I often get asked by new business owners one simple question: “Do I need a business plan?”
It’s a common question because new business owners have learned, for the most part, that business plans are an expected part of entrepreneurship. When owners ask me this question, my answer is typically yes, for the reasons outlined below:
- For start-up companies, having a business plan increases the chance that you will go into business. Apparently seeing the vision on paper is a good motivational tool.
- This can be a good exercise to help you determine if the idea is fully developed or even feasible. If not, then you may need to go back to the drawing board.
- Securing funding from folks other than friends and family- such as angel investors, venture capitalists and commercial lenders- almost always requires a business plan.
- A business plan is a good way to attract team members. It shows that you have examined the market for your product or service, identified potential customers and thought about the startup costs and what it will take to turn a profit.
So, in virtually all cases, a business plan is recommended. Usually, business owners will then ask me another question: “What should be included in the plan?”
There is no perfect template for a business plan. Different organizations have used different formats and have included different types of information. Overall, though, business plans have a few common elements across the board that all plans should try to contain, more or less.
This common list of items to cover includes:
- Executive Summary. What will the company do? Why is the company qualified to succeed? Make this part interesting to draw in the reader, who may be a potential investor. Using charts and images help to paint a picture for the reader.
- Industry Analysis. Include a market overview and size. Describe the customer and their specific needs that you will fill.
- Marketing. Describe the products and services, pricing and distribution.
- Competitors. Who are they? What are your advantages over them?
- Operations. This is the section where location, equipment, labor and processes are discussed.
- Management Team. Identify officers and directors, their background and how their skills will contribute to the overall success of the company.
- Financials. This is an educated guess of what will happen in the future. Break down the figures and make sure the estimates are realistic.
My general recommendation is to keep it 10 pages or less.
Also, keep in mind that business plans are not only for startup companies. Companies that have been in business for a few years may want to revamp their business plan to alter their strategy and priorities. This can help the company plan growth, manage priorities and track progress.
As you can see, business plans do have their benefits, the largest of which is probably putting your ideas and goals down on paper so as to better track progress and retain qualified team members and employees.
Before you go too much further down the road of business ownership, draw up a business plan. You’ll be glad you did.