Any entrepreneur who is in the process of starting a new business must face the reality that creating a viable business plan needs to be an integral component in that process. Fortunately, we have put together this guide to provide small business owners with the information and resources they need to create a sound small business financial plan.
Plenty of prospective small business owners might be tempted to bypass this “necessary evil” and take an off-the-cuff approach to running their business. Instead of planning out their steps carefully, many business owners proceed full speed ahead in order to fulfill their goals more expediently.
But a small business financial plan really is the foundation of everything you’ll do going forward, and it should be approached as an essential step rather than an optional annoyance.
Done properly, the creation of a small business plan is a step no entrepreneur will regret taking. The benefit from creating a sound business plan in the long run can be immense if the plan is done properly. Are you inspired by your idea for a new business? That kind of enthusiasm is invaluable, but marrying that idea to a sound business plan will enable you to make a credible assessment of your visions and goals.
What are the purposes of a business plan?
In addition to other necessary steps along the way to launching a business — including registering your business name, getting a Tax ID, settling on the structure of the business, and applying for required permits and licenses — there are five important reasons for creating a business plan.
1. It provides proper guidance for a new entrepreneur.
The Small Business Association has referred to a business plan as “a GPS to get your business going.” There are several stages in the process of launching and managing a new company, and a business plan enables you to structure, operate, and expand the business the right way.
2. It can serve as a series of smaller roadmaps to help in the early years that are critical to long-term success.
The business plan you create should project the next three to five years, outlining the direction of your company and how it will generate revenue and grow profits. The SBA suggests that a small business plan be treated like a living document rather than a hard-wired volume with no flexibility to adjust it.
Your overall business plan can actually be divided up into several smaller guidebooks to separately cover sales and marketing, pricing, operations, and other disparate aspects of the company.
3. It can establish important milestones to strive towards.
A properly conceived business plan is one that will encourage an objective assessment of the most critical areas of your company, helping you make decisions as you go along. If you need to apply for a business loan, this is extremely important.
4. A small business plan can be an avenue to funding.
Business plans can assist you in securing small business financing or finding additional business partners. The establishment of a business plan might inspire confidence among prospective investors in your vision and help them to be optimistic about their chances for profiting from working with you. A small business plan can be a persuasive tool in the eyes of others as it shows that you are serious about your business, and anything written down is more concrete than just verbalizing it.
5. A business plan doesn’t have to follow one specific set of rules.
There’s plenty of wiggle room in the creation of a proper plan for business. There’s not one singular method that’s right or wrong. Embrace the flexibility you have to be creative in the plan you put together. As long as it meets your needs and addresses the variables listed above, a business plan can be customized to your needs.
Most business plans fall into one of two common categories: traditional or lean startup.
Writing a traditional business plan with a standard structure means going into considerable detail in each section of the document. Be prepared to put in a good amount of work to get this done. A traditional business plan is a lot of work due to the elaboration and details needed.
A lean business plan, on the other hand, outlines the most vital components of the plan in a much more streamlined format that might only take up a single page.
The SBA has tools to help make writing a business plan less intimidating and time consuming. The SBA offers an 8-step Business Plan Tool that makes the process simpler while still retaining the integral items that make it comprehensive. This tool is available at the Learning Center at the SBAâs website. The SBAâs Business Planning Guide has more information where you can view business plan templates.
As a starting point to create a lean business plan, jot down some brief notes of things you absolutely want to include in individual segments of your template. Those items should include:
- Your business model, and how it will generate revenue.
- A schedule of what each member of your company will do.
- A strategy of what your business intends to do.
- How you will implement your strategy through your business
With a lean business plan, you can flesh out the most important elements of your business strategy in a small amount of space â ideally no more than one page. You might want to address the competition you might face in this field, and what advantages your company might have over that competition. This should address what ultimately gives your business an edge, aka your value proposition. Some important questions to address are: what do your competitors do well and what can you do to enhance the value to customers choosing your company over the competition? Talk about what your customersâ needs are and how your business specifically can fulfill that.
In short, why you? Why your company, instead of a competitorâs? A well-designed lean business plan will answer these key questions.
The advantages of creating a lean business plan include an immediate emphasis on what drives your companyâs strategy. It should give readers without a deep background in the business information in an easy-to-understand format, providing a visual presentation of the business model youâre creating and creating something flexible enough to easily update.
In addition to the aforementioned suggestion of identifying your competitors and what will set your company apart from them, other information youâll want to consider making part of your lean business plan include:
- What expenses will be required in the operation of your business.
- An overview of what your business is.
- What strategies youâll employ to market your business.
- Whether (and what) other business youâll be working with to grow your own company.
- Who will your target customers be?
- How your business will answer a customerâs needs.
- How will your company generate revenue?
- What sales channels will you be using to reach your client base?
If the whole concept of taking the time to draw up a business planâwhether itâs lean or traditionalâstill doesnât seem like a worthy investment of your valuable time, here are several other reasons why you should consider undertaking the project rather than depending on âwinging it.â
Creating a plan can help you raise funding for your startup. It will be difficult to attract the interest of investors or gain credibility with lenders without detailing for them what your plan for success is. If you need funding, those you are seeking it from will need to know why they should be parting with their money to help your business out. After all, any smart investor will need to know where their money is going and whether they can make it back and then some.
Also, the more research you do on different aspects of your business, the better informed you will be. You should be able evaluate what it will cost to market your business, conduct market research and analyze costs to determine what you are able to afford now, and understand what youâll have to put off in terms of spending until your business has reached firmer footing.
The more effort and research you put into planning, the better prepared you will and the less risky your launch will be. A strongly researched and well-devised business plan might cut down on the amount of risk youâre incurring.
A traditional business plan might be the preferred route for a large company or a legacy company that was acquired by another company. But, for the small business owner, a lean business plan might be better if you are expecting to pivot quickly with the business.
A lean business plan might also be the way to go if the document youâre creating is for internal use rather than one to be seen by outsiders. If potential investors are involved, though, you might want to take a more careful look at creating a traditional business plan.
One study showed that planning improved business performance, and that it benefited existing companies even more than it did startups. Another study showed that businesses that had plans grew faster by 30 percent than those that did not. A third study on the subject found that fast-growing companies usually did have a business plan, and that 71 percent of companies in a study that were exhibiting rapid growth had business plans of some kindâeven if those âplansâ were actually considered growth plans, strategic plans or went by some other moniker than âbusiness plan.â
Startup companies might benefit more from creating plans that are less detailed and cumbersome, though, precisely because strategies are likely to evolve on the fly as entrepreneurs learn more about their market and their customersâ wants and needs during their growth phase. A lean plan makes it much easier for a business to review a strategy and make an alteration when needed. Larger or more established companies might require more detail and have less wiggle room for change.
One study by the University of Oregon suggested that businesses that had a plan were much more likely to receive outside funding than those without one.
So, if youâre considering starting a business, and what steps that will entail, donât dismiss the potential importance and possible benefits of creating a small business plan. The plan you come up with doesnât have to be carved in stone. Create one that can be adapted, revised, and tweaked as you learn more about the business. Just having a starting point will make the process seem less intimidating.
Itâs likely that, as an entrepreneur, youâll find it to be time well-spent.