Why a business plan is important and some tips to help you stick to your plan
Starting a business is an endeavor that requires abundant energy, planning and perseverance.
Many potential small-business owners will ask themselves, “Do I really need a business plan? I know what I want to do, so why don’t I just do it? Who’s got the time anyway?”
There are so many critical items to consider and producing a solid business plan forces the entrepreneur to focus, prioritize and commit their ideas to paper. In addition, any reputable lender or investor will generally require a comprehensive business plan before even considering a small-business loan.
Let’s be honest: Starting or operating a small business can be risky, and lenders won’t get on board just because you have a great idea.
A business plan is an absolute must for any start-up business. Make the time.
According to the U.S. Bureau of Labor Statistics, five-year small-business survival rates have historically hovered around 50 percent. U.S. Small Business Administration figures show a two-year survival rate of about 66 percent.
If one-third of small businesses will fail within two years and half will ultimately fail within five, doesn’t it make sense for entrepreneurs to maximize their chances for survival by doing everything they can to be ready for any eventuality? Be ready for the challenge; take the time to plan your path.
Aside from the company’s registered name and purpose, as well as it’s organizational and legal structure, a good business plan’s narrative should always include a comprehensive competitive analysis and marketing plan.
Do you know who your competitors are? What is your company’s value proposition? Do you have a true in-depth knowledge of the customers you’re targeting and how you will reach them? What’s the potential demand for your product or service? What marketing or distribution channels will you utilize? Will you work from home, or do you require an office or store-front? What about staffing issues? Where will you locate the best people for your business? How will they be compensated?
These are all important questions that should be addressed before you hang your shingle and get going.
In addition, if you’re looking for capital for your new business, lenders will generally require pro forma financials that estimate your anticipated revenues, expenses and cash flows. A break-even analysis is always a plus too.
So, you’ve put in the research and come up with your business plan – that’s step one. But anyone who’s ever put together a budget knows that creating a plan and sticking to it aren’t quite the same thing. You don’t want to just create a business plan and then set it aside; you must really follow it. So how do you stay on track?
1. Review your business plan at regular intervals
The most important tip is the most intuitive: Use it or lose it! Your business plan is not going to do you or your business objectives any good if it’s sitting in a drawer collecting dust. You should make it a priority to periodically review your business plan.
Don’t just skim over it. Actually, take the time to read your business plan from cover to cover. By reviewing your written thoughts, research, and projections, you’ll refresh your memory of what was important to you from the outset. You’ll be able to compare your plan with where your business is now and adjust to keep things on track. This is also a good way to revisit the plans and ideas that inspired you to start your business in the first place.
2. Know that all plans should be flexible
The best plans (business and otherwise) have a certain degree of flexibility. Whether your projected path has hit some bumps in the road or completely stalled out, it may be time to see if you should take a flexible approach to adhering strictly to the formal plan.
When you first write your business plan, you have no way of seeing what the future will hold – you’re operating based on your research and best guesses. And maybe things don’t pan out that way. Maybe the market drops, maybe it booms, maybe a trend takes off, maybe significant changes in regulations affect the way you do business. Maybe it’s as simple as you are selling a whole lot more than you expected! Sometimes, the original plan simply doesn’t fit the reality of the business world. That means it’s time to adjust for these new circumstances. Don’t be afraid to use your business plan as a jumping off point for bigger and better things.
3. Use your projections to help make financial decisions
When you were working on your business plan, you relied on projected numbers to estimate your goals and costs. You did the numerical research and crunched all the digits to put into at the start.
Part of the point of writing your business plan was to help you get a firm grasp on your business expenses and projected earnings. Review these projected expenses to see if you’re on track you’re your spending. Are your numbers in line with what you had predicted? If not, then use your business plan to help you cut back. If you have additional funds that are unused, then use those funds to supplement elsewhere.
You also used your business plan to make projections about future sales and revenue streams. Do these numbers add up to what you had anticipated? If these numbers are off, then dive into your business plan and see why. What can you do to make the math of your dream business a reality?
Comparing the numbers, you may find that your business plan no longer reflects the reality of the markets or the way your business has grown. That’s ok. Just refer to Tip #2 and update your plan accordingly.
4. Ask the professionals
Whether in business or in life, you don’t have to go it alone. There’s a reason that professional business advisors exist. You may find that market conditions have changed so much that you’re not sure how to adjust your plan. You may find that you’re far from your projections, but you can’t quite figure out why. You may even find that you’ve been a lot more successful than you expected and you’re not sure how to handle expanding this fast.
That’s where the professionals can help. Don’t be afraid to take your business plan to a qualified advisor to talk about where you are now and what the future might hold. If nothing else, it can be helpful to have an advisor look at your numbers. It’s easy to get caught up in the details and lose sight of the big picture and an advisor can help you adjust your perspective.
5. Use your business plan to set concrete future goals
Your business plan can help you turn lofty, estimated projections into concrete future goals. Measurable goals can assist your business in tracking your progress. Your plan may involve a specific sales goal within a year, for example, or getting a certain number of clients. You might also set goals for cash flow or repeat customers.
Take those goals and make them a part of everything your company does. Find some way to make your goals highly visible and make sure to reward your employees (and yourself) when you hit your mark.
6. Stick to the plan
You put a ton of work into your business plan – you did the research, thought hard about it, and put all your best ideas together into a roadmap for your company’s future. Don’t let all the hard work go to waste! Take these tips and use them to really build your business plan into your everyday operations. Use that plan to make sure you’re on track to help you adjust to changing market realities and to inspire you to meet your goals.
Now, this all may sound overwhelming, and you may be asking, “where do I even start?” Relax, help is available, and this is where WESST comes in. WESST offers one-on-one consultations with on-staff business experts to address specific questions and issues about starting and running a small business.
Reach out, get help and work the process. You’ll never regret investing the time up front to organize and develop this important roadmap for future success of your small business.