Entrepreneurs who are starting a new business often wonder, “Do I really need a business plan? Is writing a business plan really the best use of my time?” The answer to these questions is almost always, Yes!
A business plan is an integral part of starting a new business. A business plan is a very important strategic tool for entrepreneurs. The reality is that business plans take a long time to write. Moreover, it requires that you have a tremendous amount of data at your fingertips and compile financial projections even though a considerable number of entrepreneurs don’t have an accounting background.
Any person telling you they can write a business plan for you in a few days don’t know the first thing about a business plan. A business plan can arguably only be compared to a mini-MBA thesis. It is that comprehensive. It requires that amount of research and investigation. It will keep you awake at nights.
These days I have come across a few authors that advocate that you don’t need a business plan to be successful. They normally cite examples of well-known multinational companies that successfully secured funding without a business plan. I do agree that there are venture capitalist firms, and even private investors that will provide some level of funding without a formally-written business plan, but I have yet to, in my 15 years of operating in the South African and African markets, come across such investors. All of them, when you require funding (whether you are a start-up or existing company) require a business plan in support of your funding application.
The international trend in countries like the US and UK is that investors want a concise Investor Pitch Deck, which replaces the lengthy business plan, but honestly, this is still a written and well-researched document. So, whether you call it a business plan, pitch deck, or presentation, it takes time and considerable insight into both your business and the market in which you want to operate.
The honest fact in Africa (and this most definitely includes South Africa), is that if you want to apply for funding or require an investment, whether, from governmental or private institutions, you will need a Business Plan. You can’t get around this fact! There’s no shortcut. Unless you have a rich family member that throws money at you. Or, you recently won the lottery.
A one-page business plan – believe it or not – is an actual “thing” being presented to entrepreneurs in the market. But this won’t cut it if you need an investment from a third-party. This one-page document is nothing more than a Business Model Canvas (proposed by Alexander Osterwalder), which is a management tool that presents your entire business plan in a short and concise bullet-point format. But whether you visit ABSA, Standard Bank, Business Partners, the NEF, or the IDC, none of them will accept a one-page business plan as part of your funding application.
I can concede, that not everyone is sold on the usefulness of a business plan. Some also argue that taking the time required to create a business plan can stifle the startup process and cost precious opportunities for a small business. Some studies have shown that while completing a business plan is not a guarantee of success, it does indicate that the type of entrepreneur who completes a business plan is also more likely to run a successful business.
Related Reading: 8 Things You Should Never Ever, Ever Say To An Investor
Off course writing a business plan will not guarantee that you successfully secure funding, nor will it guarantee that you will run and grow a successful business. It’s like saying that if a complete my undergraduate degree in South Africa, I will automatically find a job. Well, the recent unemployment statistics released by StatsSA earlier this week clearly paints a different picture. More than 30% of the unemployed holds at least an undergraduate degree. And yes, there are hundreds of thousands that hold a master’s degree or Ph.D. that are also still unemployed. Unfortunately, a lot of external factors impact your success. And this includes your tenacity and characteristics as an entrepreneur. So purely blaming the business plan is premature.
Many business funding experts (including myself) agree that having a good business idea is not enough. Even excellent business ideas can be totally useless if you cannot formulate, execute and implement a strategic business plan to make your business idea work. If you’re looking to raise funds from institutional investors and lenders, keep in mind that having a good business plan is extremely valuable. You should aim to have a well-documented business plan that speaks for itself. It needs to be clear and easy to read and understand.
Unless commitment is made, there are only promises and hopes; but no plans ― Peter F. Drucker
Creating a business plan involves a lot of thought. You need to consider what you want to do, and use that as a starting point. It doesn’t need to be complicated. At its core, your plan should identify where you are now, where you want your business to go, and how you will get there. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure.
Here are 8 FACTUAL Reasons why you Need a Business Plan:
- To Raise Money for your Business: Potential investors or lenders want a written business plan before they give you money – FACT! A mere description of your business concept is not enough. Instead, ensure you have a thorough business and financial plan that demonstrates the likelihood of success and how much you will need for your business to take off.
- To Make Sound Decisions: As an entrepreneur, having a business plan helps you to define and focus on your business ideas and business strategies – FACT! You not only concentrate on financial matters, but also on management issues, human resource planning, technology and creating value for your customer.
- To Help You Identify Potential Weaknesses: Having a business plan helps you to identify potential pitfalls in your idea – FACT! You can also share the plan with others who can give you their opinions and advice. Identify experts and professionals who are at a position to give you invaluable advice, and share your plan with them.
- To Communicate Your Ideas with Stakeholders: A business plan is a communication tool that you can use to secure investment capital from financial institutions or lenders – FACT! It can also be used to convince people to work for your enterprise, to secure credit from suppliers, and to attract potential customers.
- A Business Plan Is Simply a Must-Have for Some Businesses: If you plan to approach a financial institution for a loan, apply for a small business grant, pitch your business idea to investors, or enlist the support of a business partner, a business plan is required – FACT! Potential investors and supporters want to see the true potential of your business idea clearly laid out in hard facts and numbers. A business plan is the best, and generally, the only acceptable way to provide this information
- A Business Plan Can Be a Reality Check: Writing a business plan is often the first real struggle for the small business owner who wants to launch a new venture but doesn’t want to consider that his or her business idea may be a bit flawed or is not yet fully developed – FACT!. While this is an unwelcome and terrifying thought for an impassioned entrepreneur, identifying gaps early on in the process gives business owners a chance to shore up their research, test their ideas and take steps to make the business stronger and more viable. This may initially be a step back, but any and all further work can bolster the entrepreneur’s chance of success before he or she invests time and money in a business that is likely to fail.
- A Business Plan Can Give You New Ideas: Discovering new ideas, different approaches, and fresh perspectives are some of the best things that can happen from the depths of the business planning process – FACT! Despite the sometimes negative reputation, a business plan isn’t just a long, stiff and structured document. In fact, an effective business plan is the opposite; it’s a flexible, growing and dynamic tool that can help you think creatively and come up with new solutions for some of your toughest business challenges. This is especially true when you consider the Marketing Strategy Section. Here, as you create a blueprint for your marketing activities, creativity and fresh ideas are invaluable.
- A Business Plan Creates an Action Plan: A business plan is a useful document for any small business owner. But when you use your business plan as a tool to help you outline action items, next steps, and future activities, you are creating a living, breathing document that not only outlines where you are and where you want to be but also gives you the directions you need to get there – FACT!
Going back to the original question of whether or not you really need a business plan, you may still be able to build a successful business without a plan, but it is most certainly easier to do with a well-constructed business plan in your hands. Keep in mind that if you are using your plan as a true business planning tool, you don’t have to wait until you have all of the answers to get started. You can create an outline of your plan now, filling in all of the information you have at this point, and then work on the blanks as you learn more about the market. This type of fluid and flexible document can be invaluable to a new business.