Put these words into Google and you will come up with 1.27 billion results. Even the Australian government has this advice for current and budding business owners:
“Taking the time to develop a business plan can be one of the most valuable activities you can undertake for your business.”
So what is all the fuss about and what will you get for your time, money and effort?
To give your business direction, a roadmap, or a “game plan”
Many businesses are run and operated by one key person or family group. Often these people have the “business plan” in their head but never get it down on paper.
This is a vital mistake for 2 main reasons:
- No-one else knows about it and therefore can’t work towards it, and
- Goals are much more likely to be achieved if written down
In 1979, interviewers from the Harvard Business School found that of the new graduates from the Harvard’s MBA Program:
- 84% had no specific goals at all,
- 13% had goals, but they were not committed to paper, and
- 3% had clear, written goals and plans to accomplish them.
In 1989, the same group was interviewed again. You can guess the results:
- The 13% of the class who had goals were earning, on average, twice as much as the 84% who had no goals at all
- Even more staggering – the 3% who had clear, written goals were earning, on average, ten times as much as the other 97% put together
To communicate to your stakeholders where the business is going
Chances are you are not building the business by yourself. You might have partners, employees, financiers and advisers. A business plan helps to focus everyone involved in your business on the same goals and direction.
To help make important business decisions
There are some parts of a traditional business plan that you simply cannot complete if you are on the fence, undecided about key business decisions. Business plans help you to eliminate the grey area, requiring specifics. Making tough decisions is often one of the hardest and most useful parts of writing a business plan.
Whether it is to rent a new office, hire new employees, buy and/or finance new assets, acquire a business, obtain further capital/debt or sell your business; the business plan will not be complete until you have properly considered what the appropriate direction might be and commit to a decision.
At times you may be forced to make important choices, which were not considered when the business plan was being written initially. Although silent on these specific areas, the business plan can provide guidance. Which outcome is better aligned to the business plan?
To obtain finance
Your business plan is an essential document, which shows lenders and investors that you should be taken seriously. Investors will only risk their time and money if they are convinced that your business will be successful and profitable.
To generate and sense check new ideas
An effective business plan is a flexible, growing and dynamic tool that can help you to think creatively, and to come up with innovative solutions for some of your toughest business challenges.
The planning process will identify gaps in the business strategy and give you the chance to shore up your research, test your ideas and take steps to make the business stronger and more viable.
You may still be able to build and operate a successful business without a plan, but it is most certainly easier to do so with a well-constructed business plan in your hands.
Stay tuned for Part 2 of Why Should I have a Business Plan? in March.