Is A Business Plan Essential?
Most people today have at one point or another heard of a business plan and have most probably been told or believe that a business cannot succeed without it. But can’t it really? Before we can answer this question we have to explore the benefits followed by the downside of having a business plan.
There are several advantages you can realise from developing a proper business plan.
Source Outside Funding
If you have ever walked up to any individual or an establishment with the intention of seeking funding for your business project, you will agree that they do require a business plan. In fact, you cannot realistically get a business loan if you have not committed your business idea to paper.
But then again, we should never say never, right? So yes, it is possible to get funding for your business venture without a proper business plan but the chances of this incredible fortune falling your way are slim to none.
People and organization who furnish capital need to see your business plan so that they may sleep well at night with the reasonable assurance that you are committed to seeing you business idea through. Furthermore, a business plan is one of the few ways you can demonstrate the financial viability of your business concept.
Communication is crucial for business and it is not easy to convince people that what you have between your ears is the equivalent of gold at the end of a rainbow. You might be a very believable individual but people will have a hard time believing you just by word of mouth.
A business plan articulates your business idea in a manner that people, other than yourself can analyse. The ability to communicate an idea in writing is one of the strong suits that a business plan will bring to the equation and allow you to meet the needs of the various stakeholders.
Gaining Market Insights
In Sun Tzu’s “The Art of War”, he says, know your enemy and yourself and you will not face defeat in a hundred battles. I know, I am going all medieval on you! But that is what the market is; a battleground.
A business plan typically has a section called “Market Analysis”. In this section you do what actually amounts to spying on the competition. You gather intel on who you consider to be the big fish in your business pool and formulate a strategy on how you will ultimately triumph over them.
Allows Focus On Strategy
Speaking of strategy; You can either run your business strategy from your head or you can put the play-by-play on paper and execute from there. The good thing about writing things down is that you are not running your business according to the whims and winds of the day.
If you have a written strategy, you will be more structured in your approach and demonstrate more focus.
Allows For Financial and Performance Projections
Financials are critical to the success of a business and it is to your advantage to be able to perform financial analysis with in respect of your business. A business plan, just as it is with strategy, forces you to take a structured approach to your business finances.
Financials are one of the few things that are difficult to execute with a mental approach. They are best put down in writing so that you can tease out trends and spot outliers.
Provides Broad Eye View of Business
If you have your business idea just in your head, it may not be easy to appreciate the nature or scope of it all. This is something that a business plan can help you to take in the big picture. The structured nature of a business plan allows you to have a broad overview.
Allows Setting of Goals, Priorities and Identification of Key Metrics
A business plan allows you to set concrete goals and priorities as well as develop metrics- these are the measures, that will allow you to gauge progress.
I talk about measuring quite a lot and some may say I am a little obsessed about them. If I am, it is only because it is crucial to be able to measure progress with the end-view of making things better.
I have never in my life know anything that is without disadvantages. If you have, I would like to hear about it. And as you can rightly guess, business plans are not all about benefits. Some of the shortfalls follow.
I have written my fair share of business plans. Some for myself and some for friends and family. If you have, you will agree that it does take a chunk of precious time.
There is the research to be done, the writing and rewriting, the incorporation of charts and tables, production of several drafts - the list goes on. Simply put, writing a business plan can be a daunting, exhausting and time consuming task.
Costly To Produce
Even if you are not paying anyone to produce a business plan. It is a costly affair. After all, they say time is money and as we have just established, producing a business plan costs dearly in time.
Most people are not adept at writing and will rely on the skills of someone else, whom they often pay to produce a business plan on their behalf. And so, yes, in most cases it will cost highly in both time and money.
Narrow Focus and Not Dynamic
It is preposterous to imagine that all the likely scenarios for a business can be adequately represented on a twenty-one-or-so-page document. Often the focus of a business plan will be so narrow that it ignores important considerations.
Furthermore, a business plan is essentially a static document. Even if it is editable, it holds primarily the same ideas in subsequent versions, despite the changes. This tendency makes it less adept to the dynamic circumstances on the ground that are ever-changing.
Based On Assumptions and Guesstimates
As useful as a business plan may be in some respects, it is highly inadequate due to its weak basis in facts. A large proportion of the document is based on assumptions and guesstimates which may have little bearing on the facts and therefore not significant to, if not adversely affecting the process.
It is said that a high level of risk may be a good thing for a business. After all, the saying goes that “High Risk = High Rewards”. This does not apply all the time but it does ring true often times as long as the risk is within the realm of calculated risk.
A business plan is often risk averse, as it tends to focus on minimising risk at all times when sometimes a higher degree of risk may be just what the business needs and can yield high positive returns because of it.
Is It Really Essential?
The short answer to this question is No. A business plan is not essential to the success of a business but depending on your particular set of circumstances you may find that it is necessary. Whether which way applies to you depends on your unique situation.
There are some generalizations I can make however. If you are planning to start a self-funded small business, then writing a business plan is cool but you can probably do without it. You might be thinking, but what about the advantages we just went through. You will notice that most of those advantages had to deal with structure and high levels of structure are probably not desirable for a small business. You might actually benefit more from living in the moment if you are running a small enough business; but cautiously , I might add.
Conversely if you are looking for external funding and you are going to execute at large scale where scale is an integral part of the equation, then a business plan is necessary. You will need a great business plan to blow your lenders or investors out of the water and will also need to rely on the structure that a well developed plan will bring to your business in order to manage scale.
Perhaps the most important point to take away from this discussion is that the measure of how essential a business plan is to a business is only limited by the level with which it is applied. I often see people produce business plans just for the sake of having one when they do not plan to follow through or just writing a business plan according to a template when the final document has no resemblance to the business itself. If you go about a business plan this way, then I have bad news for you; you are wasting your precious time and can do without it.