Few things inspire fear in the hearts of entrepreneurs the way the mere mention of “business plans” do. But developing a business plan doesn’t need to be intimidating.
After all, developing a business plan isn’t a “choice.” It’s a valuable step in the process of starting a business and it is necessary (if not required) if outside funding is sought – be it from the bank, private investors, or a venture capital firm.
Think of the business plan as a road map. It clearly defines all the steps necessary to get to the “final destination” – the establishment of a successful business.
This living, breathing document charts business projections over a short term (usually one to two years), including but not limited to, illustrating the route the company will take to maintain or grow revenues.
This map of one’s business future doesn’t have to be extensive. Each business is unique. Some ventures, by their very nature, may be more complex and, naturally, their business plans ought to follow suit. Be it a 20-slide PowerPoint presentation or notes on the back of a napkin, the important thing is to just “do.”
And even if outside funding isn’t in your company’s future, a business plan provides structure and discipline as to how one will take their idea and investment, and turn it into a reality.
“From a banker’s perspective, the business plan really serves as a communication source among partners with the bank or investors, and it also guides decision-making,” said Kathryn Barker, Centennial’s Senior Vice President of business banking. “If it’s effective, your business plan should help to control the degree of accountability in your business operations and reduce or eliminate some time-wasting or indecision.”
After one has achieved discipline initially, courtesy of a business plan, Barker also suggests going one step further: Revisit the business plan on at least an annual basis.
Barker outlines six key reasons to make this review an annual habit:
- It challenges one’s assumptions: “Have we achieved what we thought we could?”
- It measures progress: “Were our expectations realistic?”
- It assesses the latest needs and environment: “What unexpected surprises did we encounter? How will we respond to those surprises – with new hires? New equipment?”
- It identifies opportunities: “How can we gain market share? Where can we grow in the current market space?”
- It forces innovation and adaptability: “How can we grow in new ways? How can we do and be better?”
- It presents an opportunity to manage and mitigate risk: “What challenges are on the horizon? How can we address them to reduce our exposure to losses?”
Sure, it’s good to know “why” a business plan isn’t a take it or leave it element of starting a venture. But what should be included in a business plan? Stay tuned for the second part of “Business Plan Basics,” where we’ll walk through the essential elements to include in any effective plan.