In today’s economy where businesses are retooling their business strategies due to changing market conditions and jobseekers are morphing into entrepreneurs overnight, there are many good reasons to write a business plan these days.
Whether you’re a manager making a short-term course correction for your department or a startup trying to get funding for a next generation product, developing your business plan is an invaluable step in the due-diligence process that always provides some interesting “ah-ha” moments. That said, here are ten reasons to do a business plan.
1. Narrow Your Focus – So many ideas, so little time. I’ve worked with clients who literally show up with LISTS of business ideas they are evaluating. Taking the time to write a business plan helps to ground your thoughts and put some directed energy into one idea at a time. For people with the entrepreneurial bug and lots of ideas, business planning is a great exercise for focusing their attention.
2. Assess the Possibilities by Filtering “Opportunities” From “Ideas” – Not all business “ideas” are actual business “opportunities”. If you ever look over some of the ideas that get awarded patents through the US patent office, many of them like the “Beerbrella” are pretty wacky. “Ideas” become business “opportunities” when there is ample market demand for the product or service and people are both eager and willing to pay decent sums of money today for your product or service. If you need a robust resource to assess whether you have an idea or an opportunity you might check out our a very own “Ideas VS Opportunity Analysis Tool” to help make the determination.
3. Formalize Your Goals, Vision, Strategy, & Systems – Some people talk a great game sharing their excitement and business ideas with others, but until they take the time to write them down, those ideas are still flying around in the ether. Once you put ideas down on paper, they become a work in progress that’s easy to contemplate, adjust, update and share with others.
4. Get A Roadmap – Perhaps you’ve heard the quote by Lewis Carroll, “If you don’t know where you are going, any road will get you there.” Think of the last time you went on vacation. You probably had limited time and resources that you wanted to maximize right? I’m also guessing that in order to make sure you got the most bang for your buck you probably did some pre-trip planning to create the optimal travel itinerary. The same is true for your business, as you have limited time and resources. That said, a business plan is your roadmap for your business journey. Without a vision, mission, goals, or plans its easy to fly by the seat of your pants, however you might also find yourself staring at a dead-end. If you don’t already have a business plan, a good place to start is Jim Horan’s One Page Business Plan.
5. “You Don’t Know What You Don’t Know” – Through the process of conducting due-diligence and market research for your business plan, you will no doubt discover some valuable resources you didn’t already know about. For instance, who knew demographics research could be so easy? To get quick demographics info by zip code and even compare demographics across multiple zip codes check out ZipSkinny.com – gotta love the internet!
6. Do a Dry-Run on Paper First, Run a Simulation, Then Rework Your Assumptions – Business planning is the best place to do a dry-run and test your assumptions. If they don’t work out, no harm no foul, just change the numbers in your financial projections and try again. Doing a simulation saves you the time, energy, money and heartache you would have spent in real life through the School of Hard Knocks. After all, if the numbers don’t work out, you can either rework your assumptions or walk away with money in hand, minus the time and energy you spent in due-diligence. Either way, I guarantee you’ll learn valuable lessons for next time. If you haven’t run the numbers yet, check out this Cash Flow Calculator and see how they work out.
7. Fine-tune Your Business Strategy – After you run through the numbers in your financial projections and test out your initial business strategy, you may need to make adjustments to your strategy and update your business model accordingly. If you are looking for a visual tool to MindMap your ideas AND happen to be an iPhone and iPod Touch user, you might check out a free MindMap app called iMindMap.
8. Demonstrate Your Knowledge & Understanding of Your Business – Among other things, business plans help to communicate your knowledge of the market and understanding of your business to others showing them you know what you’re talking about. This is critical in getting a loan, investors, or business partners who are assessing for themselves whether your business is right for them to invest their time, and money into. If you’re looking for investors and are putting together a Powerpoint presentation to pitch your idea, you might want to check out Guy Kawasaki’s 10/20/30 Rule of Powerpoint and avoid the faux pas.
9. Share Your Vision With Others – Not everyone can read the back of a napkin especially if your penmanship looks like mine. Whether you’re trying to get folks in your department to buy-in to your vision or get feedback on a business idea from your network of colleagues, having a business plan helps you to share your vision in a format people can universally understand and digest. If you insist on using the “back of the napkin” approach, at least check out Dan Roam’s book on the subject.
10. Have A Plan – Get Funded – Most businesses end up writing business plans because they need one to get funded either via debt (business loan) or equity (investor financing). Either way you’re going to have to put your best foot forward by presenting a viable business case showing that your business is worth risking their investment. It often takes a few pitches to find a match (especially in 2010 where money is tight), but every investor that reviews your plan is likely to provide valuable insights that will make your plan even better. If you’re thinking about funding, here’s a handy loan amortization calculator to how much your principal and interest payments will be.