28 Feb I know what I’m doing, so why do I need a business plan?
I was recently asked of the benefits of a business plan and if was really necessary? For many small business’s the components of a business plan seem intrinsic and don’t see the point of documenting what is second nature and reflex to their thinking. The deeper questions are what constitutes ‘second nature’, how can you be sure you have considered everything and most importantly do you have all aspects under control. In many instances, you may think you know it all or realistically know what is needed but it is not until you take the time out to construct the business plan that you ‘open the window’ to many operational issues both current and future. As a minimum a business plan compels consideration of aspects you may not have thought relevant. In effect, it creates your own personal due diligence.
Another fundamental benefit of a business plan is that it creates an accountability tool to track your progress. This is particularly relevant to owner/founders who realistically are self-accountable in a start-up phase. Again the business plan will force the discipline of confronting all aspects your goals and benchmarking your progress. Further it should help you to weigh up your goals and prioritise their execution.
It also goes without saying that if you are planning on expanding at some stage you will need a business plan to provide that ‘credibility piece’ to private lenders, bankers or perhaps even private equity down the track. Many people understand and appreciate this point but a business plan goes much further than a lending credibility document and should be viewed and used as such.
In the same sense as providing a credibility piece for attracting funds it can and should be used in much the same way to attract talent, alliance partners and key suppliers. This again is particularly relevant in a start phase when the experience and historical legacies from reputation are not prevalent to be appreciated by new partners.
Another answer that I like to highlight is the situation confronted when growth necessitates expansion; – how do you align your new ‘partners’ (employees) to what has always been your fundamental thinking. A well-constructed business plan will greatly assist alignment of new team members and strengthen their psychological contract with the business. In essence the business plan is a fundamental piece of your human resources set. Without it your employees are arguably directionless as to the business goals and raison d’etre.
Further reason for a business plan is that it forces the creation of a financial and marketing plan, which are fundamental. Without these a business has in my opinion almost no chance of a long-term sustainable future. For the lucky ones these skills are second nature and application is a pedestrian exercise. However to many these may not be traditional skill sets and will probably require external expertise. Accordingly by confronting and in turn creating the financial and marketing plans you are affectively creating milestones and benchmarks to monitor your progress.
In summary a business plan is an invaluable tool, which provides a 360-degree evaluation of your business. It can highlight overlooked weaknesses and risks but also can reveal significant opportunities and/or structural advantages. It is important to remember that it is not just used as a base document to secure funding but provides a suite of useful tools and will force you to think about issues you might not have otherwise considered.
The next question you may ask is so what is in a business plan and how to create one? Stay tuned for a further update where we will explore these very questions.