One of the most repeated advice you will hear when you are planning to start a business is to prepare a business plan. Business plans are supposed to be the roadmap of your business that can guide you to success.
But do you really need to prepare a business plan? According to the article “Do I Need a Business Plan?” you need to write a business plan if you are going to do any of the following:
- Support a loan application
- Raise equity funding
- Define objectives and describe programs to achieve those objectives
- Create a regular business review and course correction process
- Define a new business
- Define agreements between partners
- Set a value on a business for sale or legal purposes
- Evaluate a new product line, promotion, or expansion
Looking at the above list, it feels like every business must have a business plan, if only to define what that business is supposed to do. Many home-based entrepreneurs don’t typically think of finding venture capitalists or angel investors to finance the business. Or they don’t need to be so formal about their partnerships that they have to present a business plan.
I am one of those who do not prepare a business plan when starting a new business. I just go for it – sometimes with good results and sometimes with disastrous results. I prepared my first business plan because the bank where I applied for a merchant account asked for it. I knew nothing about business plans so I brought books on how to write a business plan and software that I can follow.
Even after reading several books and guided by a template — the business plan I wrote was sooooo upbeat and optimistic. That when I start the business, everything will fall into place and I would start earning profits asap. The business plan was definitely not grounded in reality. My financials were out of this world. No wonder my application for a merchant account was denied. Boo-hoo.
The process of business planning can help you figure out your own business and what you need to do. Or it can show you that you actually do not know anything about your business — even if you don’t realize it yet! Even if you are just selling on eBay, when you feel you need to take your eBay selling a notch higher from finding items in your house to sell to starting a real honest-to-goodness business, a business plan can help you think through what you need to do.
For me, if you’re not going to submit your business plan to another party (bank, investors, partners, etc.), you can opt to go through the business planning without being so formal about it. You don’t need to write a 75-page document about your business.
But it is important to go through the basic questions of a business plan and answer them (written answers are even better!) — e.g. what is your business, what are your goals, who are your target market, how will you reach them, how much capital do you need to start the business, when do you think you can achieve profitability. These are all questions you need to know before you start a business, even without a written business plan.
For more information on business planning, visit our Writing Your Business Plan section