One of the common advice given to new entrepreneurs is to prepare a business plan. Having a business plan can help you understand and clarify the things you need to do. A good business plan can serve as a blueprint for your new business as it helps clarifies your ideas and establishes a plan of action.
However, many small business entrepreneurs make the mistake of thinking that a business plan is this voluminous document that you can only prepare with the help of a business planning software or by following the recommended outline of books on the topic. They think that they need to spend months and months writing up this magnum opus.
Writing a 100+-page document is not what business planning is all about. It is not about following a predesigned template, complete with executive summary, table of contents, sections on production, marketing, finances, among others. In fact, you don’t need to have a formal business plan especially if you are not going to apply for a bank loan or find an investor — which is likely to be the case for home-based businesses (venture capitalists are likely not going to be interested in funding a daycare business unless you have invented a software that will revolutionize the daycare business). Your business plan may only have 10 pages yet that could be construed as an perfect business plan if it contains the drivers and components of how your business intends to make money.
Business planning is a process that requires thinking through your business. A good business plan should include a description of what you are selling, your background and qualifications, who the prospective customers are and where they can be found, what is needed to build the business, how you plan to promote, and how much money is need for start-up costs.
Do you really need to have a written business plan? Not really. And most definitely not a 100+ document that is based on fantasy with over-optimistic and aggressive financial projections based on unrealistic assumptions.
But it is most beneficial to have the strategies and tactics you have thought about for your business to be written down and presented in an organized and easy to understand way, and not just kept in your head. With your strategies, tactics, milestones and metrics all written down, you can review and re-review them to see if your assumptions are valid and make it easier to identify the potential strengths and weaknesses of your business. You can write them in paragraph form, or simply as bullet points, but your written business plan should have:
- Your strategies, which will answer three important questions: What do you want to sell? Who’s going to buy it? Why are they going to buy it?
- Your tactics on how to achieve your strategy – think of it as your condensed version of a marketing plan, product plan and financial plan. Specify how you will reach your target market.
- Metrics to help you determine whether you are achieving your goals, and review schedules
- Projected sales, spending and cash flow for the next 12 months at least. You need to know what your costs are and how you are going to make money.
A written business plan can be a great tool to help you run your business better. You can review it every month to see how far or close you are to achieving your metrics, and what strategies may be working or not working for you. You can then revise it to incorporate your learnings and improved assumptions about your business and the market.
Sure, writing a business plan may take a little time to do (even with just the bullet lists), but the time it takes you to think through every aspect of the business can better prepare you for the road ahead. You will be better prepared to take on the ups and downs of starting and running a business.
Recommended Books on Writing a Business Plan:
- Business Plan Writing Guide: How To Write A Successful, Sustainable Business Plan in Under 3 Hours
- How to Write a Great Business Plan (Harvard Business Review Classics)
- The Secrets to Writing a Successful Business Plan: A Pro Shares a Step-By-Step Guide to Creating a Plan That Gets Results
- Writing Winning Business Plans: How to Prepare a Business Plan that Investors Will Want to Read and Invest In (Rich Dad Advisors)