You’ve got a great idea! It’s new and different! You can do this better than anyone else! You’re excited and ready to go! And then, someone mentions a business plan…. It’s like watching a balloon deflate.
You don’t want to write a business plan? Well, you’re not alone. Business plans are not the fun and exciting part of starting a business. If you google “why not to write a business plan” you will find a slew of articles and books that give reasons why business plans are a waste of time. Some of their reasons are valid, but there are some very compelling reasons why writing a business plan will help you succeed.
Here are my top three reasons for writing a business plan:
1. It helps you define what is success to you.
2. It gives a fact based estimate of how much time and money is needed start making sales.
3. It acknowledges the risks and rewards in the venture.
But first, let’s look at what a business plan is and is not.
What a business plan is – and is not!
A business plan is a reality check on your idea, it is not a road map to follow without deviation! Business is no different than the rest of life. There will be unexpected, unanticipated issues and costs that will cause you to reevaluate your plan. What your business plan is, is a structured way for you explore both the exciting and the mundane aspects of your venture. If at the end of writing the plan you are still jazzed, then go for it! If not, it’s time to reevaluate. The business plan forces you to put down on paper why your idea is the next best thing and why you are the perfect person to do it, right now! You will also put on paper the top roadblocks in your way, how much it will cost and what you need to do to get your successful outcome. For many people, this is their first time thinking about the business side of their idea. It can be daunting and there are a lot of pieces to a good plan. Always give it a shot, then decide if you have the expertise to write a useful plan or if you need help. If you decide you need help there are different avenues for you: you can hire someone like me to help you, or you can download a template from an online resource. The online resource I recommend is from Score – US Small Business Administration.
What is Success?
The most important thing a business plan does is clarifies the worth of the business. It defines success for you and your partners. It doesn’t answer the question: Can you make this (whatever this is) better than anybody else? It answers the question: Can you make enough money selling this to make the project a success? The definition of success is unique to you. For some, it means the project will pay for itself. For others, it means it will generate enough to replace their current income. Spend some time determining what will make the venture a success for you and the other people involved. Ask your business partner, your domestic partner and your investor about their expectations. You may be surprised by their answers. Once you have your definition of success, you’re ready to work on your expenses/sales forecast (otherwise known as the dreaded spreadsheets). So, instead of forecasting how much money you can make if everything works perfectly and there are no surprises, forecast what it takes to be successful for all participants. If you can make that work, everything else is gravy!
Starting a business takes money and time.
How much money, and how much time will it take to start your business? These are questions your business plan needs to answer. While it’s tempting to start by looking at how much you can sell, and consequently, how much you can make, I suggest starting by estimating how much it will cost to get started. Once you have that, forecast what it will take to get to the success point. Start with the bare necessities, but use market rates and costs unless you are certain you can do it yourself without sacrificing quality. Forecast your expenses out several years, but not more than five. For some industries, like the wines and spirits industry, you will need to pay for one to three full years of expenses before you start getting any revenue. For a restaurant it may take 6 months before you’re doing more than just covering costs. Can you afford it? If not, what are your solutions?
Determining how much time it takes to start your business entails more than looking at your personal time for the project. Many businesses, like wineries, have a yearly cycle for operations and sales. You need to know what that is and where you are in the cycle. If you start now, are you going to be ready for harvest, or the holiday season, etc? What happens if you miss the peak sales window? When are the trade shows for your industry? How long will it take to get all of your licenses? Answering these questions will give you a better understanding of the business and make it easier for you to adapt when the unexpected happens. Because it will.
Business is risky!
There is no sure thing. Even the best businesses involve risk. A business plan helps you honestly assess the risks of your proposed business. The “risks” part of your plan highlights what you know and do well, while acknowledging your weaknesses and the information and resources you will need for success. This is often the most difficult and underutilized part of the business plan. You should layout what you think are the most likely risks and roadblocks to success. Objectively analyze your competition and highlight what you will do better or differently that gives you a competitive advantage. And, layout what you will gain when this project is successful.
If you are seeking outside funding, this is a crucial piece of your plan because you are being transparent of the financial risks involved in the venture. After writing this section, if you are still confident in the success of your project that’s a sign to move forward. If not, you should reevaluate your financial commitment to the project. Can you afford to lose the money you will spend based on your projections? And, what is the likelihood of that happening?
After writing the business plan you should have a clear plan forward. You have looked at the risks and the rewards, determined the capital and time needed and clearly defined what success will look like for you. Now you have something to share with friends, family and potential investors that is well thought out and clearly explains why this project is a great idea! Use this plan as a working document. Make changes as needed and keep track of how closely your forecasts lineup to your reality. When you look back, you’ll find that writing the business plan was well worthwhile.