As a small business, do you need a business plan? In short, yes. But there is more to this answer, and note that people have different views and opinions on this!
We suggest that all small businesses have one of two types of business plans. Once you determine the type of business plan you actually need, understand that this plan is really a tool that can guide you and your company throughout its life.
So, yes, small businesses do need a business plan. Below we dive into the different types of business plans, provide a few reasons for writing a business plan, and then some questions to consider to get started.
Types of Business Plans
Ultimately, a business plan is a roadmap and/or a trajectory that moves your business in a direction. It serves as a foundation, helps determine goals, clarifies values and purpose, and most importantly will help you determine whether it is even a good idea to start the business at all. But, not all business plans are the same!
- Type one: a map and a tool to get funding (ie. financial projections)
- Type two: just a map
To determine what type of business plan you need, ask yourself, ‘Does my concept need funding, a loan, and/or investors?”
Note that, both business plans are equally important, they just help accomplish different goals! So, yet again, all businesses need a business plan.
Type One – Companies Needing Funding?
Will your business need a large sum of money prior to getting started? Will you need to get investors and/or do you need to take on a loan? If so, you need a business plan with financial projections. And sorry, this is the type of business plan that can feel… daunting.
However, it will be next to impossible to get a loan or investors without one. (It is rare that people just want to hand over thousands of dollars. They want to make sure you have a plan to use the money and how it will yield a return).
Pro Tip: Inc. has a fantastic explanation of how to write the financial section of your business plan!
Type Two – No Funding Required
Now if your business does not need investors or a small business loan to get started, you will still need a business plan. But the goal for this plan is to really establish the concept, make sure your heart is invested (because honey, it will not always be rainbows and unicorns, and your motivation and excitement will eventually dwindle).
This type of business plan is more for you to set goals, take action, and keep moving forward.
Reasons For Writing a Business Plan?
Even if you are the only person to read the plan, having one will help improve your chances of success and avoid making serious mistakes!
Pro Tip: Get input from a number of other people with business experience.
But one of the biggest benefits of writing a business plan is determining whether or not you should even start the business in the first place!
I cannot tell you how many times I have seen a person or persons finish their business plan and discover that the company will not actually work. Learning this before you invest time or take on loans is SO. INCREDIBLY. IMPORTANT!
You may also discover that the business can work if a different plan of action is taken! Again, this will save you from unnecessary heartache, stress, and pressure.
Questions to Consider
Now that you understand you need a business plan, it is time to start asking yourself some questions to get started!
- What does it take to succeed in this type of company?
- What skills do you (or team members) need in order to produce a product or provide a service. have the skills and background necessary for success?
- Can you afford to take the risk? What effect would the business’ failure have on you and your family?
- What is the growth potential for the business? Can it meet your financial expectations and requirements?
- Be realistic here. If you are selling a service, and your fee is hourly, remember that at least half your time will not be billable! You need to make sales, first!
- Is there a large enough market for your products/services? Not all products and services succeed in the competitive marketplace. The planning process helps you identify the best target markets for your company and estimate the size of these markets.
- Will you enjoy owning and managing the business? Are you a good fit personally for the uncertainty-filled life of an entrepreneur?
- What is your end goal for the company?
- What steps do you need to take to reach the end goal?
- When do these steps need to be taken? (Some need to happen immediately, like setting up a website! While others may happen five year from now, like choosing a location for the company!
- Does your company require startup capital? If so, how much? Does that capital include a salary for yourself?
- Who is your ideal customer? How are you planning to reach them? How have similar companies reached the same customer?
When you’ve finished researching and creating the business plan you may realize this particular business isn’t for you. You may determine that the company will require much more capital than you have available. Or perhaps the final concept of the business will take a different–and more exciting–turn from what you originally thought. If the conclusion of the plan is that the business does not have as much potential for success as you originally thought, it’s better to change your mind now before you’ve invested time and money in company that isn’t profitable or you do not enjoy.
Creating a business plan is a critical step to creating a successful business. It provides a clearer picture of the risks and potential rewards of your venture. So back to the original questions, “Do I need a business plan?” Yes!