Why Write a Business Plan?

Entrepreneurs who invest time and effort in writing a business plan are six times more likely to succeed, according to the US Small Business Administration (SBA).

“The bottom line is: if you are actively starting a business, do a business plan.” This is the perhaps blindingly obvious conclusion of research by the SBA published in 2008. Every year 7% of the US working population are engaged in some sort of entrepreneurial activity, setting up new business. They might have lots of great ideas and good intentions, but many of these ventures are never realized. The vast majority of those which founder lacked any form of formalized business plan.

Preparing a business plan seems like hard work, and it might feel like a poor investment of time. Many are written begrudgingly for the sole purpose of satisfying a bank or investors, but the process of putting a plan together go far beyond satisfying the demands of those holding the purse-strings.

A good business plan will define the commercial or other objectives of the venture and preparing it should shine a spotlight on the major issues that need to be addressed.

We tend to have a natural inclination to be over-optimistic about the potential of new ideas; it’s easy to imagine lots of satisfied customers and the dollars rolling in. Unfortunately, as experienced entrepreneurs know, over half of all new enterprises fail within their first five years and while the reasons are varied, the process of building a well-considered business plan will have identified and dealt with the most obvious ones.

A good business plan will provide answers to the following questions:

– what is the objective of the venture?

– what is the product being offered?

– how will this product be marketed?

– what are sales expected be in the first month/first year?

– how much does the product cost to make or buy, and what are the other overheads of setting up and running the venture?

– when will the venture start to turn a profit and how much profit will be made?

There are many books and website full of advice on how to prepare a business plan. In the US the SBA provides a wealth of resources, and in the UK the Business Link website is packed with relevant information and guides.

No one, other than the extremely foolhardy, sets out on a journey without having a good idea of where they want to get to. This applies just as much in business as in any other area of life. The process of preparing a business plan helps the entrepreneur to define where they want to go, to turn that ‘good idea’ into a viable commercial opportunity.

Without a good business plan the risk of getting lost along the way are much higher. The plan does not guarantee a successful business, but as the SBA research also discovered, time and energy invested in the plan was never detrimental to the business.

Leave a Reply

Your email address will not be published. Required fields are marked *