Five Reasons to Write a Business Plan
Have you heard the ancient proverb, “He who fails to plan, plans to fail”? Well, that sentiment has never been truer than when contemplating a start-up or acquiring an existing business. According to the Small Business Administration’s Office of Advocacy, approximately 600,000 businesses close or file for bankruptcy every year. The facts speak from themselves
- 85% of all businesses that neglect to plan their business will fail.
- Interestingly enough, of those that take the time to write a business plan, 85% will succeed.
- Additionally, 40% of businesses with a strategic plan will double their business within 2 years of writing their plan.
- And with that plan, greater than 70% will exceed their expectations within 5 years.
With such overwhelming numbers, why would anyone start a business without having a business plan? More often than not, people recklessly fail to see the necessity. And in the end, many entrepreneurs strike out on a venture so convinced of its merits that they fail to thoroughly evaluate the business’ potential. As a result, they are ill prepared to navigate the opportunities, costs, difficulties and requirements needed to successfully run their business.
How can you avoid the well-traveled path of those doomed before you? Here are five (5) reasons for you to tackle this time-consuming, but vitally important strategic planning tool:
Normally, this is the first (and sometimes only) reason business executives think to draft a business plan; often times because they are need of emergency financing. But some businesses such as independent practitioners (i.e., accountants, attorneys, consultants, etc.) may never have reason for significant infusions of capital that would traditionally justify writing a business plan. However, other types of businesses including technology or manufacturing firms, and particularly start-up businesses, may need to establish credibility with financing sources by allow potential investors and/or lenders to understand the viability of their business. Yet that doesn’t necessarily make the need for financing the most important reason to write a business plan.
The Small Business Administration reports that two-thirds of new employer businesses survive at least two years, and about half survive at least four years. That’s a significant amount of time to invest in a venture only to discover its lack of feasibility. But an entrepreneur who takes the time to create a business plan can take an objective, critical look at their business and identify the strengths and weaknesses; and, potential risks and opportunities of the market and the venture, before they incur any costly, perhaps even disastrous, mistakes later.
Argruably the most valuable resource that any organization has is its people. And as a savvy business executive, you want the best and sharpest employees you can find to keep your company at the top of the heap or maximize your profitability. What better way to communicate your ideas to potential joint venture partners, management and/or key personnel than through a strategic planning document such as a business plan? The fact that you have taken the time to draft and annually update your business plan may be all you need to distinguish your organization from your competitors and sway a critical employee to join your executive team.
Which brings us to two of the most important reasons for writing a business plan:
Drafting a business plan is a time-consuming process and it could take you weeks, maybe even months to prepare. But the real value in creating a business plan is that it makes an excellent benchmark for annual review for you to refer to throughout the life of your business. So don’t just write a business plan when you start your business and place it on a bookshelf somewhere never to be thought of again. Instead, periodically review your plans to determine where you are and what your next steps and/or moves should be.
How many times have you seen a seemingly viable business go out of business because they have added too many product or service lines and simply gotten too large? More often than not, they have acquired additional product lines, merged with other businesses, etc., all in an attempt to stay competitive. But that doesn’t necessarily mean that they will maintain their market share, especially if they sacrifice things like customer service, product innovation, etc. But by drafting and continuously reviewing a business plan, an organization can stay focused on their vision, operational and financing objectives; long-term goals, etc, and not venture off into other areas because they “sound good”.
So if you are really serious about investing your time, energy and hard-earn money into starting a business, start at square one. Taking the time to write a business plan, think through your idea, study and research the facts; and, critically review the overall picture, may be all you need to build a firm foundation for the future success of your business.