Writing a business plan? While it is hard to argue against the idea of writing a business plan, experience tells me very few business owners actually write one. I've been told by business owners that a business plan isn't relevant to their business.
There's a good reason why business planning is often put aside, but rationalizing it as irrelevant is risky business. While creating a business plan is something every entrepreneur is wise do, they often don't because it is a unique skill set that they don't invest time in learning how to do. In their minds, it seems to be an exercise for the academics not people of action.
Business planning, hey, it's optional. At least that's the attitude of nearly all the seasoned entrepreneurs and micro-business owners whom I encounter. Running by the seat of their pants is their way of life. Perhaps that explains why the failure rate of small businesses is so high.
Candidly, if taxes didn't have to be paid, I wonder how many small business owners would have a financial and accounting system in place! Because the IRS likes to be paid and has means of enforcement to be paid, bookkeeping and accounting is done.
So what is the purpose of a business plan?
There are three types of business plans:
- Financing business plans are done to obtain financing from either investors or lenders. These business plans tend to be formal. Most business planning software leans in this direction.
- Functional business plans are more operational or oriented towards helping team members get on the same page. These blueprints for the business are informative and best used for internal use, direction, and communication.
- Strategic business plans are very useful, for example, for taking your small business ideas and transforming them into a business model. These can be very informal—notes on a yellow pad or napkin—to PowerPoint presentations to more formally written documents.
The purpose of a business plan really depends upon the audience for whom it is written. Strategic plans are best written for the writer of the plan to gain insight and clarity. This enables the entrepreneur to capture thoughts and sort the various elements of a business into an orderly approach. Functional business plans involve engaging the team. There is a certain amount of assumed inside knowledge. Financing business plans are targeted toward outsiders to attract investment.
Creating a business plan is something every entrepreneur should do, but you need to know why you are writing the business plan and the audience. Sadly, I've seen far too many start-up organizations buy business planning software and invest months writing it. The process of doing their market research, developing cash flow statements, defining their organizational chart, etc. is useful, but is the marginal return on investment worth it?
Practically, it is rarely as valuable as the benefit of having a simple business plan and getting started. There's nothing quite like opening the doors on a small scale and learning from the market. This said, if you have only one part of a business plan to get right—put together your business marketing plan.
On-Purpose Business Tip: The Service Model from The On-Purpose Business Person provides a simple business plan template to provoke thoughtful inquiry and usefulness.