How important is a business plan? Does your company have one? When was the last time that you dusted it off and looked at it? Did you use it to raise capital from an investment firm or a bank? If you have one, are you still following it?
In recent weeks, I’ve had four different people ask me about business plans. Which started me wondering, how many companies actually have a written business plan. Therefore, I did some research and discovered some shocking statistics. A study in 2001 revealed that only 40% of businesses actually have a business plan. A different survey showed a higher failure rate for businesses that didn’t have a business plan when compared to similar sized companies that did have business plans.
Interesting enough, the experts have divided opinions on the subject of business plans. My professional belief is that the act of planning and going through the process may actually be more important than the actual printed plan. General George S. Patten said this about planning. “A good battle plan that you act on today can be better than a perfect one tomorrow.”
Having a good business plan now is better than waiting to develop the perfect one later. As you go through the discovery process while you write your business plan, you will learn things about your business that will help you immediately. The act of planning provides insight, that you would otherwise miss and the written plan becomes the roadmap to guide you on your journey to success. In addition, a business plan does not have to take months and months to develop. If you have an existing business, you will already have most of the data that you need at your fingertips. If you are just starting out, it may take a little longer as you consider all of the parts necessary to complete your business plan.
For a new company, there are many reasons for having a written business plan. Writing a business plan helps you avoid mistakes that could cause your business to fail prematurely or condemn it to death before it ever gets started. A written plan helps you focus on the financial health of your business. It helps you focus on the sources of revenue, and it will make you aware of how much capital you’ll need to reach your goals. If you plan to raise capital from venture capitalists or even a bank, a detailed business plan is necessary in order to show that you have taken into accounts the risks associated with your venture.
A business plan can help you laser focus your efforts, it will show you where to allocate your resources based on the strategic goals and priorities you have established in your plan. Businesses that have written business plans may use them to get a loan, and then they often put them on a shelf and never look at them again. In reality, your business plan needs to be a living document, it’s a tool that you pull out quarterly and use it to review your progress against your year-to-date performance.
At the very least, it’s important that you review it annually. Once you review it, make changes to it. If you have discovered a new niche, then amend your plan to include this new area of your business. Go through the steps to project the potential revenue to make sure this is where you need to be. If it isn’t, curtail that effort and get back on track with the original plan. Think of the business plan as a road map that gets you from where you start to where you ultimately want to go.
A business plan helps you put a value on your existing business, which is called valuation. When you reach that point in your career where you want to let somebody else take over the reins of the day-to-day operation, having a business plan can help you establish a buy price for your business. Furthermore, it can help you establish a buy-in price if you decide to take on a partner or allow key employees to become part owners.
Do you need a business plan? Not really, but it’s a great idea to have one. More businesses that fail don’t have a business plan than those that do. It makes sense to error on the side of caution. It may take you some time to develop your plan, but the value of creating the plan lies in the process you go through researching your business, discovering what others are doing, and thinking about your business with a systematic methodology. All things considered, a business plan is a sound tool for your business toolbox.
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Andy Fracica is president and CEO of Fracica Enterprises, Inc., a consulting firm specializing in marketing, PR, social media, and lead generation strategy. He has over 30 years of sales, marketing, and product management experience in the heating ventilating and air conditioning (HVAC) industry. He concentrates on helping companies deliver their message in an ever increasingly crowded market by showing them how to do more with less($). Contact him at 260-338-4554, firstname.lastname@example.org or visit the Fracica Enterprises, Inc. website.