Do I need a business plan? I cannot tell you how often I get this question. Early in my career, I was an avid supporter of Business Plans. Not the business plan itself per se, but the planning process. Planning in itself is crucial to the success of a business-or so I thought. However, over the years I have become more of a cynic.
I have seen many well-planned businesses fail. These were businesses where the entrepreneurs wrote business plans, strategic plans, revised, reviewed and planned their hearts out. Some entrepreneurs plan for years before launching, but even the best laid out plan, can fail– and believe me, they do. I have also seen many ideas, developed after intense all-nighters, go on to flourish and sell for seven figures within two years without ever having a single page of a planning document.
What is the difference? Why is it that some can survive without a business plan and others seem to live and breathe by their plans?
To fully understand this this, we need to take a step back and ask, what has led to this business planning phenomenon? The answer can be found, both in our business culture and our communities. There are parts of the world, where business plans do not exist. Yet in North America, the Business Plan is seen as a crucial component of the business process–and the torment of Entrepreneurs and their Financiers.
Years ago, when we wanted to borrow money for a new business, we went to our local bank-the one we had dealt with for years. The bank or lending manager knew you by name. He knew where you lived, your family, your Church and your habits. Further, many people had higher levels of personal savings. These were tapped and used at key moments such as this.
One might run a family farm, a general store or small restaurant, but imagine the lack of bureaucratic red tape of the Wild West compared to setting up a business in a large urban city today – from non-existent to a nightmare. As our communities grew, as newcomers entered, as borrowing markets expanded, knowing everyone that we dealt with was harder. What was needed was a rigorous process that would standardize the way we evaluated people and introduce some scientific validity to what had previously been a very personal decision.
Enter the business plan, the savior of the Financier and the Entrepreneur. Over the years, particularly since the 1980s, the use of the term business plan has skyrocketed.
But who actually needs a business plan? These days, if you are seeking financing of any form, you require one.
Do you need a business plan to ensure the success of your business? I would say “No”. I would say for some personality types, a business plan is a requirement to ensure that they have thought through their business idea. I would suggest that those entrepreneurs who are rash, those who have entered into risky arrangements in the past and those who are investing personal funds into industries which have high capital costs, would do well to stop and prepare a business planning document.
For others, I would say that a business plan is no more than a checklist item to get you investing. This is not to say that all business planning is bad. Rather, like reading literary classics in school, this is a checklist item that you need to get through the system. Some will take pleasure in preparing these, for others the term “business plan” evokes visions of weeks (or months) of pain.
There are scores of business planning solutions on the market. Business Plan Pro by Palo Alto software is one of the greatest pieces of entrepreneurship software ever to come out. For those who do not remember or recall life before this program, it really did revolutionize business planning. Tim Berry is a guru in the industry and paying homage to him is an honor. By the same token, Microsoft and Palo Alto also have subscription services that are great for those who suit that personality. Enloop, a recent entry into the market, is also very clear and easy to use. For organizations serving entrepreneurs, we developed SME Gurus – a complete entrepreneurship platform that builds on the business plan by adding goal tracking and accountability.
However, the majority of these pieces of software are still difficult—even for me as an accountant and consultant. I enjoyed learning about industries, putting together financials and forecasts, solidifying a marketing plan and watching entrepreneurs’ dreams take flight–but writing the business plan was painful process. I stand back and think how difficult a process it must be for others. I have run across immigrants with great work ethic and a great business idea, but who get stalled in their access to capital because of poor language skills. I have come across others who have trouble with numbers, or others who have such passion and vision in their business idea, that I would say a business plan for them is nothing more than an obstacle. Some things you have to feel, and just know they are going to work. Others, no matter how much you plan—they will never take off.
So what is the happy medium? My recommendation is know yourself. Ensure you know your customer. The best way to know them is to ask. Think about the business you want to build and ask yourself, what the crucial steps to getting it done are. If a business plan is part of that for you than do so. If you need financing, you will need a business plan. If you are applying to incubators, you will need a business plan and more.
So what planning must be done? The only planning that is crucial to a new company is knowing your market and cash flow planning. Understanding who you are selling to and why, and knowing how much cash you have, when payments happen, and how you are going to support yourself and your business is the key to the success of your business. This is because without a steady flow of income you will not survive long enough to figure out your business model. Start with these two key factors, and plan additionally as needed. Remember, until you need to go for that first loan, don’t stress over your business plan.