Why You Need a Business Plan
As a small business owner, you may be tempted to skip the step of writing a business plan. You may think you don't need one or that it's not worth the effort. Or you might be a rebel entrepreneur who doesn't like to do things like everyone else. But a business plan is essential for success. And especially for a small business.
A business plan is a roadmap for your business. It helps you clarify your vision, set goals, and measure progress. A business plan gives you focus and direction. And if things don't go according to plan (and they never do), you can course-correct more quickly and effectively.
So read on and learn everything you need to know about why writing a business plan is essential for your business.
The Benefits of Writing a Business Plan
A good business plan will take some time and energy to create. You'll need to sit down and think, write, research, plan, and make decisions. If you're a planner, like me, then that sounds like heaven. If you're not a planner like so many entrepreneurs I meet, this is the last thing you want to do with your time. You'd rather meet with clients, create new offers, or tweak your website.
But there is an ROI (return on investment) to writing a business plan that is often overlooked because we're taught to measure success but dollars alone. And while your business does solely exist to make money, how you make that money matters—deciding the why, when, who, what, and how of making money in your business is how you make more money. And this is what a business plan is all about.
The reason for writing a business plan isn't just to have one. It's about the work that goes into it and what you choose to do with the plan once it's created. The benefits you get from doing the work of writing the plan are as valuable as the plan itself. And the best part is the more you do it, the bigger the gains. Following are some of the most significant benefits of writing a business plan.
A business plan makes decision-making easier.
You're making decisions every day in your business, and each one sends your business in a specific direction. Many small business owners get decision fatigue and worry endlessly about making the right decisions. And, without a business plan, your choices are based on your best guess, the opinions of others (who often have little to no business expertise), or whatever the latest trends may be.
Decisions get more manageable when you have a business plan because your plan serves as a guide. You made some critical decisions when you created the plan, and this gives you something to weigh all other decisions against. When you hit a fork in the road, you can review the roadmap to help you decide which direction to take. And while this doesn't guarantee every decision will be the right one, it will improve your success rate in making the right decisions.
A business plan establishes priorities and creates focus.
There's a never-ending pile of work and no lack of ideas to try. And this can cause you to feel overwhelmed. It can lead to procrastination or hasty decisions. How do you know what the right work is in any given situation?
A business plan clarifies your priorities by establishing specific goals and milestones for your business to achieve. Having clear goals makes it easier to decide what work takes priority daily, weekly, or monthly.
A business plan reduces risk.
You knew there was risk involved when you decided to start your own business. But sometimes, that risk feels overwhelming and can make you hesitate. You try to avoid the risk, which leads to a lack of growth in your business and keeps you from achieving your goals. And while a business plan can't eliminate risk (nothing can), it can help you reduce risk in your business.
Creating your plan includes doing research and analysis so you can identify the best path forward. This will help you identify potential risks early so you can create a plan that either avoids them or mitigates their impact on your business. This work alone will set you apart from your competitors who are still winging it and getting bombarded with risks without a plan.
A business plan accelerates growth.
I see businesses of all sizes take the spaghetti-on-the-wall approach and hope one of their ideas will stick. Big companies sometimes get away with this because they have more resources (people, money) to afford a mistake here and there. So while this approach may not cause their business to fail, it's a slower path to growth. And for some, this lack of a plan eventually leads to their downfall.
As a small business owner, you have limited time and resources, so you can't afford to take this approach. You don't have room for many mistakes and guesswork because there's very little or no safety net to support you.
When you create a business plan, you design the best path for growth based on research, critical thinking, and your expertise. You determine a specific strategy for growth that helps you align your time and effort to doing the work that you know will move the needle. Not every plan works out perfectly, and not every decision you make in your plan will work out. But when you establish a plan for growing your business, you don't waste time on guesswork and instead focus on proven growth strategies for your business.
A business plan builds confidence.
It's not easy being a business owner. Some days it feels like there's so much you still need to learn, and it can take a hit on our confidence.
Creating a good business plan doesn't come easy, but that's actually good. Just like any new skill, you have to work at it. But even a weak business plan will beat having no plan because your work helps build your business acumen. And as you get smarter about running your business, you get more confident about its long-term potential.
A business plan reduces fire fighting and hustling.
Every business has problems, gaps, and obstacles. But many go unseen or unknown because you're so busy fighting fires and hustling to get that next client. Doing a gap analysis or assessment of your business feels like a luxury. But it's the only way to get out of the endless cycle of fire fighting and hustling in your business.
Your business plan provides a clear picture of what you intend to happen. When comparing the plan to what's currently happening, you have identified a gap. Now you can design ways to get things back on track and close the gap. Instead of scrambling for solutions, you can take a targeted approach. And this is how you determine the root cause of the fires so you can do more fire prevention and less fire fighting.
A business plan helps you pivot quickly.
If we've learned anything in the past couple of years, it's that we need to be ready for anything. Some would say there's no point in making a plan with all the changes happening every day. But a common misconception is that once you establish a plan, it's set in stone.
Your plan is a roadmap, but there's more than one way to get to your destination. You chose a specific route when you created your plan. But as you encounter obstacles and changes, you may need to take a detour here and there. Your plan helps you make these quick pivots easily while still staying the course to achieving your goals. Without a plan, that roadblock can send you heading back in the direction you came and set your business back.
A business plan keeps the shiny squirrels at bay.
Your head is full of ideas. Everyone has an opinion. And there's an entire industry built around the fact that you're searching for solutions and are offering them up daily. It's tempting to chase after that shiny new idea. It's not uncommon for business owners who have reached a level of success to want to start something new, especially when they're feeling unmotivated and have lost interest in their business.
More often than not, I see small business owners try to chase the shiny squirrels before their business is ready. Achieving some success isn't the same as achieving stability. But with a solid business plan, you can create the stability your business needs and plan for your future shiny objects. Having a plan will keep you grounded in what's needed and prevent you from getting distracted before you're ready to launch that new program or start that second business.
A business plan helps you build the business you want.
Your business has one job to do - make money. But you're trying to do more with your business. You want to make a difference and have more freedom. So how your business makes money matters. Deciding the why, when, who, what, and how of your business is the path to making more money. And this is what a business plan is all about.
Your business can quickly end up in a place you didn't intend. I see business owners with profitable businesses that are miserable because they didn't pay enough attention to HOW their business was making money. With a good business plan, you can create a business that aligns with your wants while also delivering the cash flow you need.
What the Data Says
Those benefits alone make business planning seem worth your time. Who doesn't want to have clear priorities, build confidence, and make decision-making easier?
But even with all those benefits, it's still good to have some solid data to back it all up.
So, here's what some studies have shown when it comes to business planning and business success:
- Businesses that completed a business plan were twice as likely to succeed in growing their business versus those with no business plan.
- A study of 135 small businesses showed that those that planned outperformed businesses that did not plan.
- Business planning for small businesses has a stronger positive effect on the performance of established companies than it does on new ones.
- Another study on small business failure in the U.S. found that very little formal planning is done.
- That same study found that successful businesses did more planning than similar businesses that failed.
Business planning is a critical component of success for any small business. By taking the time to develop a plan, you are building your confidence as an entrepreneur and putting yourself in a much better position for achieving rapid growth.
Ready to Learn More?
Before you start to work on your plan, let me help you get a leg up on the process.
Download my free guide on the top 10 mistakes to avoid when creating a business plan and start putting your business on the path to success today.