Wednesday, October 29, 2014

3 Simple Reasons to Write a Business Plan

I recently got invited to speak to an entrepreneurship class at Washington State University in Pullman to discuss reasons why I am in favor of business plans.  The students were engaged and had a lot of great questions and even more exciting, many had plans to start a business someday and a few already had.

Instead of just giving an explanation of why I think business plans are important, I kept it to three short reasons, and added four red flags that I frequently see in business plans.  One question we often get is, "How many pages does it have to be?".  There is no right answer; it depends on the complexity of the business and purpose of the plan.  I have read over 100 business plans and would rather read a well-written succinct plan than one written to fill a certain number of pages.

Here are three simple reasons that I encourage my start-up clients to prepare a business plan:

1.  Credibility
In preparing a business plan, the writer needs to tell a story and clearly describe what the business does, who the owners are, what problem it solves or need it fills, the market opportunity and financing requests.  Putting a plan into writing adds a level of credibility and shows that the writer is serious about moving forward, rather than just thinking about it.


2.  Research
Developing a business plan is a great exercise for business owners to think through all phases of their business.  The exercise of writing a business plan is often times more valuable to use as a feasibility study than the plan itself.  For people that are thinking about starting a business, starting with financial projections can be an excellent way to evaluate the feasibility of going forward with a business idea.


3.  Funding
If you will be seeking any sort of outside financing, a lender or investor will want to see a business plan, or at least an executive summary.  A bank wants to see the strength of the team, what kind of market opportunities exist and most importantly, financial projections that show how the loan will be repaid.

There are numerous online free classes and templates on writing a business plan.  One other peice of advice is that business plans should be fluid documents, meaning I suggest using it as a strategic plan once the business is up and running.  Owners can use it to revise internal sales goals, plan for growth or look at new markets like exporting or government contracting.  SBA.gov offers an easy-to-use online portal where one can write a plan online.

Here is an excellent infographic created by the Washington State University Online MBA Program on business plan essentials.