred to as the “blueprint” of your business. This is a tell tale analogy, because when times get tough you can look back at that document as a map and use it as a benchmark for where you have been going. Anyone who has started a business will likely tell you that there comes a time when you just go into auto pilot for a while. Things get busy and you get it done, but are not really sure how! At that point, it is important to make sure you are still following the vision that you had for the company. Is all of the running you are doing worth it to the big picture? You also need to ensure that everyone involved has a clear understanding of the fundamentals of the business. Reviewing your business plan regularly can also sometimes help you realize you have been focusing your precious time and energy on the wrong areas of business and need to outsource or delegate some of your tasks in order to focus on what is really important!
5. Understanding your Market
Business owners see a need in their market and fill it. It is very important to analyse that customer base and know things about them on a high level. What age are they, where do they live, what do they do with their spare time, what is their average income? These questions are all different depending on the business; however, in knowing details about who specifically you are selling to you can have a better clarity on how to reach them and make the sale. Maybe by selling your product in a location just 5 miles east of where you are now could have a large impact of the success of your business.
Take a company marketing products to a tech savvy group of buyers for example, it is easy to see the way to reach these people is not through mail out brochures. They likely get all important mail by email, and the rest gets checked occasionally and brochures are all tossed. This is an exaggerated example, but in all businesses it may not be this obvious. Maybe you are selling a new product and do not even realize that it is a very tech savvy group that is most likely to purchase from you!